Lincoln City Council: Lincoln bar owners dispute proposed increase in terminal gaming fees

 

[February 09, 2022] 

Monday night’s voting session of the Lincoln City Council began with an extended period of public participation.

In the galley Monday night were a number of bar and restaurant owners who were there to express concerns about the city’s plan to raise the annual video gaming terminal fee from $25 per unit to $250 per unit.

The city receives an annual permit fee, as well as a monthly percentage of each terminal's receipts. The following discussion was in reference to the annual terminal fee per machine.

Addressing the council on the topic was Rusty Rail Pub owner Steve Hannel, Fox Hole owner Alecia Sutton, Lucky Dog owner Holly Maestas and Francisco “Chico” Petinga owner of Café’ Billiards.

The first to address the council was Hannel. He began by noting that the city in 2021 made $450,000 from gaming (state shared percentages) as dictated by the state of Illinois. He said that the increase in the terminal (permit) fee would yield $36,000 (estimated.) He asked why the city felt they needed that $36K (from permit fees) when they were already making $450K (percentage of the receipts from the terminals.)

Hannel went on to say that the bars in town suffered a large blow from the pandemic and are now dealing with inflation while still trying to recover from the pandemic. He said the bars have suffered and he would ask the city council to please not approve the proposed increase.

City Treasurer Chuck Conzo commented that he knew the gaming establishments were shut down for a total of five months during the coronavirus and he was sure that had hurt the business owners.

Hannel went on to say that he didn’t understand why the city wanted more money. He said that the revenue collected by the city from 2019 to 2021 had doubled from about $220,000 to $450,000. He said that had to be extra money for the city that couldn’t actually be included in the budget because the city didn’t have any way of knowing how much they would make.

He also said that for the city it was “free money” in that there were no overhead costs attached to it.
 

Steve Parrott asked how many gaming terminals were within the city limits now. Conzo said the last record he saw there were 168. Hannel said that the city has lost a few of those terminals.

Hannel said it made no sense for the city to take the extra money. He added, “the only reason you are doing it is because you can.”

Mayor Tracy Welch spoke to the number of terminals in the city. He said in 2020 there were 162. In 2021 there were 179. Currently applications have been approved for a total of 240 terminals within the city limits, though not all those terminals have been approved by the state and installed.

Welch later said he was concerned about the number of terminals that have been approved. He said that he has heard Lincoln referred to as “mini- Vegas” and it is not a characterization he appreciates. He said that he had addressed this with the liquor commission, of which he is a member. Lincoln Liquor Commission made up of Welch and Aldermen Rick Hoefle and Tony Zurkammer, have agreed to put a halt to issuing new licenses. He said what is approved is approved, but the city will not issue new licenses again until the total number of terminals in the city drops below 200.

Hannel had said that when the games were first made legal under the new rules of the state, the rules had also included that those who distribute the terminals were to pay half of that registration fee. With the most recent changes in the state laws, those providers are no longer going to be paying any of the fees.

Zurkammer said that was not what he understood from the law. He interpreted that it appeared that the distributors, who are actually the owners of the machines, must still pay half with the bar owners paying the other half.

Hannel said he had talked with his distributor and was told that they would not be paying any portion of the fees in the future. Zurkammer read aloud what he was seeing on his computer regarding the change. In what he read it stated that in non-home rule communities, which Lincoln is, the fee would be $250 with the cost shared equally between the distributor and the business establishment.

City Attorney John Hoblit began doing further research on the topic as the conversations continued.
 

Rick Hoefle said that he didn’t like to raise the cost of anything for constituents and local businesses, but it was good for the city to do so and that had to be taken into consideration. He said that he would push to use added revenues to work on streets and alleys in town, which would benefit everyone one. Hoefle concluded that the gross revenues from gaming is public information and he has seen what folks like Hannel are making and “it is awesome.”

Hannel countered saying, “I know what you make too (city fees collected) and you pay nothing.” He went on to say that his overhead costs eat into what he benefits from the machines, and he needs every penny he gets from gaming.

Hannel noted that the city had raised the Class B license fees for liquor that included the gaming. He asked about those businesses in town that are doing gaming only. He was told that every business who wishes to have a gaming license must pay for the same liquor license as the bar owners, even if they don’t sell liquor.

Welch said that the city had taken into consideration the struggles of the bars and restaurants in town. He said that the city had pro-rated license fees to make up for that time they were closed during covid. He added, “Mr. Bateman and I fought for you. We have been to see you personally to see how we could help.”

[See: Welch, Bateman and Davenport meet with Lincoln restaurant and bar owners facing Tier 1 mitigation]

Wanda Lee Rohlfs said right at the moment there is a difference of opinion on who is responsible for the entire fee. She asked if it turned out to be correct that the distributor has to pay half of the fee, would that be enough to help the bar owners.

