Illinois now has more locations to legally place a bet than Nevada does. More than 30,000 video slot and poker machines are in operation at restaurants, truck stops, fraternal organizations and storefront parlors across Illinois. Here, customers gamble at Huck’s, a truck stop in downstate Mount Vernon. | Whitney Curtis / ProPublica Illinois

The bad bet: How Illinois bet on video gambling and lost

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With the last streaks of daylight fading on a mild October evening, the cars pulled up in waves at Piero’s Italian Cuisine, an old-school Las Vegas hotspot known for its osso buco.

Cadillacs with tinted windows. Taxis and rideshares. A black Bentley limousine and a white minivan. Men and women emerged, most casually dressed, there for the first of a series of posh, private events hosted by the video gambling industry during the 2018 Global Gaming Expo, North America’s largest gambling trade show. They included gambling executives, lobbyists — and about a dozen Illinois lawmakers.

The politicians had flown to Las Vegas to learn about the latest developments in the gambling industry and to discuss its expansion in Illinois, including proposals that would license six new casinos in the state, legalize sports betting and increase the wagering limit on video gambling machines. The plans, lawmakers have said, would brighten the state’s gloomy financial picture without having to raise taxes or cut spending.

It wouldn’t be the first time Illinois has placed a big bet on gambling. Nearly a decade ago, state lawmakers legalized video gambling. Today, more than 30,000 video slot and poker machines operate outside casinos here, more than any other state in the country.

The machines, which legislators said would generate billions of dollars in revenue for the cash-strapped state, are spread over 6,800 establishments, dotting highways and towns from Winnebago County in the north to Alexander County in the south. Step outside the borders of Chicago, where video gambling remains illegal, and you will see feather flags, billboards and neon signs advertising video slots and poker in bars and restaurants, truck stops and storefront gambling parlors.

Illinois now has more locations to legally place a bet than Nevada.

But the meteoric rise of video gambling has proven to be little more than a botched money grab, according to a ProPublica Illinois investigation of a system that has gone virtually unchecked since its inception. Based on dozens of interviews, thousands of pages of state financial records and an analysis of six years of gambling data, this unprecedented examination found that, far from helping pull the state out of its financial tailspin, the legalization of video gambling accelerated it and saddled Illinois with new, unfunded regulatory and social costs.

This collaboration between <a href="https://www.propublica.org/illinois/" target="_blank" rel="noopener noreferrer">ProPublica Illinois</a> and <a href="https://www.wbez.org" target="_blank" rel="noopener noreferrer">WBEZ Chicago,</a> co-published with th

This is a collaboration between ProPublica Illinois and WBEZ Chicago, co-published with the Chicago Sun-Times. It’s the first story in an occasional series “The Bad Bet,” investigating video gambling in Illinois.

RELATED: How the analysis was done

Video gambling companies have exploited the deeply flawed legislation to reap hundreds of millions of dollars in profits, while the cities and towns that bear the brunt of the social costs related to gambling receive a fraction of those proceeds.

At every key point, state officials made decisions that undercut taxpayers and helped the companies that market video gambling. Lawmakers accepted a far smaller share of the profits than what’s charged in other states, giving the companies a much larger piece. They went forward with the program assuming the machines could be installed in Chicago — they couldn’t. They ignored the inevitable regulatory and social costs. And they did not anticipate the extent to which video gaming would cut into casino profits, which are taxed at a higher rate. The net effect: People in Illinois gambled a lot more, but most of the additional money ended up in the coffers of the companies behind video gambling.

As states and cities across the country consider gambling expansions to stabilize wobbly finances, Illinois’ experience with video gambling stands as a cautionary tale, a lesson that has become even more urgent since the U.S. Supreme Court in May opened the door to the spread of legalized sports betting.

