Snyder: The economic impact of video gambling

[July 12, 2012]  Below is a copy of the four-page document Mayor Keith Snyder presented to the members of the Lincoln City Council Tuesday evening.

The document discusses the economic impact video gambling could have on the city of Lincoln, its existing businesses and residents.

(Copy)

As we begin our discussion on video gambling I wanted to share the following information with you.

All of you recently received a packet of information from the Illinois Coalition for Employment and Business Growth out of Normal, IL. The Coalition is in favor of municipalities allowing video gambling and provided the attached letter which they professed to come from "The People of the City of Lincoln."

Since the Coalition's name suggests they are interested in "business growth" we should all take a closer look at the economic numbers they use in their documents and how those could truly impact the City of Lincoln going forward.

The Coalition states three times in the attached document that Lincoln will "lose out on nearly $270,000," video gambling will allow Lincoln "to capitalize on the projected $270,000," and opting out means Lincoln would not "receive the estimated $270,000 annually the machines are projected to earn" (emphasis included in the attached document). Thus, it is clearly stated that the City of Lincoln should expect $270,000 annually in additional revenue if it were to lift the prohibition and allow video gambling.

Where would the $270.000 come from?

Illinois' Video Gaming Act states that the tax on video gambling shall be 30% of the "Net Terminal Income." Net terminal income means the money put into each machine minus the money paid out to players. In other words, the net terminal income is the loss each player experiences; not what they win, but what they lose.

The Act states that 25% of the tax goes to the State of Illinois and 5% goes to the municipality or county where the machine is located. Thus, if a player loses $100 on a video gambling machine in Lincoln, $25 would go to the State of Illinois and $5 would go to the City of Lincoln.

For all of these $5 losses to add up to $270,000 in additional annual revenue for the City of Lincoln, how much money would have to be lost by Lincoln gamblers? You arrive at that number by dividing $270,000 by 5%. The answer is, for the City of Lincoln to earn $270,000 (as the promoters of video gambling say we will), $5.400.000 will be lost each year in video gambling machines in Lincoln alone.

If $5.400.000 is going to be lost by players; where will that money go?

The Video Gaming Act spells out the 30% tax mentioned above and it also spells out what happens to the "net terminal income" (or player losses) beyond the tax. The Act says that half of the amount beyond the tax will go to the licensed establishment (in other words, the owner of the location of the machine) and the other half will go to the "terminal operator" (the person or business who owns, services, and maintains the video gambling machine; the operator is prohibited by Jaw from also being the licensed establishment).

Thus, the percentage break-out for the distribution of the player losses is as follows:

35% to the licensed Establishment where the machine is located

35% to the owner/operator/servicer of the machine

25% to the State of Illinois, and

5% to the City

For the $5,400,000 in annual losses that the supporters of video gambling in Lincoln say will occur, that means that the following entities will receive the following amounts:

$1,890,000 annually to the Lincoln businesses who would have video gambling machines, $1,890,000 annually to the companies who will own and service the machines, $1,350,000 annually to the State of Illinois, and

$275,000 annually to the City of Lincoln

Setting aside the amounts to Lincoln businesses who would have video gambling machines and the amounts to the City (and assuming that every penny of those funds will actually be invested in our local economy), that means that $3.240.000 will be leaving the Lincoln economy annually as a result of video gambling ($1,890,000 to the machine operators and $1,350,000 to the State of Illinois).

What does that mean that $3,240,000 will be leaving the economy annually due to video gambling?

The $1,890,000 that will go to the machine operators will not be invested in Lincoln, neither will the $1,350,000 that goes to the State of Illinois. Remember, these are dollars generated on an annual basis. Does anyone actually believe we're going to be getting any portion of that $1,350,000 that will go to the State of 1I.linois back on an annual basis? We're lucky if the State provides us with 100% of the taxes they are already supposed to share with us under current law.

To get some perspective on this $3,240,000 annual loss, consider this: we spent months and a considerable amount of work to convince the voters to approve electric aggregation and to get a contract in place with an alternative supplier. For each of the next two years we are anticipating that we will save the people of Lincoln and Logan County approximately $2,000,000 each year.

That means that $2,000,000 that previously left Lincoln and Logan County and went to Ameren now will stay in Logan County and be used by families to stimulate and support our local economy.

The $3.240.000 that will be leaving Lincoln and Logan County because of video gambling is 162% of the savings we are anticipating from electric aggregation.

Put another way, in the course of a few months the Council could go from generating $2,000,000 to support our local economy to draining it of $3,240,000, a net loss of $1,240,000 to our local economy.

And, remember, the $3,240,000 loss from video gambling will be an on-going annual loss. Add that up for the next 25 years, and you've got a cumulative loss of $81,000,000, greater than the estimated impact of $73 million that we would have lost if Governor Quinn had been successful in his attempt to close Logan Correctional Center.

But what does video gambling hurt? Isn't it just people spending their own money?

