Rolling the Dice to Save Chicago’s Pensions

It’s hard to imagine a worse idea than counting on casino revenue to prop up an underfunded system.
May 14, 2015
By Charles Chieppo  |  Contributor
Principal of Chieppo Strategies and former policy director for Massachusetts’s Executive Office for Administration and Finance

The fiscal impact of last week's Illinois Supreme Court ruling striking down a 2013 law designed to fix the nation's most dysfunctional public pension system is obvious in a state that already had to set aside up to $7 billion annually just to keep pace with its retirement obligations. But the ruling may have just as great an effect on Chicago, whose pension funds are in nearly as bad a shape as the state system.

Chicago Mayor Rahm Emanuel has been negotiating with the city's police and fire unions to avoid a state-mandated $550 million payment to shore up their pension systems, each of which is less than 30 percent funded. But in the wake of the court's unanimous ruling that a provision in the state constitution that prohibits pension promises from being "diminished or impaired" means what it says, the unions aren't in much of a bargaining mood.

"I'm not ready to agree to anything as far as an adjustment is concerned until that [$550 million] deposit is made … At that point, there can be discussion," Fraternal Order of Police President Dean Angelo told the Chicago Sun-Times. Instead, Angelo is recommending that the city adopt a temporary property-tax increase until revenue starts to roll in from a city-owned casino that Mayor Emanuel has proposed.

The Illinois and Chicago pension debacles have been marked by one bad decision after another. But when it comes to blunders, expecting casino revenue to solve the city's pension crisis would go straight to the head of the class.

There's a big difference between projections and actual revenue. In 2009, for example, the Ohio Department of Taxation estimated that the state could generate between $470 million and $643 million in annual tax revenue from four casinos. In 2014, the total casino revenue was $267.5 million.

Maryland did slightly better. There, the Department of Legislative Services estimated in December 2008 that five newly approved slot-machine parlors could generate $1.36 billion in total revenue in fiscal 2013. In fiscal 2014, Maryland's four operating casinos generated $833 million.

There is a simple reason why performance is lagging: In a nation where casino gambling was once limited to Las Vegas and Atlantic City, demand for gambling establishments has been overtaken by supply. If you don't believe it, just look at Atlantic City, where four casinos recently closed.

Current projections are that Chicago's proposed casino would generate $230 million in annual profits. But the city would be lucky to make half that much by the time a casino could be up and running in five or six years. And part of the take would be needed to fund gambling-related social costs.

Illinois' $111 billion pension hole is the result of state leaders looking for easy answers instead of making hard decisions for two-thirds of a century. Hopefully, Mayor Emanuel and city officials will learn from the mistakes made in their own backyard and avoid the temptation to rely on a casino jackpot to solve what is undeniably an overwhelming pension problem. That windfall is likely to be little more than a mirage.