Safe bet, sucker deal | On Culture | Chicago Reader

Safe bet, sucker deal 

The Chicago casino will raise far less money for the city than originally promised.

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click to enlarge Caravaggio, The Cardsharps, 1594

Caravaggio, The Cardsharps, 1594

Would you have bet that this year would end with a massive expansion of legalized gambling in Illinois—a whole new crop of casinos, racinos (combination racetrack-casinos), slots, and even online sports betting—all justified as the way to get legislative approval for a long-sought Chicago casino, but there would still be no Chicago casino in the works?

Sure you would. It's Chicago.

You might not even have been surprised when Mayor Lori Lightfoot came home from ostensibly victorious negotiating sessions in Springfield last summer looking as grim and tapped out as any craps table loser.

So what do you think the odds are that she'll be going back down there in January to clear the way for a very profitable, privately-owned, probably downtown casino, while the city and state take a giant haircut on their share of those profits? And that we, the suckers—er, citizens—won't have any idea how much that haircut's costing us until it's a done deal?

It looked like a done deal at the end of June, when Governor J.B. Pritzker signed an 800-page omnibus bill that—among other things—authorized six new casinos, 5,000 sports betting kiosks, and nearly doubled the number of gambling positions in the state, to just under 80,000.

There was a casino for Chicago in this statewide jackpot, but not the publicly-owned facility its new mayor had campaigned on. Down there, in the mysterious cornfields of Springfield, the idea of public ownership quietly vanished, and what got approved was private ownership, but for a casino that would share its profits equally with the city and state: each would get one-third of adjusted gross receipts (AGR, the amount of money wagered, less the amount it takes to pay off the bets).

The government already had big plans for that money: the city would use its share for police and firefighter pensions; the state's portion was earmarked for Pritzker's $45 billion infrastructure project. And the public conversation was briskly herded on to the question of where this golden goose of a casino would be located, with the mayor inviting the public to weigh in, and picking five spots on the city's south and west sides that she preferred. Then she sent the whole package to a Las Vegas-based gambling industry consulting firm, Union Gaming Analytics, to have its feasibility evaluated. The legislation that set this all in motion stipulated a 45-day time limit for a completed report.

What a surprise when the report, released in August, concluded that the major features of the plan were unworkable. Locations on the south and west side? Wouldn't draw enough tourists. A one-third cut each for city and state? Wouldn't leave enough profit to attract any private developer.

It might work, the consultant noted, if the city gave up its 33 percent share. Or if the city became the owner, in which case it might hire a management firm to run the place and take the profits as its share.

That sent the mayor back to the drawing board. But not on the issue of ownership. She returned to Springfield in the fall with amendatory legislation that would reduce the taxes—now perceived as "onerous." Even with the governor onboard, however, she wasn't able to line up enough support in the short veto session, and it was never called for a vote. The plan now, according to its sponsor, State Representative Robert Rita (D-Blue Island), is to call for a vote on it after the legislature reconvenes in late January. You have to have a workable casino, Rita told me, in order to have casino revenue. The changes they're seeking include extra time for all casino owners to pay a one-time "reconciliation charge" (equal to 75 percent of their most profitable year among the first three), and the elimination of interest charges on those payments. Also, potential owners will be required to make their proposals public. And Cook County's share of the Chicago casino tax is halved—from 2 percent of AGR to 1 percent.

But the biggest change—the one that'll have the biggest impact on any public benefit from this venture—is a switch from a flat tax (of 33.3 percent) to a more complicated graduated rate. According to the new plan, slots (including all electronic devices) will have a combined annual city and state tax rate that ranges from 22.5 percent to 74.7 percent. And table games, like blackjack and roulette, which bring in a smaller amount of revenue but are more profitable for the owner, will be taxed at combined city and state rates of 15 percent to 35 percent. The tricky part of this is that, no matter how much money the casino makes, the higher tax rates are only applied to the tippy top of its income stream. The 74 percent rate, for example, will only be charged on the slice of slots AGR over $1 billion.

What does this mean in dollars for the city? I asked both Lightfoot's office and Rita's; at press time neither had provided an answer. (Lightfoot's office said, however, that "the City remains steadfast in its pursuit of changes to the current tax structure to ensure we can unlock the significant economic benefit that a Chicago casino would bring.")

So we're left to do our own math. Say we have a Chicago casino with total annual AGR of $900 million (about twice as much as Rivers Casino in suburban Des Plaines is generating), one-third from table games and two-thirds from slots. At the original flat rate, the city would get about $300 million in taxes every year. And at the graduated rate currently proposed, the city's share will drop to $159 million.

That's $141 million annually from the city, along with similar cuts to the state's share, that will be redirected into the owner's pocket.

Would the original plan, for a one-third share of the pie for the owner, have attracted investors? It was never offered, so we don't really know. But if this one makes it through the legislature, it's a good bet that there will be takers.  v

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