Untangling the Chicago Casino Conundrum – A Two-Phase Approach

Image courtesy Prayitno via Flickr CC

• By Christina Harris and Jordan Bailly, MPC Research Assistant
• May 29, 2020

On May 23, the Illinois General Assembly passed reforms allowing a casino to proceed, putting this conversation back in the public consciousness. Despite this win, there may be other changes still needed down the line. MPC recommends a two-phase approach to implementation, as it provides adaptive flexibility to achieve a successful and lucrative Chicago gambling venue. In this piece, first published on February 24, 2020, Christina Harris and Jordan Bailly outline what a phased approach to a casino could look like in our region.

Folks hoping to gamble in Chicago (or see some of the revenue help with the budget) will likely have to wait a bit longer.  News regarding a potential Chicago based casino flooded the city last summer and evolved quickly over only a few short months.  What began in the Capitol building in June 2019 with the passage of Senate Bill 690, was put on hold when lawmakers adjourned without voting on Mayor Lori Lightfoot’s proposal to rework the bill’s tax structure. 

SB 690 would have allowed for a single large Casino within Chicago, legalized sports gambling at existing facilities, and introduced slot machines at the city’s two major airports.  Mayor Lightfoot moved quickly, in July 2019, announcing five sites on the city’s south and west sides with an eye towards not only increasing tax revenue for the city, but also spurring economic development in disinvested communities outside of the downtown core. 

The five sites selected by the Mayor’s office were:

1. Roosevelt Road and Kostner Avenue on the west side
2. Pershing Road and State Street close to the Dan Ryan Expressway and Guaranteed Rate Field
3. Harborside near the port and Lake Calumet
4. The former Michael Reese Hospital site in Bronzeville
5. The former U.S. Steel site on the far south side

Mayor Lightfoot did, however, later note that list was not definitive. “I’m not saying that a downtown site is off the board,” she said, while reiterating the locations were submitted as the first step of an economic feasibility study required by the casino legislation. 

In August 2019 the Illinois Gaming Board released the City of Chicago Casino Financial Feasibility Analysis focusing on the potential feasibility of a casino on each of those five sites, tax and fee generation, potential cannibalization of existing casinos, and future recommendations.  Ultimately the report’s authors found that while a Chicago casino could generate significant revenue, the tax structure laid out in SB 690 would make constructing and operating a casino in Chicago unfeasible to developers and operators. The report noted that with a combined state and city tax burden of approximately 75% of gross revenue, even the most profitable site of the five being scrutinized- the former Michael Reese Hospital site - would likely operate at razor thin low single digit profit margins.  The report also clarified that a casino located within Chicago’s downtown core, close to existing tourist amenities, would have the highest potential for revenue and patronage.

These findings and recommendations ultimately led to Mayor Lightfoot seeking revisions to the legislation in Springfield last fall  While the state legislature voting to adjourn without considering the Mayor’s proposed revisions may seem like a setback, it provides an opportunity to re-evaluate the City’s priorities surrounding casino development and potential strategies moving forward.

Two Phase Approach: Providing Revenue and Economic Growth

As this decision-making process continues, it is critical to clarify what the City hopes to achieve through the development of a casino - ultimately what are the City’s goals? This answer should anchor the planning strategy, with criteria calibrated to determine the most appropriate site, consistent with these objectives. For example, a site which maximizes revenues will raise a different set of considerations than if the objective is to stimulate economic growth in a disinvested area. Additionally, stimulating economic growth is not necessarily the same thing as creating wealth-building opportunities for neighborhood residents.

A Chicago casino represents an opportunity to think boldly about how a sound planning and linked development investment strategy can help transform a disinvested community into a thriving place. A downtown-centric approach represents a logical near-term answer to where a casino should be located to provide much needed city and state revenue, while allowing time to do the challenging work of figuring out how the investment could unlock vibrancy in other neighborhoods around the city. 

A phasing strategy balances the city’s and state’s urgent need for revenue with the ultimate goal of reinvesting in neighborhoods to provide opportunities for all residents to thrive, a central tenant of Mayor Lightfoot’s city investment strategy. A downtown-centric cite would offer a more immediate opportunity to bring in much needed revenue, while also providing the time needed for the City to plan for the strategic implementation of a neighborhood-based entertainment and retail venues. This temporary casino could operation for a couple of years with its operations shifting to the neighborhood destination once the site has the necessary infrastructure to support its success.

