Riverboat struggle with tax increase - Tuesday 12th of April 2005

Though the state's share of revenue from Illinois' riverboat casinos increased slightly last year, most of the nine boats saw declines in both receipts and admissions.

The reason for this paradox: taxes. Illinois has far and away the highest taxes on casinos in the country, according to the Illinois Commission on Forecasting and Accountability, an economic analysis office of the General Assembly.

Casino operators say higher taxes are forcing them to raise admission and fees, cut hours and staff and put off new investment in the facilities.

While total tax revenue from riverboats increased nearly 4 percent in fiscal 2004, the increases were due to tax changes as riverboats experienced decreases in receipts and admissions for the second straight year.

Riverboats hauled in $1.6 billion in receipts last year, which was a 7.8 percent decrease. The number of gamblers boarding the boats -- 15.2 million -- dropped by 16.9 percent.

By contrast, the gaming states bordering Illinois saw their receipts grow by nearly 8 percent. In addition, casino admissions in the other states exceeded Illinois' riverboats by an additional 11.3 million in Indiana, 4.3 million in Iowa and 9.7 million in Missouri.

Analysts point to July 1, 2003, when a law raising casino taxes went into effect, as the starting point for the downward slide. Under the legislation, riverboats earning more than $250 million are taxed at 70 percent. Casinos earning more than $100 million -- of which there are currently eight -- are taxed at 50 percent.

In comparison, Indiana has the second highest tax rate, 35 percent.

According to the Illinois Commission on Forecasting and Accountability, those changes had the biggest impact on the declines in receipts and admissions in fiscal year 2004. During that time, riverboats in Elgin and East St. Louis were the only ones to see increases in both categories.

At the commission's meeting earlier this month, Executive Director Dan Long told lawmakers the reason for the declines was due to casinos cutting back on promotions because of the high tax rate.

Jim Muschinske, revenue manager, said although the state did receive more riverboat revenue last year, the high tax rate would have a negative long-term effect on riverboats.

By rolling back the tax rate, however, Muschinske said revenues would be down for the upcoming fiscal year beginning July 1.

"I don't think we will see the numbers of (last year)," Muschinske said. "The 70 percent tax rate will take some time to recover from."

The commission estimates Illinois will collect $588 million in the next fiscal year if the tax rates are lowered -- a drop of about $80 million from last year. It warns, however, that if the higher rates continue state revenue growth could become stagnant or even decline.

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