Crystal Lake City Council approves ‘placeholder’ ordinance change allowing for video gambling push tax

The Crystal Lake City Council has approved a plan that would allow the city to implement a penny-per-play fee on video gambling terminals, but officials said there are no plans to enact the “push” tax immediately.

Instead, the ordinance, which was approved at Tuesday’s meeting, is intended to act as a placeholder in anticipation of legislation pending in the Illinois Senate. The measure, Senate Bill 521, among other things would prohibit “a home rule municipality or non-home rule unit from imposing any type of tax upon licensees, occupations, and other activities authorized under the act.”

Any home rule municipality with an ordinance imposing an amusement tax on people using video gambling terminals before a set date would be allowed to keep that tax, but they would not be able to increase, expand, or extend it.

The bill has cleared the Illinois Senate, but is pending in the House, and it still could be changed, spurring city staff to propose the council consider the push tax before it is too late for the city to collect it.

Currently, Crystal Lake has 15 businesses that offer video gambling with 58 active terminals, according to city staff.

Illinois’ formula for distributing revenue from these terminals is: 69% of it is shared between the establishment and gambling operators, the state keeps 25% and 1% goes to a video gambling terminal central communication system, said Jodie Hartman, Crystal Lake’s director of finance. That leaves 5% for municipalities, Hartman said.

In the last fiscal year before the COVID-19 pandemic, Crystal Lake received about $116,000, Hartman said. That revenue dropped during the last fiscal year to $92,000 after video gambling activity was temporarily suspended twice because of the COVID-19 pandemic, Hartman said.

The village of Oak Lawn first passed a push tax in 2019, with the village officially making it effective in January 2020. Shortly after, Hartman said, Tinley Park and Waukegan adopted similar taxes.

“The way the city’s proposed ordinance is written, the tax is on the player,” Hartman said. “The player is charged one cent for each bet placed with the machine- each push of the button so to speak. It’s then the joint responsibility of the establishment and the gaming operator to collect that tax and remit it over to the city.”

It’s hard to determine exactly how much revenue the city might receive from the tax – because of pending litigation in other municipalities, there’s no history of what those towns are actually receiving to calculate that figure, Hartman said.

But by looking at how much money was put into the machines, and assuming a $1 bet, the Crystal Lake could get from $70,000-$80,000 annually from the push tax, Hartman said, adding that this would be an “extremely conservative” estimate.

A more reasonable estimation, based on how much money was played including any rollover winnings, would be that the city could receive between $130,000 to $200,000 every year from the push tax, she said.

During public comment, Paul Leech, owner of The Cottage restaurant in Crystal Lake, questioned whether businesses would have to start paying extra taxes if the push tax were enacted.

“When you have an amount of money that goes into a machine, and there’s an amount of winnings paid out, there’s a balance,” Leech said. “Right now that balance is distributed amongst the state, people who own the gaming machines, the city and myself, a portion of which is distributed. Where does that penny come from? ... From the game operators’ view, it comes after the state has taken their portion.”

As far as he’s aware, Leech said, machines right now are not configured to allow an extra penny be set aside for the city.

“How do we take the penny out and give it to the city?” Leech said.

In response, council member Ellen Brady told Leech that the city has no intention of “enacting this ordinance tomorrow” and that the council still needs to work through the push tax mechanics.

“We have many questions to figure out,” she said. “We’re just here to put our placemarker in to make sure that if it all works out for everyone and no one is harmed, that we are in a position to collect.”

Although Mayor Haig Haleblian said enacting a push tax is something the city needs to do, the mayor, who owns Exceed Floor & Home in Crystal Lake, added he “will not hurt my brothers and sisters in small business” by doing so.

“If it comes out that this is coming out of your hide, I’m dead set against it,” he said.