How Rivers Casino saved millions in property taxes
The owners of the Rivers Casino in Des Plaines have received more than $4 million in property tax cuts since opening nearly five years ago by arguing the property was worth tens of millions of dollars less than it cost to buy and build on.
Since 2012, Rivers has reported annual revenues of more than $400 million, after winnings, state records show. Its revenues are twice as large as any of the other nine Illinois casinos.
Despite their success, the Rivers owners claim the value of the casino and parking garage has declined, justifying tax relief. Last year, Rivers paid $6.5 million in property taxes, money distributed to local school systems and other governmental agencies.
The owners paid $117 million for land and construction of the casino, according to records they provided to Cook County government officials, but each year they have argued the real estate is worth $80 million, or less. Most recently they claimed it is worth $62.9 million, records show.
The Cook County assessor set a "fair market value" of around $104 million for the last four years but the Cook County Board of Review - a government agency run by three elected officials who hear appeals of tax assessments - has consistently reduced the value to $88 million. The lower evaluation is used to calculate taxes, resulting in savings of $1 million per year for the casino owners, records show.
Yet, the owners have gone to court seeking refunds of taxes paid in three previous years, arguing the assessments are still too high.
The casino is owned by Midwest Gaming & Entertainment, chaired by real estate developer Neil Bluhm. He defended the tax reductions, saying the assessment should be "based upon what this property would be worth if we weren't operating a casino there."
Bluhm's position is that the property tax should not be based on the money the casino makes, but rather the value of the building and land, adding that the casino pays the state of Illinois $180 million a year in gaming taxes.
When it comes to property taxes, the casino's gain is its neighbors' loss. Homeowners and other property owners in Des Plaines and some surrounding communities have to pick up the slack to fund local schools, parks and other local government expenses to make up for the Rivers tax cuts.
Public schools and other local governments would have a direct financial hit if Rivers prevails in its legal appeals and the court orders refunds of Rivers' property taxes.
Bluhm has made no campaign contributions to Cook County assessment officials, but his tax lawyers and appraisal firm did.
Since 2011, tax lawyer Terry Newman, his firm Katten Muchin Rosenman and the appraisal firm Madison Appraisal collectively donated $16,750 to Board of Review Commissioner Larry Rogers Jr., $15,150 to Commissioner Michael Cabonargi and $6,750 to Commissioner Dan Patlak. Newman, the law firm and Madison Appraisal also donated a total of $31,700 to Cook County Assessor Joseph Berrios and his political organizations.q
A spokesman for Berrios said the donations "are completely unrelated" to the assessor's decision-making. "That is clearly shown by the consistency of (the assessor's) valuation figures of this property and the integrity of the proven and impartial methods used by this office."
Newman, his law firm and Madison Appraisal either couldn't be reached or declined to comment.
Since opening in July 2011, the casino's revenues have exceeded expectations. The owners have already recouped their original $150 million investment, and paid themselqqves an additional $300 million or more, corporate records indicate.
"Obviously, it's been a successful investment, I'm not going to BS you," said Bluhm.
Before the casino opened, Deputy Cook County Assessor for Valuation and Appeals Thomas Jaconetty said he gathered information about casino assessments from professional organizations and seminars, and from court decisions throughout the country.
In an interview, Jaconetty said he didn't consider this property "unique," deciding there were parallels to valuations of other commercial properties such as racetracks and hotels.
Commercial assessments differ from single-family home assessments in several ways, the chief among them being that commercial properties produce income, a key to determining their worth, in the assessor's opinion.
Assessors use three approaches to value commercial properties - income, comparable sales, and construction and land costs, according to experts.
But in the case of Rivers Casino, comparable sales of casinos could not be found, so the sales approach was disregarded.
Jaconetty said he evaluated the income and cost, placing more weight on the income, as the strongest measure of what a property would be worth in the eyes of a potential buyer.
Starting with the 2012 tax year, the assessor set a value of around $104 million. The casino owners appealed, arguing for lower value based on the original cost minus several deductions.
The owners' appraisals did not provide an analysis based on the casino's income.
"Their position is it is not relevant and we shouldn't be looking at it," Jaconetty said.
Year after year, the casino offered similar, sometimes identical arguments, many of which the assessor did not buy. But the appeals to the Board of Review got results, with the panel annually shaving as much as $16 million off the value, reducing it to $88 million and saving the owners $1 million in property taxes a year.
Each succeeding tax year, the assessor restored the value to around $104 million, leading to another cycle of appeals and reductions by the board, records show.
The casino owners and their appraisers argued for lower values of $80 million in 2014 and $62.9 million in 2015. During an interview, Jaconetty was especially skeptical about the latest appraisal, questioning how a casino, in a year when gross receipts rose from $418 million to $425 million, could also drop in value by 21 percent.
Calling the casino a "one of a kind property," the Board of Review told the Better Government Association in a written statement that commissioners based their most recent decision on information presented by the owners' appraisal, which did not include comparable sales of casinos or an income approach analysis, "leaving only the cost approach to consider."
In their appraisals, Rivers owners started with the original cost of $117 million - $34 million for the land and $83 million for construction - then deducted for, among other things: Half the cost of the land, which Rivers argued was inflated because the landowners knew of the casino plans and jacked up prices; the cost of an underground pond to comply with Illinois law that casinos be on water; the cost of upgraded interior finishes; and physical deterioration.
In Jaconetty's view, the stated rate of physical deterioration was "a bit aggressive" and the other costs were business decisions or inherent in opening a casino in Illinois, and did not warrant a lower assessment.
As to quality interiors, Jaconetty said, "Looking good and being a classy place enhances your ability to draw customers ... One could easily argue that enhances your value."
Jaconetty also commented on a plea to lower taxes based on potential competition from a Chicago casino, which has been discussed but never approved.
"My reaction was, we were not allowed to value on speculation," said Jaconetty.
The owners of the other four casinos in the Chicago area pay less in property taxes than Rivers in large part because their gaming sites are on riverboats which are not taxed as real estate. Boats are considered personal property and aren't taxable, according to records and local officials.
Those owners do, however, pay real estate taxes on their related parcels.
The next most profitable casino, Harrah's Joliet, paid about $3.1 million in 2015 for property taxes on its hotel, restaurants and parking garages, records show.
•This story was written and reported by the Better Government Association's Chuck Neubauer and Sandy Bergo. They can be reached at chuck.neubauer@gmail.com, sbergo@bettergov.org or (312) 427-8330.