Chicago casino falls short of tax projections

When casino developers clamored to open Chicago’s first casino, then-Mayor Lori Lightfoot’s administration all but promised a windfall. City Leader predicted a “significant improvement in Chicago casino revenue,” the result of 2019 legislation that increased gambling in Illinois by nearly 50%.

And when Rhode Island-based Bally’s Corporation won the coveted casino license, Bally’s CEO Soo Kim estimated that the completed River West Casino would generate $200 million a year in tax revenue, with $50 million a year from the temporary location on Wabash Ave. the interim would flow.

The city has not budgeted for any revenue from the casino in 2023. But that of current mayor Brandon Johnson Budget 2024 plans to generate $35 million in local tax revenue from the casino. To achieve that goal, the temporary casino — now located at Medinah Temple, just off the Magnificent Mile and north of the Chicago River — would need to bring in about $2.916 million per month.

Bally's temporary Chicago casino on Wabash Ave.
The temporary Bally’s Casino in Chicago opened on September 9; So far, the resulting gaming tax revenue has been below the forecasts in the city budget.

Adobe Stock

According to data, the temporary casino has brought in between $694,913 and $778,964 per month in local tax revenue since the venue opened on Sept. 9 Illinois Gaming Board data — about a quarter of what needs to be generated to keep up with budget forecasts and a fifth of Kim’s more ambitious goal.

“I believe the results did not meet expectations because expectations were exaggerated,” said Roger Gros, editor of Global Gaming Business magazine. “Chicago is surrounded by world-class casinos. So why should suburbanites go there to play in a crowded makeshift casino when they can enjoy what they know?”

The findings are significant because under state law, tax revenue from the casino is used to fund Chicago police and fire pensions. This in turn should relieve the burden on the city’s corporate fund.

The police fund comprised $12.73 billion of Chicago’s $35.4 billion Net pension liability In 2022, the fire fund was $5.86 billion, according to the city’s audited financial reports. The police fund is funded at 21.5% and the fire service fund at 18.8%.

In November, the Illinois General Assembly passed a 3% annual cost-of-living increase for all retired Chicago police officers, increasing Chicago’s pension liabilities by $57 million to $96 million. This followed a Pension increase for Chicago firefighters, which increased unfunded liabilities by $180 million.

“Possibly. Deficits in casino revenue would have to be offset elsewhere. “It is our understanding that Chicago plans to budget the casino revenue for use in subsequent years’ budget so that it has time to make any necessary budget adjustments,” said Michael Rinaldi, head of local government ratings and lead Chicago analyst at Fitch Ratings, Chicago rated BBB-plus and a stable outlook.

He added that Chicago’s pension liabilities are a “significant ratings challenge” and that Chicago’s recent contributions above statutory requirements are a factor in Fitch’s positive rating actions for the city.

Harvey Zachem, managing director of public finance at Kroll Bond Rating Agency, said KBRA has always assumed that casino revenue was “a relatively small” source of funding for police and fire pensions. However, he said that KBRA considers, among other things, the financing of pension liabilities in its rating; Kroll rates Chicago General Obligation Bonds A with a positive outlook.

“Pension contributions represent a firm budgetary commitment that must be addressed each year,” he said.

“Since the city’s pensions are severely underfunded, annual funding represents a large budget component and is included in the assessment,” said Zachem.

“Fiscal support from casino revenues will be phased in over time, so deviations from previous forecasts will not have a significant impact,” said Jane Ridley, senior director and sector head for local government at S&P Global Ratings. “However, if casinos – or another source of revenue – are under budget, we expect the city to adjust its spending or identify alternative sources of revenue to make up any shortfall.”

S&P rates Chicago GOs BBB-plus and a positive outlook.

“In our view, the city’s ability and willingness to make additional contributions to prevent declines in pension funding levels is a key part of the positive outlook we currently have for the city’s GO bonds,” S&P’s Ridley said. “Without the additional pension contributions, we would see the city slip into structural difficulties again.”

LaKesha Gage-Woodard, public affairs finance director for the city of Chicago, noted that despite the deficits, the temporary casino’s results were still the second-best in the state, behind only the Rivers Casino in Des Plaines. And Bally’s has told the city it is “increasing efforts to increase traffic and revenue” at the Wabash location, which will begin operating 24 hours a day on Dec. 27.

The casino in suburban Des Plaines is by far the state’s revenue leader, nearly tripling the second-place Chicago venue’s numbers in October and November, according to the state report.

“The city regularly reviews the performance of all revenue sources and adjusts projections as necessary,” Gage-Woodard said, adding that the permanent casino will be “the primary driver of gaming revenue for pension obligations.”

A Bally’s spokesman said the company had no comment at this time. The casino operator bought the 30-acre River West property, the site of the old Tribune printing plant, in 2022 for $200 million. The permanent casino, estimated to cost $1.7 billion, will include a hotel, a theater, a riverfront park, and dining and beverage options, and city officials expect it will have a much broader appeal as the temporary location. Construction is scheduled to begin in 2024.

Still, Chicago government regulators warn that expectations for the casino are unrealistic. In a report from OctoberThe Civic Federation expressed concerns about the instability of gambling revenues in general and the recent proliferation of casinos in Illinois in particular.

“Illinois currently has 15 casinos and thousands of video gaming locations. With six more casinos made possible by the 2019 gaming expansion, including the Chicago Casino, the legalization of sports gambling, and a growing number of video gaming locations, not to mention nearby casinos in neighboring states.” “There is greater potential for market saturation “, the report concludes.

According to Gros, this comes amid a nationwide slowdown in gaming industry growth over the past five years. Georgia and Texas are now the only major states without casinos, he said, and growth in the others has been “incremental” and driven by concerns about tax revenue rather than sustainability.

“Illinois is one of the worst states for casinos,” Gros added. “High tax rate, too many casinos in too many locations, competition with slot parlors and uncertainty about future tax rates and rules. “Therefore, once a casino is built, there will be little capital reinvestment to add or expand amenities.” There is also the issue of licensing approvals.”

Crain’s Chicago Business recently reported that the process by which Bally’s obtained its Chicago casino license is being investigated by federal law enforcement and the Chicago Inspector General. A Chicago IG spokesman declined to comment.

Source link