To be clear, this means the location of the casino operation would change in time, and there is some precedent for that. The City of Aurora, Ill., is currently exploring the potential to relocate a downtown, riverfront casino to another area where it is believed it will thrive (and opening up the downtown site for another use).

MPC proposes the City follow a two-phase approach in order to maximize both revenue and economic growth simultaneously. Phase one would maximize revenue in the short-term while Phase two would build from this momentum over the long-term with a strategy to  spur economic growth,  neighborhood revitalization and meaningful wealth-building for existing residents and businesses within proximity of the casino.

• Phase One: Prioritizes the quick acquisition of new revenue. Allows for the establishment of a casino without a tremendous initial outlay of city resources. In this phase, the most important consideration is the ability to generate revenue through customer attraction, which is accomplished with a downtown-centric location. This allows the city and state to acquire a new revenue stream in a short amount of time.

Criteria:

• Locate to Maximize Revenue: Location taps into additional market segments to generate the largest amount of revenue possible.
• Attract Out-of-Town Patrons: Location provides an add-on to an already vibrant city to draw in visitors.
• Improve Development Feasibility: Restructure current legislation and prioritize the use of a pre-existing building with large floor plates.
• Promote Equitable Economic Development Beyond Casino Footprint: Create a fund to capture a portion of the casino revenue and use it to finance economic development in disinvested areas.
• Connect Community Benefits and Social Impact: Ensure casino and its jobs area accessible physically accessible, by locating by transit, and figuratively accessible by aligning workforce development resources to build a pipeline for skilled gaming positions. Additional provisions for a community benefits agreement that includes targeting hiring should be included.

• Phase Two: Prioritizes site selection that catalyzes investment in a Chicago community. Allows for the creation of a successful casino that integrates with a neighborhood entertainment designation and becomes an asset to drive community wealth. This will require an economic development package that includes both private and public investment to deliver a casino plus other investments, like a stadium, museum, entertainment venues, etc. In the end, it may not even be the casino itself that is the primary driver of the success of that multi-faceted development. This should be one outcome of a citywide planning process.

Criteria:

• Revitalization or Reconnection Opportunity: Location prioritizes areas with infrastructure in place, such as existing buildings, transit and other major transportation networks.
• Strong Community Institutions and Partners: Stakeholders, community leaders, community anchors and civically engaged residents work together to buffer negative impacts and integrate the casino design and ancillary development into the community.
• Potential to Absorb Public and Private Investments: Location has capacity to absorb both private and public investment. Casino needs to be coupled with public investments in streetscape, open space, infrastructure and private market investments.
• Accessible and Proximate to Downtown: Location needs to tap the tourist market for revenue and should be close and easily accessible to the downtown.
• Adjacent to Other Cultural and Recreation Amenities: Location should be accessible from other Chicago cultural and/or entertainment institutions to attract visitors, stringing together a series of unique destinations for visitors to travel to outside of the downtown.

Potential Phase One sites could include the oft-mentioned and state-owned James R. Thompson Center, existing tourist attractions like Navy Pier or Block 37, or other government-owned buildings close to downtown. Phase Two sites under this strategy could be much broader in scope - developing existing surface lots adjacent to the United Center or Guaranteed Rate Field, decking over sections of expressway, or dormant waterfront land outside of downtown.

If a casino is going to move forward – and the critical role the projected revenues played in justifying the 2019 State of Illinois Bill suggest this discussion is not going anywhere, even if it has seemed dormant recently – then it is an opportunity for visionary thinking. Thinking that requires being clear about goals and creativity about the casino siting and design, but also about how to embed it in a broader neighborhood investment plan. It also means being willing to think outside of the “one casino forever” trap. A multi-phased approach would give us a near-term infusion of revenue, a sense of the real demand for a casino and the time needed to really develop a strategy, and ultimately a different facility that meaningfully builds wealth for Chicagoans outside downtown.

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