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Casino Lotto 

When the state doles out gambling licenses, is the game rigged?

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By John Flink

Waukegan mayor Bill Durkin fired off an angry press release the day it was announced that the Illinois General Assembly had approved a casino boat in Rosemont. The normally even-tempered mayor wasn't angry that Rosemont got a license for a "boat" despite its lack of a natural body of water. Newfangled gambling legislation doesn't require boats to be boats anymore--permanently moored barges floating in artificial ponds are good enough. And anyway, Waukegan got stiffed long ago, when the original gambling legislation prohibited a boat on Lake Michigan, ostensibly to keep Chicago out of the fray.

What irked Durkin was the deal making surrounding the Rosemont casino and the drastic shifts in the original rationale for legalized gambling. Gambling boats had been sold to the public ten years earlier as economic redevelopment projects that would bring new jobs and tax revenues to older towns. With its worn-out industrial base and tired downtown, Waukegan would seem to fill the bill. Rosemont, Durkin pointed out, is about as far removed from that paradigm as it could be: home to only 4,000 people, the tiny village of hotels and high-rises grafted onto the northwest side of O'Hare International Airport is home to more than 25,000 jobs by its own estimate, making it one of the most job-rich towns in the Chicago metro area.

"The gambling boats were intended for the old smokestack towns," Durkin said. "Rosemont doesn't need it, and they're taking a license away from towns that do." Indeed, Waukegan is one of four aging satellite cities--the others are Elgin, Aurora, and Joliet--that seem natural choices for riverboats. The other cities have all gotten them and have reaped substantial economic rewards.

Shortly after the Rosemont deal was announced and construction of a casino parking garage was begun near a tangle of on- and off-ramps, the process was cut short by a lawsuit filed by a group of investors, Lake County Riverboat LLC. The group claims the legislation that allowed an existing casino license to be transferred from a defunct boat in Jo Daviess County was written in a way that made Rosemont a sure winner. Such so-called special legislation is unconstitutional in Illinois. Unfortunately for Waukegan, Lake County Riverboat doesn't want to put a boat just anywhere in Lake County. The group has inked a preliminary deal with the village of Fox Lake, a resort town on the Chain o' Lakes on the far west side of Lake County, for a casino boat there.

As of mid-July the lawsuit was stalled by a series of appeals arguing whether it should be heard in Cook or Lake County. A second suit, filed by California millionaire Marvin Davis alleges that the Rosemont casino owners reneged on an oral agreement to sell him stock in their proposed company. And when the Illinois Gaming Board met in late June, it asserted its right to decide on the viability of the Rosemont casino license despite the legislation that seemed to rubber-stamp the deal. It took no action on the license either way, and the issue was not even on the agenda for the board's July meeting. (They won't meet again until September.) So for the moment, the Rosemont boat is grounded.

To bolster its casino bid, Rosemont enlisted the aid of the West Central Municipal Conference. Founded in 1980, the WCMC now includes 36 suburban communities in western Cook County. It shares membership and office space in Westchester with the West Cook Community Development Corporation and the West Cook County Solid Waste Agency, groups that also tackle issues of interest to neighboring communities, from purchasing equipment to figuring out where to dispose of trash.

The WCMC's expertise in bringing different communities to the table led Rosemont officials to tap the group in 1994 to help pull together the necessary political muscle to land a casino. Mostly that effort consisted of encouraging leaders of interested communities to write plenty of letters to Springfield, usher appropriate resolutions through village board meetings, and stay the course. "This is what we do for a living," said Robert Lahey, executive director of the WCMC since 1997. "We bring communities together for their mutual benefit."

The group struck a deal with Rosemont to put together a coalition of as many suburban Cook County towns as possible to endorse the idea of a casino boat in Rosemont. To sweeten the pot, Rosemont offered to share 80 percent of the boat's tax revenue with the supporting cities. Word went out to 127 Cook County suburbs, Lahey said. By the time the offer expired in 1995, 71 towns had signed on, including most of the WCMC's regular members. Four years later, on May 25, 1999, Springfield gave Rosemont a boat.

The revenue-sharing formula is simple enough. Rosemont levies a 5 percent municipal tax on casino revenues and keeps 20 percent of it. Using the WCMC's estimate of $400 million in annual revenues, Rosemont would collect $20 million total and keep $4 million for itself. For the first five years of the agreement, however, Rosemont would get an additional $3 million from the same fund. Half of the remaining $13 million would be divided equally among the 71 member communities, giving each town a flat fee of $91,549. The other half would be divided on a per capita basis. There are roughly 1.1 million Cook County residents in the 71 supporting communities, each one of whom would be worth about $5.91. A city with 25,000 residents, for example, would get an additional $147,750, for a total of about $239,299.

According to the deal, the Rosemont Casino Tax Revenue Distribution Program will be administered by the WCMC for 25 years from the day the casino is opened, Lahey said. The WCMC's services will be funded through an administrative fee paid by each of the 71 municipalities, but not until the money starts flowing.