Hannel said it would certainly help. He added that the city should understand that every cost he has within his business has gone up due to the dramatic increases in inflation. He said alcohol costs are up, delivery fees are up and his overhead for his building is up.

Bateman asked what would happen to the bars if they were to not have gaming at all. Hannel, along with the others sitting in the galley said they would all go out of business without gaming.

They further discussed the portion of the fee that would be paid by the businesses versus the distributors. Hoblit said he was still researching. Hannel asked if the city would table the motion at least until there was greater clarification on that point.

Zurkammer said he would support tabling it. Zurkammer went on to say that regarding the percentage of the receipts from the terminals; the state sets the percentage that the city gets. He said the city’s percentage was set in 2012 and has not changed. Meanwhile, the state has increased its percentage three times since 2012.
 

Welch said he was making no attempt to “throw anyone under the bus,” and would name no names, but, according to the gaming website one business in town had made $86,000 from gaming in 2019. In 2020 the same business only made $60,000, but in 2021 that business made $174,000. Welch said, so versus the last normal year, 2019, the business’ revenues had nearly doubled. He said his question would be, have the costs at that business doubled as well?

[See: Illinois Gaming Board Video Gaming Report – Lincoln – Pdf]

Hannel said he would pose the same question to Welch. He said as far as he could see the city’s revenue had also doubled and it cost the city nothing.

Welch said that indeed the costs to operate the city were going up and when they saw increases those increases were in the $100,000 dollars.

Hannel then asked Welch, if the cost to operate the city was all that high, was the extra $36,000 the city would make with the fee change “really that big a deal.” Welch went on to say that the city considers every decision carefully and that “no one said ‘let’s go get’me!’ (regarding the change.)”

Sutton, who owns the Fox Hole was the next person to speak. She began by asking if the bars were the only ones the city was “going after.” Welch said that every business that operates a gaming terminal will be treated the same with the same fee expected.

Sutton said that the city should never have permitted the gaming in gas stations. She told the council that contrary to popular belief bars are not places to go and get drunk. They are businesses with social aspects that bring people together to the point that regular patrons become somewhat of a family. She also told the council that she sells beer with no profit and relies on gaming to make money.

Sutton asked specifically, “Did you think about us when you gave the licenses to gas stations?”

Welch said that the aldermen work with a “double-edged sword.” He explained that yes, there are people who don’t like to see the number of gaming establishments in town, but at the same time, they don’t want empty buildings. He said that the city has to keep in mind business growth and development. In addition, he said that the city didn’t decided who was entitled to apply for a license. The types of businesses that could apply was determined by the state.

[NOTE: The city does not issue the license for the games. That is done by the state only. What the city does do is issue the liquor license that is required by the state in order for businesses to apply for gaming. The city is permitted to assess a terminal fee that goes along with the liquor license.]
 

Sutton said that the issue is that those gas stations are corporate owned with lots of money in their pockets. They don’t care about the fee because they are so big with so much money. For the bar owners, the businesses are small and locally owned. The fees are damaging to the smaller businesses.

Steve Parrott said that he felt the real problem goes back to the day when the city council approved dropping the sales ratio requirements. When the city had originally adopted the gaming rules those rules said that 60 percent of the business’ annual revenue should come from sale of products other than gaming with only 40 percent of the gross coming from gaming. He added, “I think we messed up and we need to talk about that too.”

Holly Maestas, who owns the Lucky Dog, said she had found information about the 50/50 split between bar owners and distributors and it said that the city would have to place that in its ordinance. Otherwise the distributors pay nothing.

Welch said that the council could certainly modify the language if that was what was needed.

The last person to speak on behalf of the bar owners was Chico Petinga owner of Café’ Billiards. He said that his business was more of a restaurant than a bar, but he does have gaming. He said he supported the bar owners and stood with them in their requests from the city.

In the course of the discussion, Zurkammer had said he supported tabling the agenda item. Bateman also said he would support tabling it. He asked about the process, would the entire situation go back to the liquor commission? Welch said, yes, the liquor commission would review the entire situation and make a revised recommendation to the council. Parrott said he would prefer to hear directly from the commission rather than just receiving a written recommendation. Welch said that the members of the liquor commission are himself, Hoefle and Zurkammer, so all three would be present to discuss and field questions when the revised recommendation came before the council.
 

Bateman said he wanted the city to do its due diligence on the topic, so he didn’t want to set a time line on when the council would be called to vote on the topic. He said he thought the commission and the council needed ample time to do their research and make the right recommendations.

The council then briefly discussed the procedure for long-term tabling of an item. It was explained that the item will remain on the agenda, and at the next voting session if the council is not prepared to vote there can be a motion made to keep the item on the table.

It is not expected that this topic will be discussed at the next committee of the whole. The liquor commission will take on the topic and deliver a recommendation at a later date.

[Nila Smith]