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The controversial funding source could prove to be a shaky foundation for the state’s capital plan

by Jamey Dunn

Last May, the Illinois General Assembly passed the state’s first capital construction program in 10 years. The National Conference of State Legislators called it the most comprehensive state-level job-creation plan in the country, and according to Gov. Pat Quinn, the program will generate 439,000 jobs in the next six years. To help pay for the $31 billion package, legislators voted to legalize video poker machines in thousands of bars, restaurants and truck stops throughout the state.

“This is a crucial economic recovery initiative that will generate what’s needed most in Illinois: jobs, jobs, jobs,” Quinn said when he signed the bill. “Illinois Jobs Now! provides many long-awaited improvements to our bridges and roads, transportation networks, schools and communities.”

However, the controversial funding source could prove to be a shaky foundation for the capital plan. The law lets local governments decide whether they want to allow video poker in their communities, and those that do will get a cut of the money raised.

But with more than 60 municipalities opting out — including the possibility of Chicago — and a Republican candidate for governor pledging to repeal the Video Gaming Act if elected, some legislators now say they may have to go back to the drawing board to find money for the construction program.

When the Video Gaming Act was passed, the anti-gambling backlash was almost immediate. Groups such as Illinois Church Action on Alcohol and Addiction Problems mobilized to help communities keep video gambling out.

“We started sending letters to mayors and all the county board chairmen in Illinois,” says Anita Bedell, executive director of ILCAAP, which is the state’s most-visible anti-gambling organization.

Bedell says legislators sold video poker as a voluntary tax because people can choose not to gamble. But she says it is not a voluntary act for gambling addicts. “Someone might choose to play once or twice. Once they get addicted, the choice is gone.”

Bedell criticizes members of the General Assembly for passing the bill too quickly and not considering the monetary and intangible costs associated with a large gambling expansion, such as law enforcement, regulation and addiction treatment.

“I just thought they wanted to get something passed. They got an agreement and they went for it. … There’s a lot of things they didn’t consider,” Bedell says. “It’s not based on the reality of gambling and how much money they can actually get out of it.”

Proponents of the Video Gaming Act say bars throughout the state are already paying out for video poker illegally, and the legislation will bring the practice out from under the table. They say it will add regulations to protect gamblers from being cheated by crooked machines, while also bringing in needed revenues for the state.

“That’s the one thing that nobody seems to want to talk about. We already have video gaming in Illinois. It’s just run by the mob,” says Sen. Mike Jacobs, an East Moline Democrat.

Bedell argues the state should enforce the laws against such gambling instead of just legalizing it because it is widespread.

The Illinois Gaming Board plans to unroll video poker across the state by the end of the year. Trying to create uniformity and regulation in what was previously a shadow industry will take some time, says Gene O’Shea, spokesman for the board.

He says the three biggest challenges for the Gaming Board are hiring enough staff to implement the program, writing a standard set of regulations for all participants to abide by and creating a statewide computer reporting system to monitor machines for fraud. Establishments that want to participate will have to obtain board approval for the machines, which will be linked into a computer system so the board can track such statistics as wins and losses.

Legislators looking for capital projects to create jobs in their areas want to see the process move more quickly. “I was a little frustrated by the pace of the rollout of the capital bill and the video poker,” Jacobs says. “I am somewhat critical of the Gaming Board that they haven’t rolled this out.”

Another funding component for the capital projects must be sanctioned by the U.S. Department of Justice. Illinois has asked for approval of a pilot program to sell lottery tickets online under the supervision of a private management firm. When the funding legislation was passed, Quinn’s Office of Management and Budget estimated online lottery sales and video poker revenues would generate about $525 million.

“Of course, obviously, it’s going to be a little less than we anticipated,” Kelly Kraft, a spokeswoman for Quinn’s Office of Management and Budget, says in response to many local governments choosing not to have video poker.

Quinn’s office sent a letter in December asking the Department of Justice to review the plan to sell lottery tickets online. The legislation calls for tickets to be sold within the state but also provides for expanding sales outside Illinois if the federal agency approves.

Tracy Owens, a spokesman for the Illinois Lottery, says the department is still vetting the plan. “It’s kind of a waiting game. You wait until the [Department of Justice] chooses to respond.”

Some legislators say the uncertainty surrounding video poker and the online lottery program could seriously damage the capital plan.

“I was concerned that the whole capital bill could fail as a result of the way that this bill was so poorly drafted,” says Rep. Jack Franks, a Marengo Democrat. “It was recklessly done, it was foolishly done and not well-thought-out.”

Franks says he worries that court cases challenging the legality of video poker and Internet lottery sales may sink both options as funding sources.

In the meantime, communities are left with the choice of allowing video poker at local bars and restaurants.

The Rockford City Council considered banning video poker but decided against it. Democratic Ald. Ann Thompson-Kelly says, in the end, she thought her city needed the tourism dollars that video poker could draw. She says she considered the problem of gambling addiction and the opinions of local clergy, but that ultimately it was not a difficult decision.

