Federal Way cuts gambling tax in half; casino will reopen this summer

PJ Pockets Casino, located at South 324th Street and Pacific Highway South, closed its doors May 3. - Andy Hobbs/The Mirror
PJ Pockets Casino, located at South 324th Street and Pacific Highway South, closed its doors May 3.
— image credit: Andy Hobbs/The Mirror

Federal Way's gambling tax rate was sliced in half June 1 in an effort to save P.J. Pockets Casino as well as tax revenues generated from the business.

The city council voted unanimously, with member Jack Dovey absent, to enact an emergency ordinance to change the city's gambling tax, as it applies to card rooms, from 20 percent of gross gambling receipts to 10 percent. A unanimous vote was needed to pass the ordinance as an emergency measure. The new rate will go into effect June 6.

The council also discussed altering the tax rate on pull tabs, but could not come to a unanimous decision on how that rate ought to be adjusted. Some council members preferred dropping the rate from 5 percent to 4 percent, but others favored lowering it to 3 percent. The issue will return to the June 15 city council meeting.

Card room rates

The decreased tax rate on card rooms will reflect a drop in gambling tax revenues collected by the City of Federal Way. There are 18 gambling establishments in Federal Way, but P.J. Pockets is the only card room. It's responsible for approximately 75 percent ($840,000) of the city's gambling tax revenues, finance director Tho Kraus said. The city budgeted for about $1.1 million in gambling tax revenue for 2010, city manager Brian Wilson said last month.

Reducing the tax on card rooms means the city stands to lose approximately $420,000 per year, based on revenues generated by P.J. Pockets in 2009, Kraus said.

Losing some revenue is better than losing it all. The emergency ordinance was passed to preserve one of the city's small businesses, but it was also taken as a measure to salvage a portion of the city's tax revenues generated from P.J. Pockets.

"If these businesses go out of business we lose totally; we go down to zero (gambling tax revenues)," deputy mayor Dini Duclos said.

Federal Way resident James Simpson disagrees. He spoke publicly at the council meeting.

"I strongly believe the proposal should be rejected because I just don't believe that a credible case can be made that we residents, as a whole, will be better off," Simpson said. "It seems to me you're being backed into a corner by a demand for emergency decision-making. I do not believe that a rush to save a failing business at all costs without careful study is the way the council should act."

P.J. Pockets closed May 3 after taking measures, such as laying off more than 20 employees and closing up during the daytime hours, to stay in business. The economy has drastically impacted the casino's business in the past few years, co-owner Steve Griffiths.

"We took a lot of drastic measures to try to stay in business," he said.

Before Griffiths learned the council would consider changing the gambling tax, he planned to sell the casino. Griffiths now promises the casino will reopen later this summer following the tax rate change, which will make it more affordable to operate his business. Griffiths needs roughly a month to rehire staff, train any new employees and work with the Washington State Gambling Commission to reopen, he said

To reopen, P.J. Pockets will hire at least 85 employees — the number of staff supported right before the casino closed. Many of those hired will be employees who were laid off in May. Eliminating the day shift was not as financially lucrative as Griffiths expected, and he plans to reopen the casino during the day as well. This could mean he hires up to 120 staff members.

Deterring gambling venues

In 1998, the city's gambling tax ordinance was raised from 11 to 20 percent, the maximum allowed per state law. The measure was taken to halt the proliferation of gambling activities and establishments. At one time, Federal Way had five card rooms, and city leaders worried about the venues' clientele breaking the law.

The average tax for similar card rooms is about 9.9 percent, according to the Washington State Gambling Commission. Neighboring cities have rates around 10 and 11 percent, for the most part. City council member Jeanne Burbidge desired an 11 percent tax rate, but agreed on the 10 percent so that the ordinance could pass as an emergency and be enacted this month.

The city council will discuss changes to the pull tab rates at its 7 p.m. June 15 city council meeting at City Hall, 33325 8th Ave. S. If the tax leveraged on pull tabs is adjusted, the new rate will go into effect Aug. 1.

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