Illinois lawmakers from both parties passed the Video Gaming Act in 2009 with little debate and unrealistic revenue projections. They did so during the depths of the worst financial crisis since the Great Depression, promising that video gambling would help fund a $31 billion building program to create jobs and upgrade the state’s infrastructure.

Within months of the law’s passage, the state began borrowing hundreds of millions of dollars against the anticipated revenue. Bond documents claimed video gambling machines would raise $300 million each year to help cover the debt payments.

It wasn’t until 2017, eight years after the legalization of video gambling, that the state came close to collecting that amount. By then, video gambling had brought in less than $1 billion to pay the bond debt — $1.3 billion short of what lawmakers anticipated.

But the costs of video gambling had already exacted a heavy toll on the state.

Video gambling booms, promised windfall falls short

Since Illinois legalized video gambling in 2009, tens of thousands of machines have been installed all over the state, except in communities where local ordinances prohibit them, such as Chicago. By hitting “play” below, you can watch the revenue generated by the machines grow over time and how those revenues failed to meet the projections of legislators.

As gambling moved outside casinos, tax revenue earmarked for state schools funding dropped, resulting in a $70 million decline in education funding between 2013 and 2017.

The regulatory expenses for video gambling proved far higher than anticipated, forcing the state to divert $83 million from casino taxes to support the work of the Illinois Gaming Board, run by five part-time members.

In recent years, the gaming board has been plagued by accusations of questionable conduct, including bid-rigging and violations of the state’s Open Meetings Act. Current board officials said their legal issues stem from conflicting, often vague statutes and that there never was any intent to violate the law.

Not surprisingly, problem gambling has become a major issue in Illinois, affecting hundreds of thousands of people, with little response from Springfield. Numerous studies from around the world have found that access and density of gambling options drive addiction. Yet Illinois is one of only two states with legalized video gambling — the other is West Virginia — that has never conducted research to measure the prevalence of gambling addiction.

Despite pledges to increase funding for addiction services to match the massive growth in gambling outlets, the state spends less than it did before legalizing tens of thousands of algorithm-driven machines so adept at making people play faster and longer that they have earned nicknames like “electronic morphine” and “the crack cocaine of gambling.”

Video gambling machines have become so adept at making people play faster and longer that they have earned nicknames like “electronic morphine” and “the crack cocaine of gambling.” | David Alvarado / ProPublica Illinois

Video gambling machines have become so adept at making people play faster and longer that they have earned nicknames like “electronic morphine” and “the crack cocaine of gambling.” | David Alvarado / ProPublica Illinois

More often than not, these machines are found in lower-income communities, according to a ProPublica Illinois analysis of demographic and gaming board data. Devices can be found in Berwyn but not Oak Park, in Waukegan but not Lake Forest, in Harvey but not Palos Park. In fact, as the average income level of a municipality decreases, the average number of machines increases.

The companies that own and operate the machines, called terminal operators, have reaped nearly $2 billion in revenue since video gambling went live in September 2012. Recently, that largess has become concentrated in a handful of companies, with the top five terminal operators controlling nearly 50 percent of the video gambling market, according to internal gaming board reports.

The companies have made those profits in no small part because their trade group, the Illinois Gaming Machine Operators Association — which picked up the tab for the Las Vegas dinner — wrote the Video Gaming Act. The group declined to comment for this story.

The General Assembly passed the legislation without scrutinizing the details, including the low tax rate on the machines. At 30 percent, with 25 percent going to the state and 5 percent to local governments, it’s much lower than most other states with video gambling. In West Virginia and South Dakota, video gambling is taxed at 50 percent. In Oregon, where the state owns and operates video gambling machines through the state lottery, the tax rate is 73 percent. Pennsylvania, which recently legalized video gambling but hasn’t yet gone live, has set a tax rate of 52 percent.

Even casino gambling here is taxed at a higher rate, with a progressive formula that can reach as high as 50 percent.