"Other towns with casinos get to keep 100 percent of the tax revenue," Lahey said. "So it's a very generous offer [by Rosemont]. I'd like to see this case get out of court so the plan can proceed. We have 1.1 million people in 71 communities in Cook County that stand to share in millions of dollars of revenue." Evanston--whose 73,233 residents make it the largest town in the coalition--could rake in $526,994.19 per year in the first five years if the $400 million estimate pans out. At the other end of the spectrum, the tiny hamlet of McCook, with only 235 residents, could "earn" $97,765.95. Who wouldn't go for that?

Rosemont's argument for getting a casino is, in simplest terms, that it already attracts the most people and therefore is likely to generate the most revenues. And if any enterprise is all about money, it's gambling.

According to the Rosemont Convention Bureau, about 50,000 people visit Rosemont every day: for one thing, its location next to O'Hare amid a spaghetti bowl of expressways makes it easy to get to. The city is home to nearly 5,000 hotel rooms, and occupancy is about 72 percent. The Donald E. Stephens Convention Center, named for the village's first and only mayor, is the second-largest convention center in Illinois (behind only McCormick Place) and the ninth largest in the United States. The Allstate Arena, formerly known as the Rosemont Horizon, is one of the busiest venues in the Chicago area. The Rosemont Theatre has made a place for itself in the theater world, attracting Jay Leno, for example, for his annual week of broadcasting the Tonight Show from "Chicago." The city's 50,000 daily visitors are already leaving a lot of money behind, and getting them to part with more would be kid stuff, Rosemont casino champions say.

All this activity is scrunched into 2.5 square miles, only 25 percent of which is zoned for residential use. The town's glittering conglomeration of high-rise hotels and office buildings give it the distinction of being one of very few cities in the metropolitan area, according to the Northeastern Illinois Planning Commission, with an inverse ratio of jobs to residents--about six to one. Chicago, by comparison, has a huge number of jobs--about 1.4 million of them--but they have to be divvied up among more than 2.8 million people, so the jobs-to-residents ratio is about one to two.

Rosemont does have something of a parallel to another gambling mecca. With its hotels, convention centers, and revolving-door patronage, it resembles no other town so much as the fastest-growing metropolitan area in the United States, Las Vegas.

At 30, East Dubuque mayor Geoff Barklow is fluent in the market-savvy jargon of the modern municipal enterprise. A responsible city government, like a responsible business, he says, serves its people best when it does what it can to help them create their own wealth. Asking for a handout is a last resort. But Barklow sounds less sure of this principle when he says that his town, in the northwest corner of the state, doesn't need financial compensation for the loss of the Silver Eagle riverboat casino, anchored from 1992 to 1997 in a Mississippi River inlet just outside East Dubuque's corporate limits.

Dick Duchossois's $67 million deal in tax breaks and subsidies for racetrack owners, cut with the Illinois General Assembly, is what makes him wonder. Though not in track owners' pockets yet, it's the amount that the millionaire owner of Arlington International Racecourse negotiated from Springfield last year as compensation for the supposed negative impact riverboat casinos have had on horse-racing fortunes in Illinois. If the state's new laws have interfered with the well-being of a time-honored institution, he argued, then the state should make amends.

Such an argument is at odds with Barklow's free-market impulses, he says. But if that's the way the game is played, then the playing field is tipped hopelessly in favor of racetrack owners, leaving the hardscrabble communities that were supposed to benefit from legalized gambling to fend for themselves.

"I'm not asking for a handout, but I don't think it's fair," Barklow said. "When a racetrack gets into financial trouble because of casinos, the government provides compensation. What about the loss to East Dubuque and Jo Daviess County? Where's the parity?" In fact Illinois' grand experiment in legalized casino gambling has steamrolled the interests of many supposed to have benefited from it. Jo Daviess County was left with expensive, publicly financed infrastructure that was barely used. East Dubuque lost a sorely needed boost to its business district.

Although East Dubuque was generally considered to be the host community for the Silver Eagle, the actual license holder was Jo Daviess County. Bordered on the west by Iowa and on the north by Wisconsin, the county has 21,000 residents and boasts some of the state's most picturesque countryside and small towns; its biggest attraction is Galena. Altogether the county caters to a million or so tourists a year, according to Duane Olivier, administrator of Jo Daviess County. Agriculture is the second biggest industry, he said, but tourism is significant enough to have produced the publicly funded and administered Jo Daviess County Convention and Visitor's Bureau.

Neon and glitz wouldn't fly in quaint old Galena, but that wasn't a problem 15 miles to the west in East Dubuque. A town of only 2,000 souls, East Dubuque has been the area's place to play for decades. Iowa was dry long after prohibition, and East Dubuque, just across the Mississippi, catered to Dubuque's demand for a nightlife. Even today downtown East Dubuque is characterized by restaurants, bars, and a few establishments zoned for "adult uses."

A casino in East Dubuque, the reasoning went, would draw not only customers from Dubuque but tourists from Galena and the rest of Jo Daviess County. It would also benefit from a hoped-for critical mass of gamblers attracted by two boats in close proximity--the Diamond Jo still sits off Dubuque on the Iowa side of the Mississippi. And that boat had to play by Iowa's gambling laws, which were more stringent than those in Illinois: both states required scheduled cruises, but Iowa law limited wagers to $5 and daily losses to $200, which would send serious gamblers to the Illinois side.

