CHICAGO – A Chicago museum envisioned by Star Wars creator George Lucas relies on a complex, $1.2 billion borrowing scheme that faces an uphill battle amid the backdrop of Illinois' partisan political gridlock.
Chicago Mayor Rahm Emanuel proposed the financing plan in an effort to lure the director's proposed Lucas Museum of Narrative Art.
"We all have to work together not to fumble, but to seize this opportunity to build a brighter, stronger future for the city of Chicago," Emanuel said at a public appearance Monday when asked about the new plan.
Supporters say the museum would be a destination that bolsters the city's image and its efforts to promote itself as an international destination, but the borrowing plan comes with the city strapped for cash and struggling with massive pension obligations and a distressed school district.
"This is an opportunity to bring a huge construction project to the city and it's another important piece in keeping Chicago new and fresh and would add to its long-term economic attractiveness," said Richard Ciccarone, president of Merritt Research Services LLC. "Chicago can't be left with just an albatross of debt and taxes."
Nor can it afford new taxes for such a project.
"It's important that it doesn't compound our tax and debt burden. That's a critical factor," Ciccarone said.
The borrowing plan relies on funding from billionaire Lucas and the extension of existing taxes.
Emanuel's administration stresses that the revamped museum construction project still does not rely on any taxpayer aid.
The Lucas museum project turned to Chicago after arguments over the proposed museum's design scuppered efforts to locate it in San Francisco.
Chicago initially won the museum last year with a proposed site on a parking lot near the city's museum campus along the Lake Michigan shoreline. It hit a snag when the Friends of the Parks organization filed a lawsuit arguing that the project violates lakeshore protections governed by the state's Public Trust Doctrine. A state judge recently ruled that the lawsuit could proceed.
Chicago explored other sites but is hamstrung by Lucas' desire to keep the project on the lakefront. The clock is also ticking because Lucas wants to get moving on the project. Faced with a protracted legal battle, the city scrapped the original site and turned to an alternative that requires far more planning, financing, and political muscle.
Emanuel wants to tear down an older section of McCormick Place Convention Center and build the museum there. Additional convention space would be constructed adjacent to newer convention center buildings across Lake Shore Drive.
The plan relies on roughly $1.2 billion of tax-exempt 40 year borrowing by the convention center's public owner, the Metropolitan Pier and Exposition Authority, according to the plan laid out Monday by MetPier chief Lori Healey and deputy mayor Steve Koch.
A Lucas contribution would cover repayment of the portion of bonds that would finance the museum's construction in the early years of the debt schedule. Existing taxes that repay MetPier's bonds and debt issued to build the Chicago White Sox' stadium would repay the remainder after the stadium debt is paid off.
Lucas' wife, Chicago native Mellody Hobson, endorsed the site over the weekend.
Under the plan, the demolition and museum construction carry a price tag of $665 million.
The above-ground portion of the building would be demolished and the museum built on top of the southern end. Remaining underground space would house a utility plant and infrastructure, storage and potential office to be owned and managed by MPEA, with storage leased to Lucas.
MPEA would build a 250,000-square-foot building, upgrade current exhibit space, and build a new garage. That portion carries a price tag of $500 million.
The city and MetPier say the overhaul would remove an underutilized building and save $225 million in maintenance needs over the next 25 years.
The project "will not only create a world-class cultural institution, it will allow McCormick Place, which is currently in desperate need of repair, to be reconfigured into a state of the art facility that will be the largest contiguous exhibition space in the world," city documents say.
The project adds 12 new acres of park land and it appears so far that the Friends of the Parks would not oppose it.
MPEA would issue nearly $1.16 billion for the overall project in fiscal 2017. Lucas, whose museum project is a not-for-profit, would contribute $743 million, the cost of the project on the original site. In exchange, Lucas would receive 1,000 parking spaces and a 99-year lease from the MPEA for storage space on the lowest floor of the site.
The plan requires state legislation authorizing up to $1.5 billion in new MPEA financing. The legislation would extend MPEA's existing tax authorization by six years to 2066. The MPEA collects taxes on hotels, downtown restaurants, auto rentals, and airport taxi rides that generate $148 million annually.
The 2% hotel tax that goes to repay debt issued by the Illinois Sports Facilities Authority for the White Sox stadium would be extended to 2066 from its 2033 expiration, with funds from the extension going to MPEA to retire the new debt. The tax raises about $45 million annually.
State incentive payments that now go to MPEA under a 2010 legislatively approved overhaul of MPEA would continue through 2023 and then end. They are capped at $15 million and assist in attracting conventions.
The MPEA is also asking the state to raise to $450 million from $350 million the amount of state sales tax pledged to repayment should tourism tax revenues fall short. MPEA debt repayment required about $57 million in previous state help but the agency is required to repay it. It paid back $9.7 million last year and it expects to repay up to $6 million this year.
MPEA envisions a deal that taps the Lucas contribution to cover early interest payments so a more costly capital appreciation structure is not needed, though the principal would still be backloaded because it would require existing debt to be repaid first.
"We have lots of tax collections in the future but are very constrained in near term," said MPEA finance chief Richard Oldshue. "The money is there to get the deal done with the three pieces and you can put together a deal that is largely a current interest one."
Emanuel has pledged that no new public dollars would go to fund the project and officials insist that the revamped plan holds to that pledge because the Lucas contribution would cover construction costs.
MPEA currently pays annual rent to the Chicago Park District for the Lakeside East building, which sits on park land. MPEA would no longer pay a yearly ground lease but transfer an existing MPEA parking garage to the park district.
The Rauner administration said the plan was "under review." State legislative leaders said only they needed to review the plan's details before commenting.
The plan faces an uphill battle given the state's 10-month-old fiscal 2016 budget impasse, the Chicago school district's pleas for more state help, and the city's request for pension relief. The city administration believes the museum package could be included in a sweeping state budget and pension solution but it's unclear how soon such a deal might be reached given the deep divide between Rauner and the General Assembly's Democratic majorities.
The project's complexity also raises questions over whether it is essential enough to demands so much attention from a city facing so many crises.
"The timing couldn't be worse," Ciccarone said.
"The question is does the city table" its economic and tourist-related goals "because it distracts from solving short term problems," he said. "You have to justify the economic and taxpayer benefit."
It would lower the MPEA's borrowing costs if the legislation made clear that the flow of state funds to repay MPEA bonds can continue even in the absence of a state budget appropriation, Ciccarone added.
The MPEA paid a penalty when it borrowing $223 million last year to finance its new hotel after losing high-grade ratings of AA-plus and AAA.
Fitch Ratings and Standard & Poor's dropped the agency's rating to BBB-plus, one notch below the state's general obligation rating, after they deemed it subject to appropriation risk.
A budget appropriation is required for MPEA to make its monthly debt deposits. The lack of a budget left the authority unable to make its July payment to the trustee to put toward a December debt service payment, creating a technical default.
Rauner later signed legislation to alleviate that problem and allow for all payments to be made in fiscal 2016.
Oldshue said MPEA's lawyer are exploring legislative language that could protect the flow of funds without a budget appropriation in place but it's a difficult task given the state sales tax backing. Because of the pledge, the debt would count on state books under a continuing appropriation.
Oldshue said the agency expects to work on the potential financing with its existing list of pre-qualified underwriters selected from its most request for proposals process as well as financial advisor Public Financial Management Inc. and bond counsel Katten Muchin Rosenman LLP.
