Chicago casino and convention center agency coronavirus strains get legislative attention
Wednesday 27th May 2020
Illinois Gov. J.B. Pritzker is expected to sign legislation that helps Chicago's efforts to attract a casino and the public agency that operates the city's convention center complex stung by a loss of trade show business and tax revenue due to the COVID-19 economic shutdown.
Passage of a fiscal 2021 budget was the focus during the marathon legislative session that ran from May 20 through early Sunday. Lawmakers also signed off on a bill that revises the tax structure for a proposed Chicago-based casino. Mayor Lori Lightfoot said those changes were needed to lure a private investor and developer.
Policymakers also signed off on measures in the budget package that gives the Metropolitan Pier and Exposition Authority more flexibility in managing the severe revenue losses from its trade and convention business losses.
"The state's fiscal 2021 budget will help the authority address two needs that arose from the COVID-19 pandemic, a potential shortfall in authority tax collections of at least $63 million in fiscal 2020 and fiscal 2021 and potential working capital needed if McCormick Place cannot host any events between now and June 30, 2021," said authority spokeswoman Cynthia McCafferty.
The budget raises the amount of state tax deposits pledged as a backup for debt service which will help in any debt restructuring. The budget package also allows the authority to use its remaining expansion project bond authorization to finance working capital expenses during fiscal 2021 and fiscal 2022 if needed in the event that event cancellations extend later in the fiscal year.
MPEA intends to refinance any debt service that exceeds projected authority tax collections to prevent draws on state sales tax deposits. It's a practice the authority adopted years ago as its original debt service schedule included a steep ramp.
"In light of the impact COVID-19 is expected to have on authority taxes during fiscal 2020 and 2021, the authority believes it will have to refinance a portion of its FY2021 debt service. The increases to the maximum deposit amounts will provide the authority with the tools it needs to manage its fiscal 2021 financing needs in a cost effective manner," McCafferty wrote.
MPEA is the owner and operator of the 2.6-million-square-foot McCormick Place, which is the largest convention center in North America. The authority also owns two hotels, the Wintrust Arena and Navy Pier, which are privately operated.
The agency is tapping for near-term relief a special $30 million fund designed to offset shortfalls in tax collections from hotels, restaurants, auto rentals, and airport taxi departures that might otherwise trigger use of the state sales tax backup.
Even as businesses are allowed to reopen and larger public gatherings allowed throughout the summer, conventions can't be held until phase five of the state's reopening plan and that timing depends on a lack of new cases or development of a vaccine or successful treatments.
The Radiological Society of North America on Tuesday said it would hold its annual meeting scheduled with 52,000 expected attendees at McCormick Place in late November and early December as a virtual meeting. That adds to 95 cancellations with 791,521 expected attendees and 744,367 hotel stays.
The MPEA, which is governed by a board appointed by the mayor and governor, is rated BBB by S&P Global Ratings. It recently shifted its outlook on the state's BBB-minus rating to negative, which contributed to the decision to move MPEA's outlook to negative as the need for a state appropriation for debt service links the ratings.
Fitch Ratings had most recently rated the bonds BBB-minus but its recent downgrade of Illinois to BBB-minus moved MPEA's rating to the junk level of BB-plus with a negative outlook. Moody's Investors Service already had the rating at the junk level. It assigns a negative outlook tied to the state's outlook. The authority has about $2.8 billion of debt.
A privately operated, Chicago-based casino was approved last spring but the tax structure was too onerous to attract an investor, Lightfoot argued. Her position was supported by an independent report ordered by state gaming overseers.
While casino gambling remains on hold in the state and there are questions over investor interest amid a recession, the city's first casino is a cornerstone of Lightfoot's pre-pandemic plans to structurally balance the city's books by 2022.
The state's $45 billion capital program approved last year also banks on new casino revenue to fund projects so it was in the state's fiscal interest to smooth the process.
"The idea is to make this work for Chicago so that we can fund our" capital program "put people to work, not only for Chicago but for everywhere in the entire state of Illinois," a key sponsor Rep. Bob Rita, D-Blue Island, said on the House floor.
The casino, under revisions laid out earlier this year by the city, would generate about $1.2 billion in taxable gambling revenues plus another $200 million in other amusement-related taxes. The casino financing costs is estimated at $2 billion.
The revised tax structure laid out in city documents earlier this year calls for the state to receive a roughly $800 million one-time fee and another $135 million one-time capital infusion. Once up-and-running, the city is banking on more than $200 million in annual new taxes with the state expected to see nearly $250 million in annual tax collections.
Previous legislation had earmarked any casino revenue for the city's police and firefighters pensions. The city is carrying $30 billion of net pension liabilities are just 23% funded.
Lightfoot said the city will now launch focus groups, studies and surveys on where the casino should be built and what amenities it should offer. Lightfoot envisions the casino will serve as a part of larger entertainment district to maximize a "once in a generation" opportunity at revenues, jobs, long term economic viability, pension funding help.