That is partially correct; no one is going to force anyone to play video poker - each player will put his or her money into each machine. The money that will go into each machine will come from the disposable income of each household. If, as the gambling proponents contend, $5,400,000 will be lost in the machines in Lincoln each year, that means that the average amount lost in video gambling machines from each of our 5,883 households will be approximately $917.89. That's 2.3% of the average household income in Lincoln for 2009. How could the equivalent of a 2.3% loss in household income for every single family in Lincoln not be felt by every single business in Lincoln?

That $5,400,000 annual loss will not be matched with a corresponding increase in disposable income - it will have to come from a redistribution from existing businesses. Nearly every dollar lost in a video gambling machine will mean that same dollar will not be spent at a grocery store, a gas station, a furniture store, a thrift store, or another local business. Thus, a vote for video gambling will result in a redistribution of local spending and the $3,240,000 that will be leaving Lincoln annually.

The Illinois Coalition for Employment and Business Growth states that the average licensed liquor establishment in Lincoln that chooses to put in video gambling machines will receive $78.680 in gambling revenue each year (The Coalition says the City will receive $11,240 per establishment. Take that number and divide it by 5% [the revenue received by the City] and you find that each machine will generate $224,800. Thirty five percent of that number equals $78,680 in gambling revenue per establishment.). If someone came to you and said you could have another $78,680 in your business' bottom line it would be tough to turn down, wouldn't it? In fact, you can see why many of those establishments are contacting you asking for your support to allow video gambling.

As a City Council member, though, you have to know that the $78,680 that will flow to licensed liquor establishments have to come from somewhere. That somewhere else will be other Lincoln businesses.

Make no mistake: allowing video gambling in Lincoln will impact every single business in Lincoln that relies on receiving a portion of the disposable income of the residents of Lincoln.

Please consider the long term economic impact on Lincoln of your decision carefully.

John Kindt, professor of Business and Legal Policy at the University of Illinois summarizes the economic impact question succinctly:

"Gambling is an economic cancer on the body politic, it's a black hole of economics, and the only way for the U.S. and the world to get out of the current economic malaise is to grow the economy. Gambling shrinks the economy. It shrinks the consumer economy because people are dumping their money into non-productive activities instead of purchasing cars, refrigerators, computers and the essentials of life such as food and clothing."

We've spent a lot of time and effort trying to grow our Lincoln economy during this economic downtown. Let's not shrink it now.

This is a copy of the letter in the packet that Snyder spoke of early on in his document:

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Dear City of Lincoln President and Trustees:

We represent a large portion of your constituency in the City of Lincoln. As citizens, we find it imperative to make our voices heard. We felt it necessary to answer questions that recently have come to light involving the Video Gaming Act and its effect in the City of Lincoln.

1. Are there any immediate negative effects if you vote to "opt out"?

- Yes. First, the City of Lincoln will lose out on nearly $270,000 in direct annual tax revenue, not to mention sales tax. If the ban is passed, each of the 24 liquor license holders not allowed to employ the use of these video gaming devices would see drops in their property value, losses in patronage, and losses in much needed income leading to the small business's demise. In fact, many of the 24 liquor licenses in unincorporated Lincoln are veterans' halls and fraternal organizations that would not be able to compete with other businesses and they would be forced to close their doors. Uniformity between our City and its municipalities is imperative to protecting small businesses. Moreover, the ban could open the door to potential lawsuits against the City for the board creating these unfair business advantages through legislation.

2. Is the majority of the Illinois public in favor of "opting out"?

- No. Only 3 out of 102 counties and 24 municipalities (out of thousands) have opted out. Further, the city of Chicago, Aurora, Joliet, Springfield, Rockford, and Peoria (totaling approximately 3.6 million people), have not opted out and this reflects a large portion of the population of Illinois.

3. If you vote not to opt out, will the City of Lincoln have the revenues available to use as they wish?

- Yes. The Illinois Gaming Board rules and regulations will show you that the Gaming Board will enforce the proper use of the VGT machines, thereby alleviating any pressure on local law enforcement while the City of Lincoln will collect a projected $11,240 per establishment per year. Gambling already exists in our county and it is here to stay. So, why not keep its revenues local while promoting jobs and business growth and extra enhancements directly to the county? This will not invite more gaming to the city. Rather this will allow you to capitalize on the projected $270,000 from the 5% tax levied on the machines.

4. Is there a deadline to opt out?

- No. If the City of Lincoln votes to table this issue to a later date or votes against the ban, they may choose to opt out at any time in the future. However, if the City Council doesn't vote in the near future to approve the resolution, none of the liquor pouring establishments can apply for a gaming license. Over a thousand have applied already. Time is of the essence. Vote to make this happen. Save the small businesses and create good revenue for the City of Lincoln.

5. If we opt out, will the City of Lincoln still be able to collect funding from the Capital Bill?

- Yes, but that may change soon. Presently, there is pending legislation that would bar any governmental unit that opts out from receiving any funding from the Capital Bill. Nevertheless, even if the City of Lincoln received funding from the Capital Bill after opting out, the City of Lincoln would still not receive the estimated $270,000 annually the machines are projected to earn, in addition to job growth, and thousands of dollars in earmarked appropriations designated for the City of Lincoln (legislation HB0312 & 5B1221).

The People of the City of Lincoln

[Text copied from file received from Mayor Keith Snyder]