Tax gambling to fix the state budget

GUESTWORK | John Kindt

Gambling companies arguably owe the Illinois Treasury between $10 billion and $47 billion dollars. The Illinois legislative leadership needs to exercise its integrity and collect these billions of dollars.

While an Illinois state senator during the 1990s and thereafter as a U.S. Senator, Peter Fitzgerald, R-Ill., repeatedly joined with a legislative minority to complain about the billions of dollars which the gambling companies should have paid to Illinois. The late U.S. Senator Paul Simon, a Democrat, and the late U.S. Rep. Henry Hyde, a Republican, were so concerned about Illinois gambling that they sponsored the bipartisan U.S. National Gambling Impact Study Commission, which exposed serious budgetary problems when states partnered with gambling interests. For example, the original 10 Illinois casino licenses which were worth a fair market value of $5 billion in 1990 ($9.5 billion in 2012 dollars) were legally granted to political insiders for $25,000 per license.

The current gambling expansion proposals for Illinois include giving away more billions of dollars by charging only $100,000 per license (plus minimal fees per slot machine). For this monetary reason alone, Gov. Patrick Quinn was justified in vetoing the last gambling expansion bill. He was concerned that Illinois gambling legislation not contain “loopholes for mobsters.”

Touted by Springfield supporters as a pension fix, Constitutional Amendment 49 was rejected by the Illinois voters during the Nov. 6 election. Labeled a “pension head-fake” by the Chicago Tribune, the defeat of Amendment 49 should have served as a wake-up call to its Springfield legislative sponsors.

Unable to transfer responsibility via Amendment 49 for its own budgetary irregularities, Springfield’s legislative leadership appears poised to propose new Draconian legislation – emulating the 67 percent state income tax increase which was fast-tracked through the 2011 lameduck legislature.

During the lead-up to the state income tax increase, the taxes on Illinois gambling interests were being reduced. Current proposals in the gambling expansion bill further reduce the taxes on existing gambling interests via a maze of legalese.

The 2009 gambling expansion bill gives owners/operators of local electronic gambling machines 70 percent of the revenues – with only 25 percent to the state and 5 percent to the local government. In other states, governments take most, or virtually all, of the revenues.

Many of the same casino companies currently doing business in Illinois have historically operated Canadian casinos/ gambling facilities – where the tax rate is virtually 100 percent. Canadian governments generally keep all of the revenues while paying only management fees to gambling companies.

Instead of a continued consumer economy, Gov. James Thompson’s lameduck administration in 1990 chose to embrace a new casino/slot machine economy with concomitant taxpayer costs due to gambling addictions, bankruptcies and crime. About the same time, Virginia rejected the casinos and today has a budget surplus, while Illinois has the nation’s worst state budgetary crisis. States like South Carolina and Nebraska, which have rejected EGMs/ slot machines, have stable budgets. Despite two nearby Iowa casinos, the City of Omaha, with the concurrence of native Warren Buffett, rejected gambling interests and bulldozed the proposed casino at Aksarben racetrack. The new Aksarben park now contains a $500 million business and family-friendly development.

In the unstable Illinois legislative environment, businesses are avoiding and even leaving Illinois for business-friendly environs.

In this context, the $1.4 billion business expansion of Orascom Construction Industries opted against locating in Illinois, although Illinois offered the best incentive package. As a 2012 Chicago Tribune headline summarized: “Bye-Bye, Jobs: Corruption, Pension Debt and Tax Fears Cost Illinois a Big Investment.”

Similarly, the headquarters for Jimmy John’s is now moving out of Illinois, and Caterpillar has indicated that it will be expanding its operations in venues away from Illinois.

Illinois needs to collect the billions of dollars technically owed by gambling interests – before attacking the earned benefits and contractual obligations owed to the public servants of Illinois.

University of Illinois Prof. John Kindt is a senior editor and contributing author to the multi-volume United States International Gaming Report. He frequently testifi es before Congress/state legislatures on issues involving business and legal policy.