Saturday, May 25, 2013

State budget, pension woes tied to big gambling giveaways by Phil Ciciora

CHAMPAIGN, Ill. — Budget and pension woes in Illinois are inextricably linked to giveaways to “Big Gambling,” a University of Illinois expert in legal policy says. If the state had taxed gambling at rates comparable to other states over the past 20-plus years, Illinois would have had an additional $35 billion to $56 billion in tax revenue in its coffers – and most likely no budget crisis, according to John Kindt, a professor emeritus of business and legal policy.

“Until Illinois taxpayers wake up and realize that they are subsidizing gambling interests at the expense of teachers, firefighters and police officers, then public employees in the state of Illinois will continue to see reductions in their salaries, pensions and earned benefits,” Kindt said. “The net result is that everyone suffers when Big Gambling is involved.”

Kindt, who has testified before Congress and state legislatures about business and legal policy issues, says the new 555-page gambling expansion bill, which has been approved by the Illinois Senate but still awaits approval in the Illinois House, values casino licenses at $100,000 apiece.

By even the most conservative of estimates, that’s a $5 billion to $10 billion freebie to gambling interests, Kindt said. “To be fair, there are other initial fees that would give Illinois a one-time revenue injection of $1.2 billion,” he said. “But that number is dwarfed in comparison to what the state could be getting if it got tough on Big Gambling.”

Illinois House Speaker Michael Madigan must assume some responsibility for these continual giveaways by the state to gambling interests, particularly as he proposes a pension-reduction bill, Kindt said. “The original Madigan pension bill had an unusual nine-page introduction outlining the supposed history leading to the 2013 budget crisis,” he said. “But nowhere in this so-called historical record is there any mention of the tens of billions of dollars legally given away to Big Gambling’s political insiders during Rep. Madigan’s decades-long tenure as Speaker.”

According to Kindt, in 1990, Illinois sold 10 casino licenses worth a total fair market value of $5 billion for only $25,000 per license. Political insiders quickly snatched up the licenses, Kindt said. “An independent analysis conducted in 2003 confirmed that the fair market value for each of those licenses was at least $500 million,” he said. “The report also noted that, in 2000, a Detroit casino license was sold for $660 million. In 2001, Argosy Gaming purchased a suburban Cincinnati casino license for $750 million. And in 2002, the Rosemont casino license, which was originally granted by Illinois for $25,000, got a bid of $615 million.”

Even casinos in regulatory trouble sell for about $500 million, Kindt said. “When the Nevada-based owner of one Illinois casino ran into trouble in 2001, they sold the casino to another gambling company for $465 million,” Kindt said. “But it should be noted that the initial Illinois license fee they paid was just $25,000. That’s a pretty good return on the initial investment.”

Gambling facilities in Illinois also pay very little in taxes, when compared to other states and venues.
“In Canada, all gambling revenue goes directly into government bank accounts, which technically makes the tax rate 100 percent,” he said. “The service providers, including many of the same gambling companies that operate in Illinois, receive only management fees.”

By comparison, proponents of a Chicago casino have historically argued for an effective tax rate as low as 7.7 percent, Kindt said. “Over two decades, the relatively low Illinois tax rates on Big Gambling have trended mostly downward through a maze of deductions, all of which are legal,” he said. “That type of financial sleight-of-hand only serves to obfuscate what the Illinois treasury could actually be receiving.”

And under the new Illinois gambling expansion bill, the proposed Chicago casino would, in effect, be allowed to operate as a government unto itself, according to Kindt. “For starters, the gambling bill’s ethical constraints on political contributions are filled with loopholes,” Kindt said. “But the kicker is that the bill actually proposes laws to indirectly fire the entire Illinois Gaming Board, apparently because the board is performing good regulatory work. In essence, gambling interests wish to neutralize the regulations of the Illinois Gaming Board and its noted chair, retired judge Aaron Jaffe.

“Explain to the public-sector workers of Illinois how that is good public policy.”

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