The state of Illinois has found it difficult to develop a consistent, rational policy on gambling in general and riverboat casinos in particular. That's because the politics of gambling is an exceedingly complex high-stakes game, fraught with conflicting claims by proponents and foes.

In a practical sense, riverboat gambling is a relatively insignificant industry in Illinois' overall economy, though its effects on economic development and fiscal matters cannot be ignored. In 1995, riverboat gambling directly accounted for less than 1 percent of the overall economic activity in Illinois — about $1.1 billion in a $340 billion economy. During a normal year, real economic growth in the state produces an increase in the Illinois economy eight times as large as the entire riverboat casino industry.

In fiscal terms, legalized gambling (the lottery, riverboat casinos and racing) is more important, but still relatively small compared to other sources of government funds. In 1995, tax revenues and fees from gambling accounted for 2.4 percent of all appropriated state source funds. Of the revenues from gambling, 23.4 percent was generated by riverboat casinos. The state lottery remains a much more important source of revenue, yielding about three times the amount as riverboats. Lottery revenues have not been seriously affected by the advent of casino gambling as yet.

Nevertheless, riverboat casinos are a serious business. The 14.8 million patrons who visited casinos in Illinois last year totaled approximately twice the combined attendance of the Cubs, White Sox, Bears, Bulls and Blackhawks games. On average, 40,000 people a day wager on riverboats 365 days a year. Neither are riverboat casino patrons casual visitors. They lose an average of almost $80 per visit. In 1995, Illinois was the fourth largest casino gaming state (measured by net losses) after Nevada, New Jersey and Mississippi.

While the state revenues from gambling, and more specifically riverboats, pale by comparison to major revenue sources such as income and sales taxes, gaming revenues have come to play an important part in the state's overall revenue picture. The $800 million of general funds revenue from the lottery and riverboat casinos has become a small, but indispensable part of the state's mix of revenues.

Gambling revenue has also been looked to increasingly as a source of funds for new programs. For example, in his 1997 budget, Gov. Jim Edgar proposed a $67 million increase in riverboat gaming taxes to help fund health care benefits for retired teachers. Legislative leaders killed the plan. However, the House called for a task force to study recent gambling-related proposals, including those dealing with taxes on boats.

At one time, many believed that the prospects of new gambling revenues, especially from the adoption of the lottery in the 1970s, would be a panacea for education funding in the state. While gaming revenues technically have been earmarked for education funding, their actual impact was to increase the overall size of the general funds pie, enhancing a wide range of state programs in addition to schools. This has led to a degree of cynicism on the part of voters who have concluded that gaming dollars have not benefitted education; this is not the case, however. Think of the consequences of an $800 million decrease in state revenues from gambling. Clearly, education and most other state programs would be seriously impaired.

After five years, riverboat casinos continue to be controversial. In 1990,

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The casinos have proven hugely profitable to many of the early investors, especially those located in the collar counties.

the governor and the General Assembly approved the issuance of 10 gaming licenses for boats to operate on waterways in Illinois, excluding Cook County and Lake Michigan. Gaming revenues, along with state and local taxes from the activity, increased steadily since the state's first boat, the Alton Belle, began operations in 1991. By 1995, all 10 licenses had been issued (although the Silver Eagle in East Dubuque has suspended operations because of competition from Iowa), and the industry has surpassed the $1 billion level in adjusted gross receipts (net patron losses from gambling). The casinos have proven hugely profitable to many of the early investors, especially those located in the collar counties.

The current debate involves the long-running issue of expansion of riverboat casinos to Cook County and Chicago. Initially, both Gov. Edgar and Mayor Richard M. Daley opposed casinos in Chicago. First the mayor and then the governor came to support casinos for that city, but they have yet to be approved by the General Assembly. Since 1992, the expansion of riverboat licenses has come to be a perennial issue, although the interest in the current legislative session has been uncharacteristically modest.

The arguments pro and con are relatively straightforward, but hard to evaluate quantitatively.

Proponents assert that the expansion of riverboats would provide: (1) economic development benefits (especially to Chicago), (2) much needed additional tax revenues to both the state and local governments and (3) a legitimate source of recreation to patrons who must now travel long distances to the state's other casinos. It is asserted that the economic benefits will extend beyond the direct income and employment generated by the casinos to hotels, restaurants and other travel-related service providers.

Opponents counter that the economic benefits are likely to be illusory, merely diverting rather than creating new economic activity. Moreover, they assert that the expansion of gambling will increase problems associated with compulsive gambling that will swamp the positive impact of gambling. Opponents also claim that casinos will lead to increased criminal activity and may change the character of cities where it is allowed.

Not surprisingly, there is little agreement among the parties about the magnitude of the costs and benefits of gaming.

The politics of expansion is equally complex. Proponents include those hoping to receive new licenses, especially in potentially lucrative areas such as Chicago and suburban Cook County. Many public officials in these areas (as well as state politicians) view casinos as a source of relatively painless new tax revenue as well as an economic development stimulus.

Gambling opponents consist of a mixture of those who oppose gaming on moral grounds (such as church groups) and those who are presently benefitting from current gambling activities in the state. The existing riverboat license holders do not want their protected position eroded by the entry of new ventures. Similarly, race track and off-track betting facilities, which have already been hurt by casinos, do not want additional competition for the gambling dollar.

With so much at stake on both sides of the issue, politicians have been unable to settle on a consistent policy toward gambling. In fact, there are several fundamental questions policy-makers might address.

Figure 1. Riverboat adjusted gross receipts, 1991-1995 In millions of dollars $1,200 $1,000 $800 $600 $400 $200 $0   1991 1992 1993 1994 1995	Figure 2. Riverboat admissions, 1991-1995 In millions 25 20 15 10 5 0   1991 1992 1993 1994 1995
Source for both graphs: Illinois Gaming Board, 1995 Annual Report

34 ¦ May 1996 Illinois Issues

State revenues, FY 1996 All appropriated funds

Major state gambing receipts, FY 1996 All appropriated funds

Source: 1997 Illinois State Budget

At one time, gambling was viewed in such a dubious light that it was either banned or made subject to sumptuary taxes, those designed to discourage activities on moral or religious grounds. This is hardly true today. A case in point is the extensive (and many would say excessive) advertising promoting participation in the state lottery. Should the state promote one type of gambling in a crass manner while forbidding other types of gaming?

Similarly, why should some areas of the state be allowed to house (and possibly benefit from) riverboats while they are forbidden in other jurisdictions?

One possibility for solving that problem would be for the state to license a given number of riverboats and then allow them to locate where they please, as long as they are approved by the local jurisdiction where they operate. The state could then limit the overall number of enterprises while not dictating their location.

The present policy that provides windfall profits to owners who are protected from competition by the state could be modified by auctioning the available franchises for a fixed period to the highest qualified bidder. The state rather than the license holders would then reap the windfall benefits.

In regard to compulsive gambling, are the problems generated by casinos different in kind from other forms of legalized gambling or from other problem consumption activities such as alcohol and tobacco?

Given the scope of these questions, it is hard to believe that Illinois' current mix of gaming activity is exactly right. If the proponents are correct in assessing the benefits of casinos, expansion would seem appropriate. On the other hand, if the opponents are correct about the problems associated with gaming, the state would be wise to consider ways to reduce the level of activity in the state.

J. Fred Giertz is an economist in the Institute of Government and Public Affairs at the University of Illinois at Urbana-Champaign.

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