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Illinois Issues
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State of the State: Gambling is an attractive alternative to raising taxes or cutting services

Aaron Chambers
WUIS/Illinois Issues

The video poker machines found in bars around Illinois are perfectly legal. What’s not is the widespread practice of gambling on those games.

So when bar owners collect money their patrons lose while betting on the machines, that cash goes unreported. And state government comes up empty — to the tune of an estimated $350 million each year. That’s an impressive sum for a state drowning in red ink and looking for a quick fiscal fix. At the same time, the deficit could be video poker gambling’s ticket to come out from under the table.

As Gov. Rod Blagojevich and the General Assembly struggle to reconcile a deficit estimated by the governor at nearly $5 billion for this fiscal year and the one beginning in July, increased gambling is emerging as an attractive alternative to raising taxes or drastically cutting state services. Gaming interests, their lobbyists in a frenzy, hope that translates into more business for them. Increased gaming, they argue, also would go a long way toward improving government revenues and the state’s economy.

Casinos want lawmakers to eliminate the statutory cap on gaming positions — the number of people permitted to gamble at any given time. Horse racing tracks want permission to offer slot machines. The video poker operators, of course, want gambling on their machines to be legitimate. And horsemen — as horse owners, drivers and jockeys, and breeders are called — want to ensure that their slice of race proceeds, set by statute, does not get rolled back in the fray. They also want a substantial share of proceeds generated from any slot machines.

Ultimately, all the gaming lobbies must agree to a compromise bill that’s good for the state. At least that’s the goal of Rep. Lou Lang, a Skokie Democrat who is chairing a special House gaming committee. He says gaming legislation this spring likely won’t pass unless every interest is on board. “We all have to find comprehensive gaming policy and if we cannot find comprehensive gaming policy and everybody is going to be in it for themselves, I think we’re going to have an issue.” 

Yet each faction, from the state’s nine riverboat casinos to its seven horse racing tracks to thousands of video poker operators, clearly is fighting to protect its own bottom line. Each is concerned about losing patrons to competition as the gaming market gets saturated.

Trying to get the groups on the same page in the legislature is delicate work. The action has largely been confined to Lang’s committee, indicating a willingness on the part of gaming interests to work together. But one group, the Illinois Harness Horsemen’s Association, has pushed legislation on its own, and lobbyists for other groups are quick to suggest the harness racers might jeopardize any effort at compromise.

The harness racers want to abolish a law that permits horse racing tracks to take money from a shared purse account when the state fails to appropriate a subsidy to the tracks, as it did last year. “It doesn’t have to do with the slots and big bills per se,” Brenda Watson, a lobbyist for the group, says of the proposal. The group maintains this must be done to put them on equal footing with the tracks before consideration of an omnibus bill. 

Lang says he appreciates the harness racers’ concern but that they nonetheless should operate within the scope of his committee. “The fact is that unless we can make what they want to do part of a bill that people in the industry can support, it’s probably not going to pass,” he says.

Lang faces a long road to crafting an omnibus deal.

Clearly, gaming establishments pump loads of cash into state coffers and put people to work. According to the legislature’s Economic and Fiscal Commission, gaming accounted for $1.04 billion in state revenues during the fiscal year that ended last June. This includes $470 million from riverboat gambling, $13 million from horse racing and $555 million from the state’s lottery. But there’s plenty of debate over whether increased gambling is worth associated social problems and, for that matter, whether gaming actually helps grow the state’s economy.

The Illinois Casino Gaming Association trumpets a University of Illinois report that the casino industry employed more than 11,000 people and spent more than $184 million on goods and services provided by Illinois vendors in 2001. The January report, prepared by the U of I Regional Economics Applications Laboratory, was commissioned by the casino association and the Illinois Chamber of Commerce.

The groups, during testimony before Lang’s committee, emphasized the report’s finding that their proposal to eliminate caps on gaming positions would create some 26,000 jobs. They maintained that their other legislative priority, rolling back the tax rate on casinos from 50 percent to 35 percent, would help fuel that growth.

But Earl Grinols, an economics professor at the U of I, suggests increased gambling is not an effective way to grow the economy. He points to other research indicating that more than 40 percent of the nation’s counties with casinos actually experienced job losses. “Basically that’s almost like flipping a coin,” he says. “Nationwide, counties that have casinos don’t seem to do much better or much worse.” 

There are several variables beyond immediate considerations in Springfield that could affect the future of gambling in Illinois. 

The state’s 10th casino license is tied up in bankruptcy court by license holder Emerald Casino Inc. The Illinois Gaming Board next month will resume hearings to revoke the license. It’s been in limbo since 1999, when Emerald announced plans for a Rosemont casino that the board later rejected amid alleged mob ties to Emerald’s investors.

Once the license is freed and sold to another casino, the state’s share of the sale could be as much as $500 million. Several suburban towns want to host the casino that claims the license.

The Illinois Supreme Court also may help determine the direction of gambling, though it’s unlikely the court will weigh in by the end of the legislature’s spring session. Early last month, the court agreed to hear a case involving a lawsuit filed by a group wanting the 10th license in Lake County. At issue is whether the group has standing to sue. 

The group is challenging as unconstitutional a 1999 amendment to the riverboat gambling law that permitted dockside riverboat gambling and paved the way for a casino in Rosemont.

The court typically takes about a year to dispose of a case, and there’s no guarantee it will address the law’s constitutionality. Still, prolonged litigation could prevent the state from enjoying revenues associated with a 10th casino.

However, Blagojevich says his budget solution anticipates returning this license to use. “That 10th license has to be up and running,” he says. “That’s very important to our plans.”

A casino in Chicago could dramatically alter the gambling landscape as it presumably would draw patrons from the four boats already in northern Illinois, but Mayor Richard Daley has gone back and forth on whether he wants this. Last fall, Daley indicated interest in a land-based, city-owned casino. That would require a change to the state riverboat gambling law as it does not provide for land-based or government-owned casinos.

Meanwhile, the Wisconsin-based Ho-Chunk Indian tribe wants to build a casino-hotel complex in suburban Hoffman Estates. This scenario is complex, though, as tribal casinos operate largely outside the scope of state law. To secure such a casino, the tribe would need approval from Congress and the U.S. Interior Department. The tribe could then form a compact with the state and federal governments that would determine how much tax revenue, if any, the state would get.

In any case, the legislative climate this spring does favor gambling growth. Blagojevich maintains he won’t increase income or sales taxes, which account for the bulk of state general revenue funds. And slashing a slew of state services is not politically feasible. In his efforts to reconcile the shortfall, he appears to be leaving the door open for more gambling. 

He reiterates his campaign position that he doesn’t support “expansion of gambling” but he refuses to define “expansion.” Specifically, he won’t say whether eliminating caps on gaming positions at casinos would constitute this. “That’s open to interpretation; some people might say that it is, some people might say it’s not,” he says. “I haven’t thought it through.” He says he also hasn’t “thought through” adding slots at tracks or legalizing video poker, but that these measures are not part of his budget “framework.”

That’s a fluid position, to be sure. Moreover, it fuels a climate that gaming interests hope will produce a winning year.

 


Aaron Chambers can be reached at statehousebureau@aol.com

 

Illinois Issues, March 2003

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