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LAS VEGAS-Nevada teachers will stop stumping for a ballot initiative aimed at raising taxes on casinos’ gambling win to pay for higher teacher salaries and other educational improvements in exchange for support from three major casino operators for a higher room tax in its stead.

The Nevada State Education Association this week it had reached the agreement with Harrah’s Entertainment, Station Casinos, and Wynn Resorts Ltd. Included in the negotiation were key members of the legislature and the governor, according to the NSEA.

The ballot initiative would have raised the state’s tax on large casinos to 9.75% from 6.75%, a 44% increase. The compromise calls for the three casino operators to back an advisory question related to the hotel tax on this year’s ballot, and to encourage the Nevada legislature in 2009 to raise the room tax as high as 13% from its current 9%. A tax increase would require a two-thirds majority of the legislature and would raise an estimated $180 million in its first year. And with $30 billion of construction creating tens of thousands of new hotel rooms over the next few years, that figure would grow quickly.

Unlike an increase to the gaming tax – which polls had found most Nevada voters support — casino operators would pass the room tax along to customers. In a note to clients this week Deutsche Bank gaming analyst Bill Lerner said an increase in the tax on gaming win by casinos would have resulted in an estimated 6% decline in EBITDA statewide.

The decision by the NSEA to drop the ballot initiative comes six weeks after a Nevada state court ruled that the NSEA’s petition to raise casino taxes was properly written and that it may be used to gather signatures for a ballot initiative. The plaintiff in the case was the Nevada Resort Association. Carson City District Court Judge Miriam Shearing rejected the NRA’s claim that the changes made to the petition by the NSEA left it with the same flaws as a previous petition that the same judge had rejected.

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