In a pitch to lawmakers in Springfield on Tuesday, Chicago Mayor Lori Lightfoot pegged the estimated revenue for a Chicago casino at $1.2 billion, a take that would funnel $940 million to the state's capital program—but only if legislators agree to a few key adjustments.
A Lightfoot administration document obtained by Crain's lays out the details of the mayor's latest proposal to salvage the idea of a city casino that would create a steady revenue stream to replenish underfunded public employee pensions—an ambition that fizzled out during the General Assembly's veto session last year.
Last summer, an analysis by an outside consultant retained by the Illinois Gaming Board found a proposed Chicago casino would not be financially feasible, regardless of location, thanks to the onerous tax structure baked into casino expansion legislation passed last spring.
The consultant, Union Gaming Analytics, projected that a casino on any of the sites Chicago has scoped out could face a tax rate of up to 72 percent of the gross under the new Illinois law. Factoring in the upfront payment any operator would be expected to pay the the state above and beyond regular taxes, even a modest 1 or 2 percent operating margin likely would be wiped out "for many years, if not decades," Union Gaming found.
Lightfoot’s attempt to revise the tax structure during the veto session last year came up short, as the state was reeling from new corruption allegations, including reports that state Sen. Terry Link, the longtime chair of the gambling subcommittee, was a cooperating witness with the FBI in its probe of state Rep. Luis Arroyo. Link has denied the allegation.
The mayor also said she was hampered in the veto session by a short negotiation timeline and some lawmakers’ attempts to turn the bill into a legislative “Christmas tree” with their proposed changes. She told reporters Tuesday that she was only five votes short last session and she’d “made some progress” in her most recent visit to the Capitol.
According to a slide deck of the mayor’s proposals obtained by Crain’s and dated Feb. 12, the mayor is pitching a change to the reconciliation fee. Under her new plan, the Chicago casino would make that payment to the state at the same rate as all other casinos (75 percent of the highest annual adjusted gross receipts of the first three years of operations), but all casinos would be allowed to make the payment in equal installments over a six-year period (instead of two) with no interest being charged.
At a press conference after today's City Council meeting, Lightfoot said the burden of that reconciliation fee is a common complaint from mayors with new casinos coming. “You take the first three years, your best 12 months, and you have to pay 75 percent of the gross in addition to all the other taxes. We heard universally, from potential developers as well as potential financiers, that that provision, among others, makes a Chicago casino unfinanceable, that it will never be built,” the mayor said.
Stretching that 75 percent out over six years interest free, “gives a developer a fighting chance to actually get profits before they pay this huge tax.” Lightfoot said she’s had “fruitful discussions” and was heartened by the governor’s inclusion of the Chicago casino in today's budget speech, but she was not “counting her chickens.”
A Chicago casino would pay the same upfront fees, admission and sports wagering taxes as all other casinos located in Cook County, but it would pay gaming taxes at revised rates. The mayor’s office says Chicago’s casino would still have the highest effective tax rate of any in the state, and the revised rates still result in the same split in revenues between the city and state. The mayor has also dropped her desire for a city-owned casino.
That reconciliation fee was identified by that Union Gaming report as the biggest obstacle for a Chicago casino’s success, saying it “not only magnifies the lack of feasibility, it also shuts the door on the ability of the developer to obtain financing under the context of the . . . tax structure that results in a barely-profitable casino at best.”
State Rep. Bob Rita, who is leading negotiations in the House, said that reconciliation change would benefit all new casinos and gaming positions – including in Rockford, Waukegan, Danville, and south suburban Cook County. “That’s a plus for them.”
“I feel good about what we’re doing. We have a lot of time,” Rita said, compared to the mayor’s attempted veto session sprint. “We had no one negotiating in the Senate, and only six legislative days… we have a little different dynamic coming into the spring.”
The landscape has shifted slightly with the exit of Senate President John Cullerton, Rita acknowledged, and Link’s fate is still uncertain. State Sen. Bill Cunningham will be handling that chamber’s negotiations of the city’s casino bill.
The mayor’s office says both it and the governor would like to see passage sooner than later—ideally before Spring Break.
“I know the city and the mayor’s interest are to get this thing done right away. I want to make sure what we’re doing is right so we’re not having to come back and fix something again,” Rita said.
Under the mayor’s revised plan, the city could net $1.2 billion in gaming revenues among table games, casino and airport slots, and sports betting, according to assumptions from that Union Gaming Analytics report.
Subtracting about 9 percent for promotions to high-value patrons, that number would be $1.09 billion. With hotel, food and beverage, and entertainment revenues added, she expects her revised rate to generate just shy of $1.4 billion in total revenues and $143 million in profit.
The mayor’s proposal would still net the state $952 million in one-time payments that would largely go toward the state’s capital fund, Rebuild Illinois; $135 million would be an upfront capital infusion.
But compared to the original gaming bill, the state under Lightfoot's new plan would take a cut in annual payments from slot and table taxes, which would be dedicated to the state’s gaming fund.
Under the revised version, the city would abandon its 33 percent city privilege tax and instead collect slot and table taxes that would be dedicated to its pension fund. The city estimates it could collect $217 million for pensions annually.
In his budget address today, Gov. J.B. Pritzker said his office “is working with the city of Chicago and the General Assembly to make a much-needed adjustment in the legislation passed last spring to help make sure the Chicago casino is a success that will help fund projects throughout our state. I hope you all will join me in supporting these legislative efforts when they come before the General Assembly this session.”