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Gambling bill contains little-known tax breaks for Chicago-owned casino

Updated: November 24, 2011 12:25AM

Little discussed in the massive gambling expansion approved earlier this year by the Illinois Legislature were new tax breaks for casinos, the main beneficiary of which would be the planned city-owned casino in Chicago.

While every casino would see a tax reduction, the one-of-a-kind tax structure endorsed by lawmakers reserves the most favorable treatment for the most prosperous casinos.

The effect is that Illinois would collect tens of millions of dollars less annually than it would under current state tax rates from the casino expected to be the most profitable of them all — Chicago’s first gambling palace.

Instead of today’s progressive gaming tax rate that starts at 15 percent and peaks at 50 percent of gross receipts for the highest-earning casinos, the new graduated rates would peak at 40 percent, then start back down again to a low of 20 percent for casinos bringing in more than $350 million a year from slot machines. For the first time, the legislation would also create a separate, lower tax structure for table games such as poker and blackjack.

The new Chicago casino, which would be authorized to be twice as large as any other Illinois casino and more than three times bigger than any of them are currently, is conservatively expected to generate gross receipts of $600 million a year.

By comparison, the state’s best-performing casino last year, Elgin’s Grand Victoria, posted an adjusted gross of $287 million. The new Rivers Casino in Des Plaines is on pace to top that — partly at the Grand Victoria’s expense — and could also benefit from the tax break.

The American Gaming Association, the lobbying arm for the nation’s commercial gambling industry, said it is aware of no other state with the type of tax structure contemplated in the Illinois legislation.

The bill itself has been in a strange state of limbo since its passage May 31 with Senate President John Cullerton using a rare parliamentary maneuver to forestall sending it along to Gov. Pat Quinn, who has expressed misgivings with aspects of the bill but hasn’t clearly stated his intentions.

The preferential tax treatment for the Chicago casino is believed to be one of many issues that has caused Quinn to balk at giving his support to the legislation. Movement on the bill is expected soon with the Legislature’s veto session slated for next month.

City officials defend the lower tax rate on the basis that the only beneficiaries would be the taxpayers of the city of Chicago — as opposed to the shareholders of one of the corporations that own the other Illinois casinos.

Because Chicago will be investing its own money in a casino — and taking whatever risks are involved therein — it deserves a greater share of its casino’s revenue than does a privately owned casino, the argument goes.

Even at that, city officials say, the other casinos are entitled under the new law to the same favorable tax treatment if they produce comparable revenue, which would be pretty hard do because those casinos can only have half as many gaming positions as Chicago.

But no matter how you slice it, the city points out, the state will be reaping hundreds of millions of dollars in taxes and upfront fees from a Chicago casino that it won’t receive if Quinn kills the gambling bill.

For Quinn, though, part of the decision-making has to be how he justifies to the rest of Illinois taxpayers why a Chicago casino is special — and why the state won’t reap the usual benefit from the money wagered at what is expected to be its most successful casino.

A group of casino opponents who met with Quinn last month as part of his summer-long fact-finding effort said the tax rate issue was one of the points they stressed to the governor.

While my antipathy to gambling expansion is no secret, I haven’t dug in hard against this bill, in part because I admire its backers’ sheer audacity in tripling the state’s legalized gambling opportunities in one fell swoop. The legislation is a marvel of old-time political horse-trading with something for everyone — too much of the wrong things at the expense of the wrong people, in my view, but I hate to be a spoilsport, especially when so many are already blowing that money in Indiana.

I’ve come to believe there actually is an in-state agribusiness industry underlying horse racing that might be worth preserving, though not at the cost of grandfathering in another entitlement to the same set of track owners who have milked their own now-outmoded gambling monopoly for the past century.

Plus, I’m somewhat sympathetic to Mayor Rahm Emanuel, who really needs the casino dough, which he promises to use to build stuff. With the city’s bleak finances closing in on him, Emanuel figured out his best hope of having some Rich Daley-style play money at his disposal was to get a casino.

Otherwise, it’s going to be four long years of trying to do more with less, and what’s the fun of that.

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