States where video gambling is legal outside of casinos

SOURCE: State gaming agencies, Census Bureau. NOTE: Data on the number and location of machines in Pennsylvania is not yet available. That state only recently legalized them, and no machines had gone live by the time of publication. | David Eads / ProPublica Illinois

State and local politicians have benefited from video gambling. In 2010, the year after the Video Gaming Act was passed, the industry’s lobbying arm contributed $131,205 to political campaigns, five times the amount of its contributions the previous election cycle. The group’s donations total more than $830,000 since 2009. One company, Effingham-based J&J Ventures, has contributed an additional $600,000 to state and local races, the most of any terminal operator, according to an analysis of state campaign contribution records.

Video gambling has been a boon for bars, restaurants, truck stops and some fraternal organizations as well, providing additional revenue that has undoubtedly helped proprietors and created or maintained service industry jobs. But while some individual businesses have made money from video gambling, the municipalities that have welcomed it haven’t fared as well.

That’s because the Video Gaming Act allocates just 5 percent of the revenue from the machines to local governments, even though they shoulder the bulk of the social costs related to gambling. Since 2012, the roughly 1,000 towns, cities and counties with video gambling have received $283 million in tax revenue, according to an analysis of gaming board data.

A ProPublica Illinois review of financial records shows that even in towns saturated with video slot and poker machines, the devices in most cases accounted for roughly 1 percent to 3 percent of local revenue in 2017.

Rockford, for example, brought in nearly $1.6 million in tax revenue from the machines that year, more than any other local government. That amounted to about 1.3 percent of the city’s $129 million in general revenue, according to financial data submitted to the comptroller’s office.

In 2013, 63 percent of the state’s population lived in communities that banned the industry, mirroring statewide polls that repeatedly showed a solid majority of residents were opposed to it. By 2017, industry lobbying efforts and tight local finances had flipped the percentages so that 63 percent of the state’s population lived in communities with video gambling.

Despite the broken promises of video gambling, some lawmakers are pushing for another big bet on the industry, with some members of the General Assembly eyeing an expansion vote in the early days of Gov. J.B. Pritzker’s administration. Many Chicago politicians also want to open the city to gambling. All of the front-runners in the city’s Feb. 26 mayoral primary support some version of a casino, and some want to bring in video gambling as well.

That’s why the crowd gathered at Piero’s in October, enjoying dinner at the iconic, white-tablecloth restaurant featured in the Martin Scorsese mobster film “Casino.” Among them was the co-owner of the industry’s primary lobbying firm, which shepherded the Video Gaming Act through the legislature in 2009: Joseph Berrios, former chairman of the Cook County Democratic Party and the longtime county assessor until being voted out of office last year.

Berrios is an ally of House Speaker Michael Madigan, the lead sponsor of the Video Gaming Act in the House before ceding that role to state Rep. Lou Lang, D-Skokie. Lang was a staunch gambling proponent before he resigned from the General Assembly this month.

As Berrios stepped from the cab that October night, wearing a white guayabera, he paused for a moment before entering the restaurant.

“We’re an industry running strong,” Berrios said. “After January, we’re going to be looking at a bunch of things to make us a lot stronger and a lot better.”

Then-Cook County Assessor <a href="https://chicago.suntimes.com/columnists/brown-berrios-moonlights-in-las-vegas-for-video-poker-friends/" target="_blank" rel="noopener noreferrer">Joe Berrios was in Las Vegas in October 2017</a> on behalf of the Illinois

Then-Cook County Assessor Joe Berrios was in Las Vegas in October 2017 on behalf of the Illinois Gaming Machine Operators Association, one of the clients of his lobbying firm. | Provided photo

A rushed new law

On the afternoon of May 21, 2009, the crowd packing the gallery overlooking the ornate Illinois House chambers, with its gilded ceiling and crystal chandeliers, became so raucous that Rep. Art Turner, the Chicago Democrat presiding over the session, issued an admonishment.