“We looked at how many dollars are leaving this community every day. … We have buses leaving Rockford every day … going to places that have the machines,” she says. “When you are marketing your area, you need as many attractions as possible.”

Thompson-Kelly says she thinks many northern Illinois communities rejected video poker because of concerns that it might cut into revenues from area casinos. “If I was 10 blocks from a casino, and I benefited from the revenue of that casino, I’d opt out, too.”

Community leaders from local governments that have decided not to participate in video gaming say their choice was based on the values of their residents, not financial interests.

“Members of the [DuPage] County Board and the county board chairman just had a visceral reaction to the idea of having a little casino on every corner in DuPage County,” says Brien Sheahan, a DuPage County Board member who introduced the measure that barred video poker from that county. “The reaction from ordinary DuPage citizens has been overwhelmingly in favor of opting out.”

DuPage County was the first municipality to vote down video gaming after the capital bill passed.

Sheahan says he hopes the move his county made will encourage others to follow suit. “By being first, we received extensive media coverage, which was important in terms of creating momentum and encouraging other counties and municipalities to ban video poker. The board and chairman were very cognizant of the important symbolic value of the second largest county in Illinois being the first to opt out.”

However, some lawmakers are now reconsidering giving local governments, such as DuPage County, such a choice without repercussions. They say if communities want capital projects and the jobs that come with them, they should have to participate in the program that is helping to fund the projects.

“I noticed that people have no problem taking state money for their local projects but that some people don’t want to pay,” Jacobs says. “If you don’t have the video gaming money, you don’t have a capital bill.”

Jacobs introduced Senate Bill 2816, which would stop construction projects from going to areas that decide against video poker. “My community has been supportive. They feel that if you are going to take, you’ve got to give.”

Bedell says bills such as Jacobs’ place unfair pressure on local governments to allow video poker. She says some community leaders are waiting to see what the legislature does before they make their decisions.

“The law did not contain a penalty for counties and municipalities that opted out, and it would be unfair at this point to go back and change that provision,” Sheahan says.

Sen. Terry Link, a Waukegan Democrat and chairman of the Senate Gaming Committee, says legislators may have to come up with a new funding source for the capital bill because large counties such as DuPage, Kane and Lake are opting out of video poker. He says if Chicago does not participate, new funding would likely become a necessity. “I think that’s when you really have to seriously look at an alternative.”

If a municipality already has a ban on gambling, it must be lifted before local establishments could offer legal video poker. Chicago has such a ban, and Mayor Richard Daley has made statements indicating the City Council is not considering repealing it at present. The legislature's Commission on Government Forecasting and Accountability estimates that revenues generated from video poker could drop by between $95 million and $177 million if Chicago does not participate.

Link suggests expanding existing gaming in Illinois, such as casino and riverboat gambling, and including video poker machines at racetracks. He says such expansions would be “acceptable to members of both sides of the aisles of both houses. … It would not be construed as bringing [gambling] into neighborhoods. It would be a bill that could alleviate a lot of the tensions they have in each of these communities because [it] wouldn’t be bringing [gambling] into the taverns or restaurants.”

But Senate President John Cullerton, a Chicago Democrat, disagrees that any new revenue will be needed. Rikeesha Phelon, the spokeswoman for Cullerton, says when revenue projections for the capital plan were made, the fact that some communities would opt out was factored into the equation. Cullerton also does not support any proposal to pull projects from communities that decide not to allow video poker.

The results of the general election next November could also have a major impact on video poker. Sen. Bill Brady from Bloomington, the Republican candidate for governor, opposes gambling expansion and says he would move to end the legalization of video poker if he is elected to the state’s top office. Brady says if bars, restaurants and truck stops already have legal machines, he would not try to take them away, but he plans to stop the practice from spreading to new establishments.

“Obviously [any machine owners] who made an investment should be grandfathered in, but we should cease the expansion of it,” Brady says. “It’s a false sense of revenue. I don’t think it’s proper in terms of the direction the state needs to head. … I believe the best thing to do is eliminate it.”

A large chunk of the revenue for the capital plans does come from more traditional and predictable sources. Removing a sales tax exemption on soft drinks, candy and some hygiene products is expected to bring in about $150 million. A tax increase on alcohol will generate about $113 million a year. Hikes in driving-related fees, such as for licensing and registering vehicles, will raise more than $330 million a year. In total, the state will contribute about $11.5 billion to capital projects, which will leverage federal and local funds.

“[Video poker] is only a portion of the capital bill, and I think everybody is thinking that this is the full funding … but it’s not,” Link says.

While the future of some revenue streams for Illinois Jobs Now! is uncertain, projects are moving ahead. Illinois will have sold more than $2 billion in bonds for capital construction by the end of the month, according to John Sinsheimer, the state director of capital markets.

Sinsheimer says, “That is cash in the bank for construction projects — roads, bridges, sewers, schools, you name it.”

Illinois Issues, April 2010

 

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bullet “That’s the one thing that nobody seems to want to talk about. We already have video gaming in Illinois. It’s just run by the mob.”

– Sen. Mike Jacobs,
East Moline Democrat