THE WATCHDOGS: Rahm Emanuel pushing to beat the odds on Chicago casino

Three years ago, Mayor Rahm Emanuel moved a legislative mountain, helping persuade Illinois lawmakers to give Chicago a city-owned casino under a compromise that also included four new casinos in other towns and video gambling at horse tracks.

Despite that plan’s promise of hundreds of millions of dollars to City Hall and the state, then-Gov. Pat Quinn vetoed it, citing concerns about city ownership and gambling-industry contributions to politicians’ campaigns.

The city and state’s financial problems have only gotten worse since then. So now Emanuel is back in the dealer’s chair, this time trying to sell legislators on a Chicago casino he wants to use to shore up the city’s severely underfunded police and firefighter pension funds.

Emanuel has personally discussed a proposed city casino with all four legislative leaders, as well as with Republican Gov. Bruce Rauner and his staff, sources told the Chicago Sun-Times. The talks have come as two legislative hearings on gambling expansion are scheduled in downtown Chicago over the next two weeks, with the first set for 10 a.m. Monday at the Bilandic Building.

There’s a lot riding on the mayor’s casino hopes.

Under Illinois law, the city expects to pay $839 million into its public safety pension funds next year, up $550 million from this year. In all, the city’s 2016 budget deficit stands at $300 million, leaving the mayor with few revenue-generating options short of a property-tax hike he’s trying to avoid.

State legislators — working under a May 31 deadline to wrap up the legislative session — are aiming to fill a $6 billion budget hole. So they have as strong an incentive as Emanuel to use gambling to try to fill some of that void.

Still, history isn’t on the mayor’s side when it comes to getting a casino deal done. Dozens of gambling-expansion bills have been offered and then fizzled out in Springfield in the past two decades.

And Emanuel’s plan faces challenges that didn’t exist in 2012: Since then, thousands of new video gambling machines at bars, restaurants and truck stops have created the equivalent of nearly six new full-size casinos in the Chicago region, raising questions about whether the gambling market is saturated.

Then, there’s Rauner, who could try to leverage gambling expansion to win support for parts of his “turnaround agenda” — a state government cost-cutting plan that faces opposition from pro-Democrat labor unions.

So far, two bills that include a city casino have surfaced in the Capitol, each introduced by Rep. Robert Rita, D-Blue Island, whose district includes parts of the city’s South Side. Both call for the state to own and operate the Chicago casino. Emanuel, though, wants the city to own the casino.

Sen. Terry Link, D-Vernon Hills, and Senate President John Cullerton, D-Chicago, have been discussing a third bill with Emanuel’s office that Link says would create a large, city-owned casino in Chicago, as well as add new casinos in the south suburbs and in Rockford, Danville and Lake County, Link’s home turf. The plan also would allow year-round video gambling at Arlington Park and Illinois’ four other horse tracks.

“We’ve just received another proposal from the city. We’re reviewing that now,” Link says. “We’re trying to see how it looks compared to what we had. It’s a pyramid. If you pull one brick out, the whole thing could fall apart.”

If four other new casinos and video gambling at horse tracks end up part of the package, a Chicago casino would bring in $457 million a year from gamblers, according to projections drawn up in March by the Legislature’s Commission on Government Forecasting and Accountability. That’s based on the city casino having 4,000 gambling positions — three times the size limit now imposed on existing casinos in Illinois.

Under city ownership, the Chicago casino — if taxed at the same rate as privately owned casinos — would pay more than $200 million a year in gambling taxes to the state, according to a Sun-Times analysis of Illinois Gaming Board data.

Emanuel is hoping the Legislature would reduce those taxes, considering that the city would need to build the casino and hire a private company to operate it.

“Chicago can, and should, be treated differently than a for-profit enterprise,” says a City Hall source, speaking on condition of anonymity. “There are no shareholders. All the profits would be reinvested in Illinois citizens. It’s very important that the legislators and the governor get that message.”

Under Rita’s state-ownership plan, the city and the state would evenly split profits from a state-built casino in Chicago. The two sides would share a profit of about $230 million a year, factoring in borrowing costs and assuming annual management fees of $150 million.

But the Illinois Casino Gaming Association — representing existing casinos, which say they’d be hurt by any expansion of gambling — argues that management fees would come to at least $250 million. That would cut the profit to $130 million.

The proliferation of video gambling machines, which began operating in Illinois in late 2012, adds another ingredient to the mix — even though the city of Chicago bans video gambling at bars and restaurants.

While the machines generated $165 million in taxes last year for the state and $33 million for local governments, they’ve also siphoned business from existing casinos, which are taxed on a graduated scale. The less money the casinos win from gamblers, the lower the tax rates they pay.

Maintaining the status quo on gambling for now might be the smart bet, says Civic Federation President Laurence Msall, whose nonpartisan organization analyzes city and state finances.

“There is a real question whether a Chicago casino would be able to provide adequate long-term benefits to the city without cannibalizing revenue from the state,” Msall says.

But Emanuel sees a Chicago casino staving off the flow of people to northwest Indiana’s five casinos, which took in about $1 billion from gamblers last year and brought in $307 million in taxes for the Hoosier State. The city casino also likely would anchor a larger entertainment complex designed to attract tourists and conventioneers. Potential sites include the old Michael Reese Hospital, McCormick Place or even somewhere on the West Side near the United Center.

“Some people think close to McCormick Place is a good thing; others think it’s a bad thing,” the City Hall source says. “We’re a city that offers a lot, but the knock is when you come here as an exhibitor, you only do business. You want it accessible to conventioneers, but maybe you want it somewhere else.”

The tourism argument might fly with Rauner, who until 2013 headed the board of Choose Chicago, the privately run city convention and tourism operation.

While campaigning for governor last year, Rauner said, “I don’t like gambling.” But he also said, “I believe casinos and gambling [are] here. We should allow local governments to decide for themselves.”

Link says Rauner and his staff are “definitely a lot more open-minded” about expanding gambling than Quinn was.

“They may not be proponents of gambling, but they realize this is something that would benefit a lot of people,” Link says. “I’ve met with [Rauner]. I know the mayor’s met with him. It’s a thing we’re moving along.”