“I’d like to ask if we could tone down the noise and also remind the guests in the gallery that we do not allow clapping and shouting,” Turner reprimanded the gambling supporters and labor leaders who had gathered to watch the final vote on a bill to generate revenue for a $31 billion spending plan, dubbed Illinois Jobs Now!

Less than 48 hours earlier, a five-page proposal tinkering with an obscure provision of estate tax law had morphed into the 280-page bill now before the House. Included in the revenue-generating legislation was the Video Gaming Act, the largest gambling expansion in Illinois since the creation of the state lottery in 1974. Lawmakers were counting on video gambling to generate nearly a third of the revenue for Illinois Jobs Now!

It was a critical period for the state and its politicians.

For more than a decade, Illinois’ fiscal issues had prevented the General Assembly from funding infrastructure projects.

The 2010 election loomed, and the state was reeling amid the worst economic downturn since the Depression. Unemployment had reached double digits. Homes were being foreclosed. Public sentiment across the country had soured on incumbents, giving rise to the Tea Party movement and making politicians from both parties skittish.

Illinois Senate President John Cullerton, D-Chicago, introduced the Illinois Jobs Now! bill. It passed the General Assembly with strong bipartisan support. | Ashlee Rezin / Sun-Times

Illinois Senate President John Cullerton, D-Chicago, introduced the Illinois Jobs Now! bill. It passed the General Assembly with strong bipartisan support. | Ashlee Rezin / Sun-Times

Months earlier, Gov. Rod Blagojevich had been arrested on corruption charges and impeached, becoming the fourth Illinois governor since the 1970s — both Democrat and Republican — to be indicted.

Supporters of the gambling law told their colleagues it would help fund the $31 billion building program to create jobs while repairing roads, constructing schools and completing other infrastructure projects across the state.

Illinois Jobs Now! gave incumbents positive news to run on.

Introduced by Senate President John Cullerton, D-Chicago, the bill represented a rare display of bipartisanship in Springfield, with Republican leaders signing onto the proposal as lawmakers heaped praise upon one another for working across party lines.

The bill passed both chambers by large margins.

Along with legalizing video gambling, the bill increased sales taxes on a host of products, including candy and liquor, while boosting fees for vehicle licenses and registrations. Bond documents show that legislators projected $1 billion overall in annual revenue, with $300 million coming from video gambling.

The gambling industry had spent years lobbying to legalize video gaming, but opponents — a coalition made up largely of church leaders — had managed to block previous efforts. This time, the lobbyist for anti-gambling forces learned of the bill only that day, leaving opponents just an hour before the measure was introduced.

The Illinois Gaming Board, the state agency tasked with regulating the new industry, didn’t receive much more notice. It had learned about the legislation the week before — even though the law would increase the complexity of its work and exponentially expand the number of entities it oversees without providing additional funding or staff to do it.

“We were not consulted prior to its passage, so we had no knowledge of what was in the bill,” said Aaron Jaffe, a former state legislator and Cook County circuit judge who was then the board’s chairman.

Madigan declined a request for an interview. Cullerton could not be reached. Tom Cross, the House minority leader when the Video Gaming Act was passed, said he voted for it but is not a staunch supporter of video gambling.

“It’s not something that I think is good for the state,” Cross said.

Former Senate Minority Leader Christine Radogno, who was part of the leadership team that negotiated the Illinois Jobs Now! legislation, said lawmakers should have spent more time examining the video gambling industry.

“Certainly, in hindsight, it should have been studied more,” she said in an interview. “My personal assessment is that it seems like a very lonely and unhealthy thing to be doing. I have no doubt that it preys on problem gamblers and vulnerable people.”

