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It’s one step forward, two steps back for government leaders trying to resolve the state’s multiple budget-related crises.

Chicago-area mass transit agencies threaten to raise fares, cut routes and lay off workers if they don’t get more state money by January.

Infrastructure projects around Illinois are stalled because lawmakers haven’t approved a capital construction plan since 1999.

Schools are waiting for $617 million the state is withholding because Gov. Rod Blagojevich has not acted on a bill to trigger the spending, even though nearly half of this school year has passed.

Blagojevich and lawmakers over the last year have put more and more of their focus on gambling expansion as a means to generate more revenue for the state’s spending priorities. But with a former Blagojevich adviser indicted on gambling-related fraud charges Thursday, any push for more casinos — already a sensitive topic — becomes even trickier.

It’s unclear when Blagojevich and lawmakers might make any progress.

House Speaker Michael Madigan, D-Chicago, on Friday cancelled next week’s special session to discuss the gambling expansion plan after Chris Kelly, Blagojevich’s close friend and former chief fundraiser, was charged with concealing income and skirting taxes in connection with his gambling activities.

Madigan and Blagojevich have feuded all year, bringing major initiatives to a grinding halt. Senate President Emil Jones Jr., D-Chicago, allied with Blagojevich, is fighting Madigan too.

And some leaders have worked to link the most challenging issues — a capital plan, a Chicago mass transit bailout and more casinos — so none may be resolved unless there is a deal on them all.

Expanded gambling has emerged as the way to generate more cash for the state because Blagojevich has been resolute that he won’t support tax hikes.

But the Kelly indictment — Blagojevich had named Kelly his pointman on gambling policy — may loom large over continued discussion about more gambling.

The feds allege Kelly, a wealthy Burr Ridge roofing contractor, concealed more than $1 million in personal income and more than $300,000 in business income from the Internal Revenue Service between 2000 and 2005.

He allegedly used cash from two corporations he controlled to pay personal expenses and gambling debts he racked up in Las Vegas and with Illinois bookmakers.

“That is major,” Rep. Monique Davis, D-Chicago, said. “You have someone who is illegally involved in gaming who was going to help establish the legislation for Illinois. We can’t let that happen.”

Rep. David Miller, D-Dolton, said the indictment proves that gambling-related social problems cover all social classes.

“It clearly highlights some of the pitfalls,” he said. “It’s not just poor minorities that end up with gambling debts and may do some things they’re not supposed to do.”

Jones spokeswoman Cindy Davidsmeyer insisted she didn’t see how the Kelly indictment might affect ongoing consideration of gambling expansion by state leaders.

“The indictment is a personal matter,” she said.

Staff writer Aaron Chambers may be reached at 217-782-2959 or achambers@rrstar.com.