Essentially East Dubuque was a silent partner in the Silver Eagle operation when the license went to Jo Daviess County, the government body that has jurisdiction over Frentress Lake, the Mississippi inlet where the boat was moored. And the boost that a casino can give to nearby restaurants, hotels, nightclubs, and their suppliers can be worth many times the amount that the government reaps in tax revenues from a boat.

"We have 20 or so nightspots that benefited, and landlords made out well on apartments because there was a pretty high turnover of people who worked on the boat," said Thomas Sheahan, president of the East Dubuque Business and Tourism Bureau. "There were some mixed reactions from restaurant owners, though. The boat also offered food and sold it cheaper as a way to get people in." Still, economically the Silver Eagle was good for East Dubuque, Sheahan concluded, though he occasionally felt concern for the potential negative impact on the community, particularly people destined to develop gambling problems. But in his mind that problem didn't have enough time to manifest itself to any great degree.

Jo Daviess County took in about $8 million over the casino's first four years, Olivier said. But the county invested millions in infrastructure to make the enterprise possible. The biggest expense was a new $3.4 million water and sewer system, eventually sold to East Dubuque for $1 because it was never fully utilized. Someday the city hopes to expand into the casino area, where road improvements were also made, and make use of the county's investments.

"[The water and sewer] system never would have gone in if it weren't for the casino," Olivier said. "I think the county, the city, and the employees of the casino were treated poorly in that they weren't kept abreast of plans for the boat. What started out as a friendly, mutually beneficial relationship left some hard feelings."

That relationship was with casino owners HP, Inc., now Emerald Casino Inc. It was and is controlled by former Waste Management executive Donald Flynn and his son Kevin--and it still holds the license, which has made it possible for Emerald to put a casino in Rosemont without forcing state legislators to take the politically risky step of creating a new license (only ten were established when gambling was legalized in 1990).

In March 1994, the Iowa legislature liberalized its riverboat laws, abolishing the state's limits on wagers and losses and reducing the cruising requirement to only 100 two-hour cruises per year, between April 1 and October 31. At that point most Iowa boats started scheduling one early-morning cruise and spent the rest of the day dockside, an arrangement that allows gamblers easier access. The Illinois General Assembly didn't allow dockside gambling until June of 1999.

The change in Iowa law hurt Illinois casinos up and down the Mississippi, Olivier said. But some of them, like Rock Island's, dug in their heels, working with their host communities to figure out how to meet the competition.

The effect upon the Silver Eagle was immediate. Revenues that had generally been $2 million to $3 million per month since the boat opened slipped to barely more than $800,000 a month by November 1995, owners said at the time. On December 5 of that year--just before the holiday season--HP closed the Silver Eagle and laid off all 340 employees. The casino reopened on May 24, 1996, with 140 employees, a smaller boat, and, some folks say, a palpable loss of energy and enthusiasm.

"They used so many excuses to close the boat," said Jack Zillig, a member of the Jo Daviess County Board of Commissioners since 1994. "Davenport, Bettendorf [both in Iowa], and Rock Island all have boats within just a few miles of each other. I don't see any of them closing down."

With revenues barely topping $100,000 per month after the boat reopened, according to testimony given by the Silver Eagle's owners to the Illinois Gaming Board, the operation closed for good on July 29, 1997. Revenues at the Diamond Jo tell the story of the shift that occurred at about that time. In 1996 the Iowa boat grossed $11,365,916, and in 1997 revenues leaped to $23,034,970, according to the Iowa Racing and Gaming Commission.

Tom Fluhr, East Dubuque's mayor from 1984 to 1995, said he's convinced that HP was not really interested in keeping a boat in Jo Daviess County. The Silver Eagle, he says, was little more than a stepping stone in a long-term plan to hit the jackpot somewhere near Chicago.

"I think they had Chicago in mind all along, because you could see the boat go downhill here," Fluhr said. "That's just my opinion, mind you." (Emerald Casino officials did not return calls for this story.)

Ironically, the legal wrangling over Rosemont may have opened a door for Waukegan, Mayor Bill Durkin said. If a license not in use can be moved from one place to another, then why not slot machines and gaming tables--the gambling stations governed by the license? According to the original legislation, each license allows up to 1,200 participants to gamble at any one time. And rumors have reached Waukegan that at least two downstate boats are using only about half their stations. The law prohibiting casinos on Lake Michigan would have to be changed, but lately many other provisions of the original law have been tweaked.

"There is a possibility that we could move those stations to Waukegan," Durkin said. "That way, the General Assembly could claim that they're not increasing gambling by creating a new license. These stations have already been allocated, but they're not being used, so why not move them? We're not giving up. Once you start moving things around, you open the door to moving other things."

Art accompanying story in printed newspaper (not available in this archive): photos/Nathan Mandell/Jim Newberry/David Kettering.

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