Chicago’s new casino falling short of tax revenue projections
4 min read
When casino developers were clamoring to run Chicago’s first casino, then-Mayor Lori Lightfoot’s administration all but promised a windfall. City
In November, the Illinois General Assembly passed a 3% annual cost of living raise for all retired Chicago police officers that added between $57 and $96 million to Chicago’s pension liabilities. That followed a
“Any shortfall in casino revenues would need to be made up elsewhere, with our understanding being that Chicago plans to budget casino revenues for use in the ensuing years’ budget, providing it time to make any necessary budget adjustments,” said Michael Rinaldi, head of local government ratings and lead Chicago analyst for Fitch Ratings, which rates Chicago BBB-plus with a stable outlook.
He added that Chicago’s pension liabilities are a “key rating challenge,” and Chicago’s recent contributions above statutory requirements were a factor in Fitch’s positive rating actions on the city.
Harvey Zachem, managing director of public finance at Kroll Bond Rating Agency, said KBRA always expected casino revenues to be “a relatively minor” source of funds for police and fire pensions. But he said KBRA does consider funding of pension liabilities, among other factors, in its rating; Kroll rates Chicago general obligation bonds A with a positive outlook.
“Pension contributions represent a fixed budget obligation 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 an input to the rating,” Zachem said.
“Budgetary support from casino revenues is phased in over time, so some variance from projections to date doesn’t have a significant impact,” said Jane Ridley, senior director and sector lead for local governments at S&P Global Ratings. “However, if casinos — or any other revenue stream — come in below plan, we would expect the city to adjust their expenditures or determine alternative revenue sources to accommodate any shortfalls.”
S&P rates Chicago GOs BBB-plus with a positive outlook.
“In our view, the city’s ability, and willingness, to make additional contributions to prevent pension funding levels from sliding backwards is an essential part of the positive outlook we currently have on the city’s GO bonds,” said S&P’s Ridley. “Without the additional pension contributions, we would view the city as having slipped back into a structural imbalance.”
Shortfalls aside, the temporary casino’s results were still second in the state, behind only Rivers Casino in Des Plaines, City of Chicago Finance Director of Public Affairs LaKesha Gage-Woodard noted. And Bally’s has told the city that it is “ramping up efforts to increase the traffic and revenues” at the Wabash location, which will begin operating 24/7 on Dec. 27.
The casino in suburban Des Plaines is by far the state’s revenue leader, almost 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 forecasts, as necessary,” Gage-Woodard said, adding that the permanent casino will be “the primary driver of gaming revenues to the pension obligations.”
A Bally’s spokesperson said the company had no comment at this time. The casino operator bought the 30 acres of land in River West, the site of the old Tribune printing plant, for $200 million in 2022. The permanent casino, estimated to cost $1.7 billion, will include a hotel, theater, riverfront park and food and beverage options, and city officials expect it to be a much bigger draw than the temporary site. Construction is slated to start in 2024.
Still, Chicago government watchdogs have been warning that expectations for the casino are unrealistic. In
“Illinois currently has 15 casinos and thousands of video gaming locations. With six additional casinos enabled 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 concluded.
This comes against the backdrop of a national slowdown in the growth of the gambling industry over the past five years, according to Gros. Georgia and Texas are now the only big states without casinos, he said, and growth at the others has been “incremental” and driven by a preoccupation with tax revenues rather than sustainability.
“Illinois is one of the worst states for casinos,” Gros added. “High tax rate, too many casinos in too many places, competition with slot parlors, and uncertainty when it comes to future tax rates and rules. Therefore, once a casino is built, there will be little capital reinvestment to add amenities or expand. There’s also the matter of approving licenses.”
Crain’s Chicago Business recently
