Guest Column: Tax Illinois casinos similar to Canada’s virtual 100 percent rate

By John Warren Kindt

Since 1990, the continual proposals for a Chicago casino and more electronic gambling machines/slot machines (EGMs/slots) have demonstrated that history repeats itself. While Illinois businesses and taxpayers were subjected to a tax increase of 66 percent during the 2011 lame-duck session, little notice was given to the 2011 legislation proposed to expand Illinois gambling, while lowering the taxes on gambling facilities—again. By comparison, Canadian casinos pay a virtual 100 percent tax and allow casino companies to receive only “management fees.”

In 1990, the initial 10 Illinois casino licenses were worth a fair market value of $5 billion, but per the legislation passed during Gov. James Thompson’s administration, these licenses were allegedly granted to political insiders for $25,000 each—for a loss to Illinois taxpayers of $4.75 billion. During most of the 1990s, the tax rate on Illinois casinos was only 20 percent.

Between 1990 and 2011, polls almost consistently indicated that Illinois voters were 2 to 1 against expanded Illinois gambling, and specifically against a Chicago casino. After the 2009 Capital Construction Bill was passed, which in part allowed facilities serving alcohol to have EGMs/slots, voters quickly reinforced their backlash against gambling. Within months, voters prodded more than 70 cities and counties to enact new ordinances against EGMs/slots, including, for example, a 10 to 5 vote by the Cook County Board and a unanimous vote by the DuPage County Board.

Prompted in the early 1990s by proposals for Chicago gambling, U.S. Senators Paul Simon (D-Ill.) and Richard Lugar (R-Ind.) enacted President Clinton’s U.S. National Gambling Impact Study Commission (U.S. Gambling Commission). Among other recommendations, the 1999 U.S. Gambling Commission called for: (1) a moratorium on the legalization of any type of gambling anywhere in the United States; (2) the re-criminalization of convenience EGMs/slots, which were highlighted as the “crack cocaine” of gambling; and (3) a total ban on EGMs/slots at racetracks.

Since the 1999 U.S. Gambling Commission, numerous government and academic reports including the 2008-2010 United States International Gambling Reports® have confirmed. that gambling facilities such as casinos and racetracks make 80-90 percent of their revenues from EGMs/slots. Instead of creating net new jobs, these EGMs/slots drain money away from consumer purchases such as cars, refrigerators, and computers–and even the necessaries of life such as food and clothing. By the mid-1990s, EGMs/slots were already costing Illinois about 100,000 consumer jobs per year—every year.

The costs of EGMs/slots to Illinois taxpayers are at least $3 for every $1 in projected revenues. New gambling facilities create: (1) new addicted gamblers, like drug addiction, increasing 100 percent in the 20-mile and 50-mile feeder markets surrounding the gambling facility; (2) new personal, professional and business bankruptcies, increasing 18-42 percent as people gamble away their resources; and (3) new crime, increasing an average 9 percent per year every year, when people lose their resources and resort to crime—as confirmed by an eight-year academic study published by Harvard and M.I.T. The high population density of the Chicago area would dramatically increase these costs to state and Chicago-area governmental units.

Any review of Chicago gambling must necessarily include the 1992-1994 proposal by three Nevada companies for a $2 billion Chicago casino, but this proposal was rejected for several reasons. First, the Chicago Crime Commission issued several scathing analyses regarding anticipated crime increases, and therefore, opposed a Chicago casino. Also against a Chicago casino, the Better Government Association (BGA) in Chicago issued an extensive report, which included negative crime analyses and negative costs/benefits analyses. The BGA report also included copies of leaked documents revealing that pro-gambling interests had cooked several of their costs/benefits numbers. Thereafter, Common Cause of Illinois issued press releases calling on the Illinois attorney general to conduct investigations of alleged improper lobbying techniques by pro-gambling interests. Furthermore, an analysis by the Illinois State Police (ISP) reported that additional ISP costs would exceed $100 million. In this context, Gov. James Edgar’s administration decided to oppose any Chicago casino, and the three Nevada companies then marketed similar casino proposals to Canada—despite the virtual 100 percent tax rate where the companies would only get a “management fee.”

During the early 1990s when Illinois legalized EGMs/slots and casinos, other states like Virginia rejected gambling proposals. In 2011, Illinois joined Nevada and California (with more than 60 tribal casinos), as the three states with the worst projected shortfalls. By comparison, Virginia had a projected balanced budget. Virginia’s budgetary success and Illinois’ budgetary crisis were due in part to their opposite approaches to decriminalizing gambling–and the accumulated taxpayers’ costs which accompany gambling facilities.

For more than 20 years, academics and government officials have repeatedly warned that decriminalized gambling creates these problems. Expanding legalized gambling is like throwing gasoline on the fires of an economic recession.

John W. Kindt is the senior editor of United States International Gaming® Report. He is a professor of business and legal policy at the University of Illinois at Urbana-Champaign.

From the June 1-7, 2011 issue

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