Study Raises Doubts About Chicago Casino; Cites ‘Onerous’ Taxes, Fees

joliet casino
In this photo taken in May 2003, a patron plays a slot machine at the Empress Casino in Joliet, Ill. Seth Perlman / Associated Press
joliet casino
In this photo taken in May 2003, a patron plays a slot machine at the Empress Casino in Joliet, Ill. Seth Perlman / Associated Press

Study Raises Doubts About Chicago Casino; Cites ‘Onerous’ Taxes, Fees

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Updated at 12:45 p.m.

A new study out Tuesday finds “onerous” taxes and fees would make a proposed Chicago casino unfeasible for potential investors.

Las Vegas-based Union Gaming Analytics released its feasibility study, basing its findings on five potential sites identified by Mayor Lori Lightfoot.

The report notes that none of the sites — all of which are outside of the downtown Loop — is an ideal location for the kind of tourist traffic needed to support a casino.

Read the full report here.

Furthermore, the consulting firm cites an additional privilege tax a Chicago-based casino would need to pay. That’s in addition to a state tax imposed on all casinos in Illinois. All told, the effective tax rate on the casino would be about 72%, making it “very onerous” for an operator to make an acceptable profit, the report said.

“The amount of profit generated relative to total development costs, inclusive of licensing and reconciliation fees, represents at best a 1% or 2% return annually, which is not an acceptable rate of return for a casino developer,” the report reads.

It noted that other comparable casinos in the country have profit margins “in the low-to-mid 20% range.”

The report could throw cold water on part of City Hall’s plan to address a budget shortfall that could be north of $1 billion. Lightfoot is expected to address the report at a press conference Tuesday afternoon. She’s previously expressed skepticism that a Chicago casino would be attractive to investors, given the high tax burden.

“We have been clear from day one that the creation of a new casino for Chicago has to be financially viable and address the revenue needs of the City of Chicago,” Mayor Lori Lightfoot said in a statement. “While the study confirms our concerns about the tax structure that the legislature passed, we know that this can be addressed, and we look forward to working with the governor and legislative leaders to revise the legislation and ensure a new casino will be beneficial for Chicago’s communities and the entire state.”

The mayor also released the results of a survey her office put online to collect residents’ thoughts on the casino plan. The overwhelming response: A casino has support if it can generate enough revenue to shoulder the burden of the city’s increasing pension costs.

Meanwhile, a spokeswoman for Democratic Gov. JB Pritzker signaled he’s open to making changes to state law.

“This study provides valuable insights that will help make sure a Chicago casino works right for the both the city and state,” spokeswoman Emily Bittner wrote in an email. “We look forward to working with stakeholders, including the Mayor and General Assembly, to refine this approach and ensure that we maximize the opportunities for jobs for residents and revenue to address our financial obligations.”

A spokesman for Democratic Illinois House Speaker Michael Madigan did not comment on the report, and a spokesman for Democratic Illinois Senate President John Cullerton said his office was still reviewing it.

The location with the highest potential for revenue — the former Michael Reese Hospital site — is within the boundary of the 4th Ward. But local Ald. Sophia King has made it clear she has no interest in supporting what she sees as an insulting investment for her South Side ward. And even that site only has the potential to see profits of around 3%, according to the study.

The report works on the assumption that a Chicago casino would take two years to build and an operator wouldn’t see revenues until at least 2024. Though the consultant wasn’t able to determine the varying land costs of the five sites, it estimates a total construction budget of about $750 million. But the consultant warns that limited access to financing would mean the debt service on any borrowing would eat revenue.

The report suggests two alternatives: a city-owned casino financed through municipal bonds or slots at the city’s two airports. Though not mentioned in the report, the city of Chicago’s bond rating has hovered near junk status and has limited its ability to borrow for its own capital expenses. Adding about 500 slots at O’Hare and Midway could generate about $37 million, the report projects.

Union Gaming’s history in Illinois

Though the firm was selected by a competitive bidding process, Union Gaming won by default. Two companies besides Union Gaming expressed an interest in getting the consulting job, but neither submitted bids by the deadline.

Email records obtained by WBEZ show that Union Gaming had reached out to Gov. JB Pritzker’s administration as early as March, pitching their services in light of “recent developments in the Legislature regarding sports betting.” That’s according to an email Bill Allsup, the company’s director, sent Lisa Duarte, a deputy in Pritzker’s office.

In an attached proposal explaining their services and touting past clients, there’s a note about past work the firm did for the Chicago-based law firm Taft Stettinius & Hollister LLP behind the 2015 effort to expand casino gambling in Chicago. Taft hired Union to provide revenue projections and to help draft legislation in Springfield aimed at expanding casino gambling in Chicago. Union’s 2015 report concluded the city would benefit from a casino. Like past iterations of casino gambling, the legislation was never approved.

The new chairman of the state gaming board is from Taft.

Until recently, casinos have been barred from operating within city limits. Former Mayor Rahm Emanuel had pushed for a city-run casino to cover pension payments to Chicago’s police and fire retirement funds. He pitched the plan amid his hard fought reelection in 2015 but Springfield wasn’t as cooperative as it has been on the issue under Pritzker.

To make up an anticipated revenue hole, Emanuel ultimately went to homeowners. That’s why the City Council approved a historic, four-year, phased in property tax hike to cover more than a billion dollars in annual pension payments to its four pension funds.

WBEZ state politics reporter Dave McKinney contributed.