Illinois lawmakers and Chicago officials have proven that they can make lucrative industries into surefire losers.
In the casino business, the house always wins. Unless that house is in Chicago.
That was the conclusion of a feasibility study on plans to build a casino in the state's most populous city. The report from Las Vegas-based Union Gaming Analytics, which was hired by the Illinois Gaming Board to study the issue, basically concluded that buying Illinois bonds would probably be more profitable than building a casino in any of the five proposed sites in Chicago.
"Combined with the effective tax rate of 72% yields an expense structure that could exceed casino revenue," the study concluded. "Ultimately, the additional privilege tax on AGR specific to the City of Chicago results in none of the five sites being financially feasible. 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 on a greenfield project."
Put another way, an important part of one of Gov. J.B. Pritzker's legislative achievements, a statewide gambling expansion package, won't be able to support the taxes and fees that lawmakers stacked on top of it.
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Those willing to invest in bonds sold by both the city and state could do better. And it's worth noting here that not everyone is willing to gamble on the state's finances or its lawmakers. Franklin Templeton made it clear in May that it won't touch bonds offered by Illinois or the city of Chicago.
"As municipal bond analysts, our main question now is not just whether a city or state is able to pay their debts (we do the math), but this: are politicians willing to impair bondholders in order to honor their predecessor’s pledge to pensioners? Willingness to enact meaningful pension reforms is harder to analyze than the mathematical ability to pay debts," the company's municipal bond team wrote in a report.
As much as the rest of Illinois sometimes likes to ignore what's happening in Chicago, this shouldn't be discounted. Revenue from a Chicago casino, which has the potential to bring in more money than any other casino in the state, is part of the plan lawmakers put together to pay for a $45 billion statewide infrastructure plan.
If the casino doesn't bring in the expected revenue, or fails to get off the ground, it could affect infrastructure projects planned across the state.
City and state officials have been trying for years to get a casino in Chicago. After the Union Gaming Analytics report, it's likely back to the drawing board.
Big bets sometimes pay off, but when lawmakers stack the deck so heavily that no one is willing to play, it's clear that Illinois has a big problem.