Though former Gov. Pat Quinn previously had denounced video gambling as “a bad bet,” he reversed course and signed the Video Gaming Act into law on July 13, 2009. | Rich Hein / Sun-Times

Though former Gov. Pat Quinn previously had denounced video gambling as “a bad bet,” he reversed course and signed the Video Gaming Act into law on July 13, 2009. | Rich Hein / Sun-Times

Gov. Pat Quinn, who had taken office less than six months earlier, after Blagojevich’s impeachment, had previously denounced video gambling as “a bad bet.”

Running for re-election, Quinn reversed course and signed the bill into law on July 13, 2009.

In a recent interview, Quinn said the need to stimulate Illinois’ economy during a historic economic downturn trumped his reservations about video gambling. He added that he insisted on an “opt-out” clause that would allow municipalities to block video gambling in their towns.

“I wasn’t particularly excited about video gambling,” he said. “It’s very hard to get legislators to vote for funding. I had to make a decision, and it was imperative to get people back to work.”

Unintended consequences, immediate shortfalls

The speed and lack of planning that marked the legalization of video gambling created a cascading series of unintended consequences that continue to plague the state today.

The legislature assumed video gambling would be up and running within a year of the bill’s passage, to quickly begin generating revenue. Instead, it took three years.

The liquor industry, which bristled at the tax increase for alcohol also contained in the bill, tied up the legislation in court, claiming the General Assembly had violated the state constitution by passing multiple substantive measures in a single bill. Regulatory hurdles also contributed to delays.

And lawmakers had counted on tens of thousands of machines being installed in Chicago to meet their revenue projections. But they somehow failed to take into account a century-old ordinance that banned gambling in the city without a referendum, which then-Mayor Richard M. Daley never embraced.

The General Assembly borrowed against the projected revenues anyway. Within a year, Illinois had issued nearly $2.5 billion in general obligation bonds — loans backed by state revenues — before it had received a single penny from video gambling.

Video gambling has popped up in shops all across Illinois, including at <a href="https://www.facebook.com/Rosalieslucky7cafe/" target="_blank" rel="noopener noreferrer">Rosalie’s Lucky 7 Cafe</a> in Niles. | David Kasnic / ProPublica Illinois

Video gambling has popped up in shops all across Illinois, including at Rosalie’s Lucky 7 Cafe in Niles. | David Kasnic / ProPublica Illinois

By the time video gambling machines were turned on and players could start betting, in September 2012, the state had borrowed more than $5 billion. Debt payments reached about $340 million that year. Yet video gambling brought in just $30 million to cover them. The shortfalls meant the state had to draw from other sources.

With the budget already running massive operating deficits, the failure of video gambling to generate projected revenues exacerbated the state’s fiscal woes. Credit rating agencies began downgrading Illinois’ debt. That increased borrowing costs, as pension payments and unpaid bills butchered the state’s balance sheet.

The state’s financial picture became so bleak it borrowed more than $1 billion between 2010 and 2013 to cover debt payments for capital projects that had been completed years earlier, spending future tax dollars to pay old bills — plus interest.

“The way the General Assembly constructed the capital program, by relying on video gambling revenue that failed to materialize, accelerated the state’s financial crisis,” said Laurence Msall, president of the nonpartisan Civic Federation, a government research organization.

Though lawmakers said money from video gambling and other new taxes and fees for Illinois Jobs Now! would fund $31 billion in building projects, those revenue streams have accounted for $10.5 billion in spending.

Video gambling revenue, plus other taxes and fees included in the law, was supposed to go into a special fund to pay down debt from Illinois Jobs Now! Legislators even passed a separate measure that required it. But records from the state comptroller’s office show that through 2017, just over half of the $4.8 billion collected in the capital projects fund actually went to cover the debt for Illinois Jobs Now!

Legislators wrote other laws to divert more than $600 million to pay down debt for an earlier building program, Build Illinois, which was supposed to be covered by sales tax revenue. An additional $1.5 billion went directly to the general fund, which is used to pay for the state’s day-to-day operations.

