Illinois has just seen a changing of the guard; in fiscal year 2017 VLT tax revenue exceeded that of the state’s ten casinos for the first time. The change has been a long time coming, but it is here to stay. The act that created a legal VLT industry in Illinois was signed into law by Governor Pat Quinn in 2009. Quinn was in a difficult position; he had been the lieutenant governor when his predecessor was impeached, thrusting him into the seat of power.
It was a very difficult time for Illinois. The state was facing a large budget deficit and billions of dollars of infrastructure projects were desperately needed. Quinn did his best to balance the budget by cutting expenses and raising taxes, but for the capital projects he needed more money than could be found by trimming expenses or increasing income or any other tax.
To the new governor, video lottery terminals seemed like the perfect solution. Tapping into the potential revenue stream would be easy and quick; no new bureaucracy would be needed, nor would the state have to find mega-casino companies willing to spend millions for licenses and then billions building new casinos.
The early estimates of the number of VLTs that would instantly spring up around the state and the money that would follow into the treasury made the idea a no-brainer. The first projections anticipated 60,000 VLTs and $500 million in annual revenue to Illinois.
Sadly, for Quinn and his ambitious infrastructure plans, things did not work out. Quinn was midway into his second term in office before there were any VLTs in the state, and revenue being generated was insignificant. The governor’s friends and advisors had obviously missed something when making their projections. They missed the potential glitches in the process.
There had been too many unexpected delays. First, it had taken nearly three years for the Illinois Gaming Board to approve the games and license the first operators. And even more significantly, the process for individual communities to opt in was much slower than anyone had anticipated. The local option was one of the key elements in the legislation; fulfilling that requirement put a damper on the governor’s revenue goals as many communities opted out initially.
The first time the Illinois Gaming Board reported revenues for VLTs was September 2012. In that month, there were 13 locations with a total of 61 games generating a total of $90,030.30 in revenue and $22,512.66 in taxes for the state. After nine months the revenue had grown to an average of $10 million a month with taxes averaging $2.7 million. In September 2013, the number of businesses with VLTs had grown to 2,469 and 10,210 units; revenue for that month was $29.6 million with $7.4 million in taxes. But there still wasn’t enough to fund Quinn’s projects.
However, I suspect by then Quinn had forgotten his plans. In he was in a fight for his job. He lost the fight when voters chose Bruce Rauner to be governor of Illinois. But even without a champion in the governor’s mansion, the number of VLTs in Illinois continued to expand month after month. The process was aided when many of the cities that had originally turned up their noses at the idea of slot machines changed their mind.
Statewide, more than 100 municipalities either overturned bans or approved new ordinances allowing video gambling by the end of 2016. The score card after five years is beginning to at least resemble Pat Quinn’s original plan. In September 2017, there were 6,249 establishments housing 27,681 video gaming devices that generated $109.9 million in revenue and paid $27.4 million to the state for the month.
In fiscal 2017, the state collected $296 million. That number will continue to grow, although the growth rate is slowing. Illinois may eventually reach 35,000 and possibly even 40,000 VLTs. And if it does the tax revenues will be approaching the $500 million that Quinn’s advisors predicted. But by then, Illinois may be in the administration of its third VLT governor. So after eight years, video gaming appears to have been a good idea for the state’s treasury.
It has however, been a bad idea for the casino industry in Illinois. With the growth of VLTs in the state casino revenue has dropped and of course as the casino revenue drops so do the tax payments. The people responsible for VLTs in Illinois did not consider the potential impact on the casinos or casino taxes. As politicians always seem to do, they just totaled up the new revenue without contemplating any revenue loss.
And again, as is usually the case, the majority of those politicians have moved on to other careers, leaving the problems to someone else. In the meantime, the casino industry in Illinois is under a great deal of pressure from excessive taxation and internal competition. In the last 15 years, each time Illinois has needed more money it has looked to gaming. The lawmakers have raised the taxes and fees and added video gaming.
It would be nice to say that it is only an historical trend, but that would not be true. The legislature considers expanded gaming each time it meets. Killing the golden goose while in search of a brighter shining goose appears to me to be a normal part of the political process. When the 2018 legislative year begins, we can anticipate more of the same. For the casinos in Illinois it can only get worse; the number of VLTs will continue to grow, and so will the state lawmakers’ appetite for more gaming revenues.
