CHICAGO -- Officials in East St. Louis, Ill., are betting that a new riverboat gambling casino is just the beginning of the beleaguered city's comeback.

Opened last month, the 474-foot-long Casino Queen isn't the only gambling boat on the Mississippi, but promoters say it is the largest there or anywhere else in North America.

The three-level, privately owned riverboat, docked against the backdrop of the St. Louis Gateway Arch, is the first development project the city has carried through in decades. City officials expect admission fees and gaming tax proceeds to just about double East St. Louis' general fund revenues, with the projected $6 million to $8 million a year going to help the city fix up its river-front to attract business.

The city of 40,000 has spent a long time looking for reasons to hope. An old railroad town in an age of airplanes and super highways, East St. Louis spent the 1980s spiraling down a path of urban decay and financial ruin.

At times, the city found itself in national news stories because it did not have the money to pick up garbage or pay city employees. Police cars and fire trucks sometimes had to go unrepaired. In 1990 the city even lost the deed to city hall and the land underneath because of an unpaid court judgment of $4 million.

East St. Louis' troubles also include one of the worst municipal bond scandals of the 1980s. In 1985 the city issued $474 million of tax-exempt bonds to fund a river-front front development project that was never built. Six years later, Matthews & Wright, the firm that put together the deal, and its former executive vice president, Arthur Abba Goldberg, pleaded guilty to federal fraud and conspiracy charges because of the deal.

Now the city appears to be turning a long-awaited corner. Under the oversight of the East St. Louis Financial Advisory Authority, created by a 1990 state law, the city has recovered the deed to city hall and resumed garbage collections after a seven-year lapse. The city also has a new mayor, Gordon Bush. who succeeded 12-year incumbent Carl Officer in 1991.

The mayor faces a lot of work in a city where the May unemployment rate was 13.4% and boarded-up or burnt-out buildings cover the landscape. Bush, who can see the riverboat from his third-floor city hall office, said revenues from the casino will make a big difference.

"We're having a tough time here," he said. "We're persevering. We're not saying that the riverboat casino is a panacea or an elixir for East St. Louis. But it gives us the jumpstart, which is crucial for the city if we are to move ahead in a timely fashion."

In 1990, Illinois approved legislation that legalized riverboat gambling and distributed the licenses to communities along the Mississippi and Des Plaines rivers. The measure set aside one license specifically for East St. Louis.

Under the law, the city gets $1 from every admission fee and receives 20% of the state's portion of the gaming tax proceeds. Bush said the money will be used to improve city services, reduce property taxes, and pay off a $3.75 million loan that the Financial Advisory Authority gave the city in 1991 to provide essential services.

With a 1992 aggregate tax rate of $20.13 per $100 of assessed valuation, East St. Louis has the highest property taxes in the state. Lowering taxes and improving city services will help the city lure other development projects to the city, Bush said. The riverboat has brought several hundred jobs to East St. Louis with the prospect of more if the business blooms, he said.

Earl Lazerson, chairman of the Financial Advisory Authority, agreed with Bush on where the riverboat money should go, and on protecting the funds from creditors. Bush said he and the city council intend to comply with the authority's recommendation to submit an amended fiscal 1993 budget that will ensure that the new funds are allocated for the agreed-upon purposes.

One source familiar with East St. Louis' finances said there is a possibility the city could use the gaming proceeds to back bonds to finance improvements for the police and fire departments. But Bush and authority officials said it would probably be a while before any new bonds are issued.

Ronald Bean, a member of the Financial Advisory Authority, said that bonds for the city will not be issued "piecemeal." The next issuance will most likely be done in conjunction with a restructuring plan to help pay off the city's $80 million of debt, he said.

Under that plan, which has not been worked out yet, about $30 million of bonds will be issued by the Illinois Development Finance Authority within the next six months to a year, according to Bean and Lazerson. The authority acts as an issuer on behalf of municipalities across the state.

