Chicago Sun-Times: IS ILLINOIS GAMBLING SINKING?

ALTON -- Since its inception in 1991, riverboat gambling has delivered an economic bonanza in Illinois, generating billions of dollars for casino owners and for state and local governments hurting for cash.

But now Illinois gambling is at a crossroads.

The nine riverboats are paying the nation's highest casino tax, and they have seen sharp declines in attendance and revenue. Many have cut jobs and services while competing casinos in Indiana and Missouri are thriving.

At the same time, Illinois policymakers are weighing whether to expand gambling to Chicago, and opponents are calling more loudly than ever to abolish gambling. Riverboat owners and their hometowns warn that if the state doesn't lower the tax rate the results could be disastrous.

"If the governor sticks with his plans of [a 70 percent tax for the highest-earning casinos], we're not going to get any expansion of the boat, and things are going to die," said Don Sandidge, mayor of Alton, where Illinois' first riverboat casino, the Alton Belle, opened in 1991.

The lure of casinos, for governments and gamblers alike, is money. Lots of it.

More than 245 million people have visited Illinois casinos since 1991, according to the Illinois Gaming Board. They've left behind $16 billion at the slot machines, blackjack tables and roulette wheels, and the casinos have paid more than $5 billion of that to state and local governments in taxes.

All that cash has prompted lawmakers to take a larger share. In 2002, the state's graduated tax rate for casinos topped out at 50 percent. In 2003, it spiked up to 70 percent -- double the nation's second-highest rate, in Indiana. It generated $700 million for state coffers last year.

The casino industry responded with an economic slide it hopes will persuade legislators to back off.

Protesting the higher taxes and trying to preserve some of their profits, the casinos have cut more than 3,000 jobs, sliced wages and benefits by $50 million, and cut back hours, services and improvement projects.

The results have been dramatic. The boats' adjusted gross receipts have dropped more than 6 percent over the last two years, admissions were down more than 18 percent, and local tax revenue from the boats declined more than 8 percent. The tax rate is structured so casinos pay more in taxes as their revenues climb. Cutbacks meant less money coming into the casinos but also less money for the state.

Last year, the only casino number increasing statewide was the state's take of the revenue, but the 26 percent rise in casino tax dollars was only about half of what lawmakers hoped to get.

Casino owners say as long as they're asked to fork over so much money, there's no incentive for them to invest in the boats or encourage more patrons to come aboard.

"If the tax rate is not lowered, the state basically closes any opportunity for casino operators to invest one cent in Illinois," said Joe Domenico, general manager of the Harrah's Joliet boat, where attendance has dropped 37 percent and revenue has fallen 13 percent since 2002. "It makes no financial sense."

Bill Eadington, a gambling expert at the University of Nevada at Reno, said Illinois is sending mixed messages on gambling. The state hopes to benefit from the boats, but high taxes and strict regulations essentially work against that goal.

"It tends to be very short-term in thinking, these kinds of tax increases," he said.

Casinos and their allies contend the tax increases, and the boats' decision to cut back on hours and services, have pushed Illinois gamblers into neighboring states. Data from Indiana and Missouri show significant increases in attendance and revenue at their casinos over the last two years.

In Alton, just across the Mississippi River from St. Louis, a nearly $1 million decline in local tax revenue from the Alton Belle has forced city officials to cut dozens of vacant city jobs.

"Just because you see increased revenues to the state doesn't mean that's the best way to increase revenues," said Phil Roggio, the city's economic development director.

But Gov. Blagojevich's administration disagrees, and wants to renege on a sunset provision that would have scaled back the 70 percent tax rate. The state's budget deficit of at least $1.2 billion doesn't leave much room for tax cuts.

At the same time, those budget woes are giving gambling advocates extra hope this spring for expanding the amount of gambling allowed in Illinois.

Led by Senate President Emil Jones (D-Chicago), they want to deliver the mega-casino that Chicago Mayor Richard Daley has sought for years, saying it could generate $1 billion a year for state and local economies. It would be accompanied by new riverboats in the Chicago suburbs, and allow existing casinos to expand.

The state would take in money immediately by selling new casino licenses and more gambling space on existing boats. Huge amounts of tax money would roll in for years to come, supporters contend.

"We need to grow our economy, and grow our jobs, and use every legal means at our disposal," said Rep. Lou Lang, a Skokie Democrat and longtime supporter of gambling expansion.

But with expansion talks come a variety of hurdles.

One is how much new gambling Illinois can handle. Advocates argue there's no question a Chicago casino would thrive as a tourist hub, but putting new casinos in the suburbs raises concerns that they would just draw customers away from existing boats.

Another hurdle is the state's horse racing tracks, which want the ban lifted on slot machines at their facilities.

State revenue from the tracks has dropped from about $45 million a year in the early 1990s to just $12 million last year. The tracks and horsemen want legislators to let them install slot machines or give them a cut of casino profits.

"We could get lost in the mix," said Tony Morgan, president of the Illinois Harness Horsemen's Association. "If they [riverboats] don't want to compete with us ... then they ought to pay for our loss."

Lawmakers have been wary of voting for any gambling expansion bill without knowing whether Blagojevich would sign it.

Blagojevich jumped into the fray Thursday, proposing more slot machines at riverboats to pay for a $300 million increase in education funding, but he insisted he wouldn't consider any other expansion proposals this spring. A lobbyist for the boat owners applauded the idea, but said it would work only if the tax rate was also lowered. A spokeswoman for Jones said the Senate president would move forward with his proposal for new casinos.

Finally, there are gambling opponents, who say Illinois should turn its back on casinos entirely.

Rep. John Bradley (D-Marion) said studies show that the social and economic costs of pathological gamblers, crime and other problems far outweigh the economic benefits that casinos produce.

"Gambling has contributed to our economic hard times in the state of Illinois, and expansion of gambling is not the answer," Bradley said.

His bill to eliminate casino gambling has passed an Illinois House committee, though he acknowledges it will be extremely difficult to wean his fellow lawmakers off casino tax money.

At least one of Blagojevich's five new appointees to the Illinois Gaming Board, Southern Illinois University law professor Sheila Simon, said it's an idea worth considering.

The regulatory board itself is something of a wildcard. The board will have all new members by July, all appointed by the governor. Three said when they were appointed last month that they had never been to a riverboat casino, and two of those said they oppose gambling.

Associated Press writer Maura Kelly Lannan contributed to this report.