The Chicago portion of the bill, in particular its proposed tax structure, clearly needs to be rewritten, by most counts.
An outside consultant’s report released last week by the Illinois Gaming Board concluded that due to an extra gross receipts tax of 33 percent mandated by the law, the effective tax rate on the Chicago casino could hit a staggering 72 percent of revenues. That means that any of the neighborhood sites envisioned by Lightfoot would lose money or make a maximum of 3 percent in a business in which a 20 percent return is more typical.
Revenues would be substantially bigger if the casino instead went to a tourist-friendly location downtown, but so would development costs, the report added. As a result, even a downtown location “would likely also fail the financial feasibility test” too, with “thin profit margins.”
So change is needed. The problem is that reopening the bill to adjust the tax rates potentially opens the door to lots of other interests.
Like the politically influential Neal Bluhm, who operates the Rivers Casino in Des Plaines and was neutral on the original bill but is concerned that a downtown casino could pull lots of business from his facility. Or other operators who want more or fewer gaming positions for them or their competitors. Or those who believe more gambling will be bad for the state and might like another chance to undo the Legislature’s end-of-session gold rush.
Given that—and given that Chicago will get that 33 percent extra tax to help pay down pension debt—conventional wisdom in Springfield is that the mayor has the weaker hand to play in talks with Pritzker that have just begun.
For instance, the chief Senate sponsor of the casino bill, Lake County Democrat Terry Link, argues that if Chicago thinks the taxes are too high to finance a casino it can take less or offer its own inducements, maybe free land or a big tax increment financing grant.
“There’s ways they have to help developers without going to the General Assembly,” Link told me. And there’s good reason to think that the consultant’s report overstated the risk that high taxes could kill any Chicago casino, Link added. “I don’t think there’s a shortage of developers willing to go in there.”
One idea I’ve heard discussed is to cut that special Chicago tax. Slashing it by, say, half could increase that 3 percent operating margin to around 20 percent, making the casino financially viable, one government insider told me.
But that’s likely not possible under the law, which directs the proceeds from the city tax not to the general city treasury but to the police and fire pension funds, says Tom Swoik, executive director of the Illinois Casino Gaming Association, a trade group.
Still, he agrees that the 72 percent tax rate is too high, and actually amounts to 75 to 76 percent as he does the math. “That’s too high for any casino anywhere.”
Another school of thought, though, is that while Lightfoot is on the hot seat, with her new budget likely to call for painful tax hikes that will be even higher without the casino money, Pritzker has some reason to make a deal, too.
Revenues from the Chicago casino now are targeted to pay debt service on the governor’s vaunted new $45 billion capital program. With other revenues sources from legal sports gaming and cannabis a little shaky and possibly running short of what was projected, Pritzker will have reason to compromise, says one insider. “He’s already spent the money” on the capital program, says that source. And even if the state has to cut its taxes a bit on the Chicago casino, “He’ll still be able to tell people that the state is getting more money overall than it would have otherwise.”
If that scenario is right, both the mayor and governor will give some rather than risk holding an empty bag: no Chicago casino at all.
Another wrinkle: The deadline in the law for new casinos authorized in other portions of the state to apply for state licenses is Oct. 15. But it’s possible not all of the locations will be ready by then. Which means that the legislature may have to reopen the gambling bill in its November veto session.
Neither City Hall nor Team Pritzker is saying much about who’s willing to give and how much. But there’s no doubt they’re the people worth watching.