The legalization of video gambling also triggered another shift in the state’s revenues, one that led to a drop in education funding. While the bulk of video gambling revenue goes to fund Illinois Jobs Now!, most of the state’s casino revenue flows into the Education Assistance Fund, which provides grants to public elementary and secondary schools, colleges and universities for building projects and other expenses.

But when video gambling became legal, gamblers no longer had to travel to the state’s 10 casinos to place a bet. Between 2013 and 2017, state revenue from casinos in Illinois declined 15 percent, from $462 million to $393 million, as income from video gambling machines grew nearly 900 percent, from $30 million to $300 million, state records show.

The cannibalization of casino revenue contributed to a 22 percent decline in the amount of money going to the Education Assistance Fund between 2013 and 2017, leaving fewer dollars for the state’s struggling schools.

Video gambling cut into school funding from casinos

As video gambling has spread across the state, it has cut into casino wagering and, as a result, led to a drop in education funding from gambling.

SOURCE: Illinois Office of the Comptroller, “Detailed Annual Report of Revenues and Expenditures, 2017 figures from Illinois State Comptroller’s Ledger System. NOTE: Figures are adjusted for inflation using the January 2017 consumer price index — the most recent available data. | David Eads and Katlyn Alo / ProPublica Illinois

In fact, video gambling has caused the overall percentage of gambling industry profits going to the state to fall. That’s because the state levies a progressive tax on casinos that can reach as high as 50 percent. The more casinos make, the higher their tax rate.

Video gambling is taxed at a flat rate of 30 percent regardless of how much the industry makes. As more gamblers turned to video slots and poker, the state’s cut of gambling profits dropped.

In 2007, when casino revenue peaked at $1.9 billion, the industry paid about $819 million in taxes — a rate of 42 percent. By 2018, revenue from casinos and video gambling brought in $2.8 billion, up 42 percent, but the state’s share of the money was $891 million, up just 9 percent.

Much of the growth in gambling revenue came as the country began one of the longest economic expansions in U.S. history and as video slot and poker machines saturated the state, more than tripling between 2013 and 2018.

Researchers say it is unwise to count on gambling revenue to remain steady over time because it is a form of discretionary spending. That’s especially true if the economy slows.

“You cannot count on revenues from gambling; they are highly volatile and often deteriorate quickly,” said Lucy Dadayan, a senior research associate with the Urban-Brookings Tax Policy Center at the Urban Institute who has spent years examining state and local gambling revenue around the country. “If we hit another recession, then definitely gambling revenue is going to be one of the first to be hit hard.”

Regulators underfunded, overwhelmed

Before the introduction of video gambling, the Illinois Gaming Board’s duties were limited to licensing and regulating the state’s 10 casinos. Each casino has a cap of 1,200 “positions” — the number of places to make a bet inside, including slot and poker machines.

Six years later, the board oversees more than 30,000 additional positions, the equivalent of 25 more casinos. And those positions are scattered across more than 6,800 locations in nearly every corner of the state.

Yet when the General Assembly passed the Video Gaming Act, it set aside no money for additional staff or resources to implement the law and oversee the industry.

Jaffe, then the chairman of the gaming board, said he opposed video gambling, in no small part because he felt there was no way to regulate the industry.

“It’s just too big of a job,” Jaffe said. “In order to regulate it, you need a bigger board and more people. It’s absolutely ridiculous to think you can do a proper job with the resources available.”

Illinois Gaming Board members Steve Dolins (from left), Don Tracy, Dee Robinson and Hector Alejandre at a board meeting in Chicago on Dec. 12. | Max Herman / ProPublica Illinois

Illinois Gaming Board members Steve Dolins (from left), Don Tracy, Dee Robinson and Hector Alejandre at a board meeting in Chicago on Dec. 12. | Max Herman / ProPublica Illinois

Long before a handful of legislators and lobbyists decided it was time to legalize — and tax — video gambling, the industry had been thriving illegally.