Bean, who is also executive director of the Development Finance Authority, said he expects the first phase of the restructuring to include negotiations to reduce or eliminate $20 million of debt owed to the federal government.

"By getting the debt down and revenues up, [the city] can refinance and pay off existing debt and then have a solid enough revenue base to service the debt level," Bean said.

Pay Up Or Else

East St. Louis is required to pay all debt service on any bonds issued by the development authority. If the city fails to make the payments, the authority can intercept the city's annual $3 million share of state income and sales tax revenues. The bonds also would carry a moral obligation pledge of the state.

Lazerson said solid financial management is essential to restructuring city debt. In approving the city's fiscal 1993 budget, the East St. Louis Financial Advisory Authority requested that the city appoint an accounting firm to remake its system for handling money.

"Nobody's going to buy those bonds if the attitude is that you don't have an honest financial management system in place," Lazerson said.

Bush said that installment of a new financial system, which is expected to be completed this summer, also will help free the city from the Financial Advisory Authority.

Earlier this month, the city council approved a team to work with the oversight authority in restructuring the city's debt. The team is composed of three bond attorneys and Ernest Green, a managing director at Lehman Brothers in Washington, D.C. The city's contract with the team needs approval from the advisory authority, according to authority officials.

After its debt restructuring, the city plans bond issuance for long-term development, Bush said. Even without issuance, several projects are in the works that will strengthen the city's economic base and its ability to sell debt later, he said.

For example, the National Park Service is working on plans for a 100-acre riverfront park, Bush said, and a joint Illinois-Missouri authority plans a Metrolink train system to join the East St. Louis and St. Louis areas. A station near the riverboat casino is expected to be completed by the end of July.

"We think bonds are important. But we're trying to make it here despite the nonavailability of bonds, " Bush said. Success for the riverfront developments "will show that there is credibility and profits to be made. And maybe despite a poorer bond rating, people can see what's there and that may induce bond buyers to come in." Currently none of the city's outstanding bonds are rated.

As the first successful development project in the city in decades, the riverboat casino is only the beginning of the city's rebirth, Bush said.

"We think the progressiveness of the development that we see here shows that East St. Louis is on the brink of resurgence. And it's not going to be a 20- or 30-year resurgence. We think that within 10 years that we'll see very vast changes in the riverfront areas as well as in the community." Bush said.

"East St. Louis just on its own is going to be a big city in 30 years," Bush said. "But we can't wait 30 years. We've been 20 or 30 years in decline and we can't wait 30 or 40 years to recover," he said.

Bean said that putting a stronger management team in place and ending the on-again, off-again problem of paying city employees on time are two improvements that have helped the city attract the private investment needed to bring the Casino Queen to its riverbank.

"Those are things that are extremely important for the stability of a community, which in a lot of ways is why the city has the riverboat. There is enough fiscal stability to make a company want to gamble with a riverboat," Bean said.

Bright Future

Tom Berkshire, who drafted the Distressed City Act as an official under former Gov. James R. Thompson, sees "brightness" in the city's future.

Though the city's management has been "uneven," Berkshire said it is "more positive than it has been in a long time." He added that the city council, which has four members, has become "more professional."

Berkshire said the riverboat casino will show prospective investors that the East St. Louis riverfront can be a good home to business.

"They will see that the riverfront has its own distinct potential of being a place that could be very viable for all kinds of things," said Berkshire.

Charles Leven, an economics professor at Washington University in St. Louis, agreed.

"The bottom line is it surely is good news, not bad news," Leven said.

Leven cautioned that the revenues from the riverboat could subside in future years because of competition from riverboats being planned across the Mississippi River in St. Louis. He added that the Casino Queen also faces competition from a riverboat casino already in operation in Alton, Ill., 20 miles upriver.

But even if casino proceeds decrease in the future, Leven said that the city would not be "worse off than when it started."

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