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Moody’s: Schools winners in new state budget — but impact of gambling, legal pot hazy

“As with gaming revenues, cannabis revenue has proven to be volatile,” Moody’s warned on Thursday.

Gov. J.B. Pritzker signs revenue and budget implementation legislation 
Gov. J.B. Pritzker signs revenue and budget implementation legislation during a news conference at the James R. Thompson Center last week.
Ashlee Rezin/Sun-Times

A Moody’s Investors report says the state’s new budget provides an infusion of money for local governments and will help some of the state’s largest school districts — including Chicago Public Schools, but the rating agency warns that the impact of expanding gambling and legalizing cannabis sales is less certain.

The rating agency crowned the state’s largest school districts, including CPS, “as the biggest winners [of the budget] with a $375 million bump in formula funding.”

In total, the bills passed in fast succession last month, including a massive capital and budget plan, are deemed “credit positive” for local governments because they will receive new funding for capital and potential new source of operating revenue.

“Local governments will receive a significant infusion of capital dollars under the Rebuild Illinois capital plan,” according to Moody’s analysis.

But Moody’s also took a look at some more controversial measures cleared by the Illinois General Assembly: the legalization of recreational marijuana and a massive gambling expansion that legalizes sports betting and will create six new casinos throughout the state, including one in Chicago.

“While credit positive, most Illinois local governments will receive minimal tax revenue from cannabis sales, if the state’s experience mirrors other states with legalized recreational cannabis such as Colorado,” the report says, noting Denver collected $27.6 million in cannabis sales taxes on approximately $500 million in sales and got a “minimal” 2% in general fund revenues.

“As with gaming revenues, cannabis revenue has proven to be volatile,” Moody’s warned on Thursday.

The rating agency also noted that Chicago stands to get a “significant share” of revenue from cannabis legalization — but it added “Chicago also has a much larger pension contribution shortfall, relative to its operating budget, than other cities so the city’s revenue needs are more pronounced.”

The report said the impact of the new casinos is difficult to estimate, as the “gambling landscape is becoming increasingly competitive.”

Moody’s noted all of the cities getting casinos, including Chicago, Rockford, Waukegan and Danville, are dealing with rising pension costs.

The money from the proposed Chicago casino would be split in thirds among the city, state and the private owner.

“If the new casinos were to generate revenues even at the low end of that range, that could have a meaningful impact in comparison with pension contribution gaps using reported assumptions,” the report says. “However, the revenues produced by existing locations have steadily declined over the last five years, a trend that could be exacerbated by increased competition.”

Moody’s notes that Chicago is getting more than two times the number of gaming positions than other casinos in Illinois, so the city “stands to gain a greater amount of new revenue.”

Pritzker has signed the capital and budget bills, but has not yet signed the recreational cannabis or gambling expansion measures.

The gambling revenue was attached to a capital bill to fund vertical projects, which includes buildings, such as schools and recreational facilities. It includes $150 million from an increase in video gaming terminal taxes; $10 million from sports wagering revenue and $500 million from upfront license fees from casino and sports betting.

Sales from recreational marijuana are expected to bring in $57 million in this year’s budget and $140 million next year, sponsors have said. It should eventually rise to $500 million a year once the program is fully running.