For decades, bars, restaurants, bowling alleys and fraternal organizations housed video slot and poker machines billed as “simulated gambling devices.” Most had amusement tax stamps from the state revenue department and didn’t pay out. Instead, the machines produced printed slips showing how much was “won” or “lost.”

But the machines were widely known to be used for illegal gambling, with payouts coming from envelopes of cash stashed under the table or behind the bar. In most cases, operators split profits 50-50 with establishment owners, just as they do under the Video Gaming Act.

Known as “gray” machines, for their nebulous legal status, video gambling had long been associated with Chicago-area organized crime. Less well known were the tight-knit groups of amusement companies from other parts of the state that ran “gray” machines while providing establishments with jukeboxes, pool tables and other coin-operated devices.

Lobbyists for these amusement operators drafted the Video Gaming Act, according to industry insiders and lawmakers, creating licensing guidelines and determining how profits would be divided among operators, establishments, local governments and the state.

Those operators also began entering into video gambling contracts with their existing clients well before the board could set up a regulatory structure or conduct the thousands of investigations needed to make licensing decisions.

Aaron Jaffe, former Illinois Gaming Board chairman.

Aaron Jaffe, a former state legislator and Cook County judge, was chairman of the Illinois Gaming Board when the General Assembly legalized video gambling. | AP


Once the law passed, the gaming board was given the task of sorting out these relationships while attempting to keep unsavory operators — including those with ties to organized crime — out of the industry.

The board estimated it would need a staff of 350 to do the job, according to internal agency reports. Yet the number of workers has never topped 286 and has dipped as low as 233 in the past three years, even as the industry has grown. At one point, the board had a single lawyer to help regulate what has become a highly litigious industry.

Often, the board must face off against companies that have more resources, time and expertise than the state. One reason for the lack of resources: The Video Gaming Act fails to provide enough money to cover the regulatory costs.

The law designates 75 percent of licensing and administrative fees to pay for investigators and attorneys to vet licensing applications as well as write and enforce rules. But those fees are much lower than other jurisdictions. Pennsylvania, for example, charges $25,000 to apply for a terminal operator’s license. The price in Illinois: $5,000.

The owners of licensed establishments, such as bars and restaurants, pay just $100 annually to maintain a license and, until December, paid nothing at all to apply for it, even though the board expends extensive resources on licensing decisions. Last month, legislators passed a law instituting a $100 application fee.

“We clearly have some fees that are shockingly low,” said Illinois Gaming Board Chairman Donald Tracy, a Springfield attorney appointed by Gov. Bruce Rauner in 2015. “Why would you do that if you’re trying to get revenue for the state? I guess you have go back and ask who drafted this legislation. If it’s gaming lobbyists, maybe that explains why the fees are so low.”

Lang, the Skokie Democrat who sponsored the bill, overestimated how much fees would bring in, telling fellow lawmakers they would provide $4.5 million a year for regulatory expenses. Instead, fees have never generated more than $3.4 million. Lang did not respond to a request for comment.

Former state Rep. Lou Lang, D-Skokie, was a staunch proponent of gambling, including video gambling. In early January, he resigned his House seat to join a lobbying firm. | Ted Schurter / The State Journal-Register via AP

Former state Rep. Lou Lang, D-Skokie, was a staunch proponent of gambling, including video gambling. In early January, he resigned his House seat to join a lobbying firm. | Ted Schurter / The State Journal-Register via AP

Even if the administrative fees had met projections, regulating video gambling has turned out to cost far more. Legislators never studied how much it would cost to regulate video gambling, even though board members say the industry now makes up the vast majority of the agency’s work.

In 2013, the first full year of legalized video gambling, state financial reports show, the board spent $15 million regulating the industry. Those costs reached $17 million by 2017. Yet fees set aside for regulatory expenses averaged just $2.9 million during that time, leaving a shortfall of more than $83 million over five years.

