Illinois' new solution to huge budget crisis: gambling

With so many states struggling to fill gaping budget holes, Illinois lawmakers say they have a solution: more gambling.

A bill passed by the Illinois Senate Tuesday, which cleared the House Monday, would usher in largest expansion the state’s gambling operations since the first riverboat casinos opened in 1991. Not only would it license four new casinos to add to the state’s current allotment of 10, it would authorize slot machines at both O’Hare and Midway airports as well as at local horse racing tracks.

The bill awaits the signature of Illinois Gov. Pat Quinn (D), who in the past said he was not open to a major expansion of gambling. The bill would make Illinois the sixth-leading state by gambling revenue, following Nevada, New Jersey, Mississippi, Indiana, and Louisiana.

Gaming legislation gained momentum nationwide two years ago during the depth of the recession as legislatures scrambled to come up with a way to plug budget gaps. Casinos are routinely tapped as immediate solutions to budget woes mainly because they represent a voluntary tax, which protects legislators somewhat from criticism from their constituents.

Proponents say it will bring the state more than a billion dollars through licensing fees and subsequent tax revenue, as well as create thousands of jobs. But some experts say the lure of gaming revenue involves dubious economic benefits.

“It’s only short term. It’s not really good fiscal policy,” says Ralph Martire, executive director of the Center for Tax and Budget Accountability, a bipartisan think tank in Chicago.

Casino revenues typically do not keep up with yearly inflation over time and instead decrease, Mr. Martire says. This is because of competition from neighboring states and the rise of Internet gaming, among other factors.

Data from the Illinois Gaming Board show that state-earned taxes from casinos have been steadily decreasing during the past decade. Illinois tax revenues from casinos fell 6 percent during the past decade, from $410 million in 2000 to $384 million last year.

In addition, local governments lose money that consumers would otherwise invest in their local economies, says John Kindt, a professor at the University of Illinois in Urbana, who studies the economic impact of casino gambling.

“The bottom line is the public needs to decide if they want jobs or slot machines. It’s basic economics,” Professor Kindt says.

Many Illinois politicians disagree with that assessment. Chicago Mayor Rahm Emanuel has lobbied state lawmakers to pass the bill, which would for the first time grant a license to the city to operate a casino within the city limits. The bill would bring the city “one step closer to a significant victory for job creation and economic growth,” he said in a statement released Tuesday. Between 7,000 and 10,000 jobs would be added in Chicago, he said.

Currently, the nearest casino to Chicago is about an hour's drive away.

For the state, the casino bill would help carve into a $15 billion budget deficit. Not only would the state earn $1.5 billion from the new licenses, bill supporters say the additional gaming will deliver $500 million annually for education, public safety, and infrastructure.

Another reason why lawmakers like turning to casinos is that they help curry potential fundraising favors from special-interest groups that benefit from every step in the process – from construction to the operation of third-party services, says David Merriman, associate director of the Institute of Government and Public Affairs at the University of Illinois at Chicago.

“Unlike most taxes where you make enemies, here you can raise revenue and actually make some friends,” Mr. Merriman says.