Big Gambling is big cause of state's budget problems

By John Kindt

If during the last 23 years, Illinois had taxed Big Gambling at comparable rates to other states, then Illinois would have had an additional $35 billion to $56 billion in tax revenues — and no current budget crisis.

Distressed by the gambling situation in Illinois and nationwide, former U.S. Sens. Paul Simon, D-Ill., and Richard Lugar, R-Ind., sponsored the Congressional bipartisan 1999 U.S. National Gambling Impact Study Commission. As a follow-up to the commission, the multivolume 2008-2013 United States International Gaming Report has catalogued billions of Illinois dollars legally given away to Big Gambling's political insiders.

Serendipitous to President William Clinton, a Democrat from Arkansas, signing Sen. Simon's Gambling Commission into law and appointing commissioners, the White House staff noted a 1995 lead article in the Arkansas Law Review titled "Legalized Gambling Activities As Subsidized By Taxpayers." Produced at the University of Illinois, this academic article highlighted the enormous Illinois giveaways of taxpayer dollars to Big Gambling and predicted much of the current budget crisis.

As speaker of the House for almost 30 continuous years, Michael Madigan must assume some responsibility for these continual giveaways by Illinois to Big Gambling — particularly as he proposes a pension-reduction bill. The original Madigan pension-reduction bill had an unusual nine-page introduction outlining the supposed historical record that caused the apparent 2013 budget crisis, which involves almost $100 billion in unfunded liabilities.

Madigan announced that the intent of the nine-page historical background was to provide the Illinois Supreme Court with the "legislative intent" for enacting his bill. The Madigan bill would arguably override the Illinois Constitution's Article XIII, which protects the earned benefits of teachers and public employees. The nine-page introduction supposedly substantiates the existence of a budget crisis which would be relevant to issues in an anticipated court challenge to the Madigan bill.

Within a few hours, however, the nine-page introduction was edited down to six pages to eliminate information detracting from the historical story line alleging a budget crisis. Nowhere in this historical record is there any mention of the $35 billion to $56 billion given away to Big Gambling's political insiders.

In 1990, for example, Illinois gave away 10 casino licenses worth a fair market value (FMV) of $500 million each to political insiders for only $25,000 for each license.

The first riverboat casino license was awarded to investors such as William Cellini and Lance Callis, who initiated the Argosy Gaming riverboat in Alton.

In a Feb. 25, 1993, article titled "Insiders Didn't Take Much of a Gamble with Argosy Gaming," the New York Times reported that the "insiders invested $201,000 for their stock, or roughly a penny a share. In the offering, they sold 8.3 percent of their shares for $31.7 million. Add in the $13 million of dividends they have received, and their investment looks pretty good." The New York Times then noted that the current "market was valuing the company at $462 million."

In a 2003 Illinois analysis, Jeff Hooke, the chair of the Maryland Tax Education Foundation, confirmed that the FMV for casino licenses was approximately $500 million. He noted that Argosy Gaming's purchase of a suburban Cincinnati casino license in 2001 was $750 million. In 2002, the Rosemont casino license (which was originally granted by Illinois for $25,000) got a bid of $615 million, and in 2000 a Detroit casino license was $660 million.

Even casinos in regulatory trouble sell for approximately $500 million. In Illinois, the Nevada owner of Horseshoe Gaming was forced to sell his Illinois casino for $465 million — but it should be remembered that the initial Illinois license fee was just $25,000. In Missouri, the tainted Station Casinos sold its casino for $488 million and exited the state.

But in Illinois in the new 555-page gambling expansion bill, casino licenses are just $100,000 — another proposed $5 billion to $10 billion legal giveaway to Big Gambling's insiders. To be precise, there are other initial fees which would give Illinois a one-time revenue of $1.2 billion. However, $1.2 billion is nothing compared to $5 billion to $10 billion.

In addition to the initial license fees, there are minimal taxes paid by Illinois gambling facilities and slots parlors when compared to other states.

In Canada, all gambling revenues must go directly into government bank accounts, making the tax rate 100 percent. The service providers, including many of the same gambling companies that operate in Illinois, then receive only a service fee.

By comparison, Illinois proponents for a Chicago casino historically argued for a tax rate of 10 percent down to 7.7 percent.

In the new Illinois gambling expansion bill, a proposed Chicago casino wants to be a government unto itself — bypassing the regulations of the Illinois Gaming Board and its noted chair, Judge Aaron Jaffe. This 555-page bill actually proposes a law to indirectly fire the entire Illinois Gaming Board, ostensibly because the board is doing good regulatory work.

The Chicago Crime Commission also vehemently opposes a Chicago casino. Formed to combat Al Capone, the commission has been echoing Gov. Patrick Quinn's mantra during the last 10 months when he vetoed two previous gambling expansion bills, while stating: "No loopholes for mobsters."

Via reductions in pensions and earned benefits, teachers and public employees are going to pay until the public recognizes that Big Gambling is the Big Cause of the Illinois budget crisis.

John Kindt, a professor emeritus of business and legal policy at the University of Illinois, has served in various academic capacities addressing issues involving Illinois public employees and earned benefits for several years.

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