Filling in the funding gap: casino revenue. Yet casino revenue has been in decline. That, coupled with the state’s budget woes, caused the gaming board’s budget to fall by more than 6 percent between 2013 and 2017 despite rapid growth in the number of video gambling machines and locations around the state.

“My view is that there should be some kind of professional study to review the licensing fees and the taxes, and I have suggested that,” Tracy said.

What’s more, a month before the Video Gaming Act passed, Quinn signed an executive order removing the board from being under the Illinois Department of Revenue, making it a standalone agency.

Jaffe, then the board chairman, had requested the move, arguing that the Revenue Department’s control of the gaming board slowed hiring and other moves the board wanted to make. But when he made the request, Jaffe was unaware the board’s responsibilities would soon greatly expand.

One of state government’s largest agencies, the Revenue Department provided oversight and supplemented policy decisions with an army of analysts, lawyers and technical experts.

Without that support, an underfunded agency overseen by five part-time board members — who receive $300 a meeting — found itself regulating a sprawling industry with little supervision. The vague law and its weak administrative rules made licensing and contract decisions seem arbitrary, leading to a series of missteps.

In at least two cases, the board reversed decisions to permanently bar people from the industry whom it deemed unfit, after court challenges claimed the moves exceeded the board’s authority.

A ProPublica Illinois review of meeting minutes and interviews with two board members, including Tracy, found the board’s former administrator entered into a legal agreement with a video gambling operator from Louisiana without board knowledge or approval. The former administrator, who left his position in March after 16 years, declined to comment.

And in May, a Cook County circuit judge, hearing a lawsuit, ruled that the board violated the Open Meetings Act by improperly going into a closed session, then misrepresented what happened in meeting minutes.

ProPublica Illinois has filed a Freedom of Information Act lawsuit seeking a recording of the closed session at the center of that case.

In a written statement, Tracy disputed the judge’s ruling but said the board has changed its procedures for going into closed session. He also said conflicts between the Video Gaming Act and the Open Meetings Act have made the board vulnerable to lawsuits from the well-funded industry.

“We have a statute that is somewhat sparse, to be kind.” Tracy said in an interview. “And we’re talking about high-stakes licenses that have tremendous potential value. As a result, when we say no, we get sued.”

In another lawsuit, a Cook County judge froze an exclusive state contract to test video gambling machines and ordered the board to reconsider the contract after evidence suggested gaming board staff gave preferential treatment to a New Jersey-based company. The contract was rebid, though Tracy denied that the board had shown preferential treatment.

The board’s government attorneys often have little expertise in gambling litigation compared to the industry’s more experienced, high-priced lawyers, Tracy said.

“There’s just so much money in this industry,” he said. “We are litigating against people with the very best lawyers, companies that can put unlimited amounts of time into these cases and spend hundreds of thousands of dollars litigating against us.”

Another push to expand gambling

The rush to legalize video gambling in hopes of generating quick, painless revenue battered the state’s finances, left unfunded social and regulatory costs and exposed the gaming board to a barrage of legal challenges.

None of that has stopped some members of the General Assembly from pushing yet another massive gambling expansion bill as they continue to forage for ways to bring in revenue without raising taxes or cutting spending.

In the more than nine years since the Video Gaming Act passed, the influence of the industry has only increased. And lawmakers seem ready to make many of the same mistakes. At hearings last fall on a new gambling expansion bill, there was no discussion about whether the gaming board can handle a larger workload and little acknowledgement of the social costs of gambling.

Now, as newly sworn-in legislators open the 101st General Assembly, with a rookie, billionaire governor who was a longtime investor in Elgin’s Grand Victoria Casino, here’s what lies on the table: sports gambling, six new casinos and, for the video gambling industry, higher wagering, bigger payouts and even more machines.

Jason Grotto and Sandhya Kambhampati are ProPublica Illinois reporters. Dan Mihalopoulos is a reporter for WBEZ Chicago.



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