Chicago development with transit hub is pitched as pension asset

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The would-be developer of a $20 billion real estate project in downtown Chicago says the project could bolster the state's frail public pension system, in exchange for state subsidies.

Robert Dunn, president of Wisconsin-based Landmark Development Co., is pursuing legislation to help it partner with the state on the One Central project, specifically a $3.8 billion transit hub that would include a retail and parking piece as part of a larger mixed-used residential and commercial development on the southern edge of Chicago’s downtown.

"We have been doing a considerable amount of work to look at this asset potentially being an asset that could be transferred to the state and on to a pension fund from the onset,” Dunn told lawmakers at a recent legislative hearing.

The state is saddled with a $133.7 billion of unfunded pension liabilities and the system is just 40% funded.

The project is in the early stages and Dunn will need to negotiate with the city to move forward. He is already facing some neighborhood opposition and questions about traffic, density, and damage to existing views of property owners.

The developer would front the $3.8 billion cost for the transit hub with the state then reimbursing the developer for $2.6 billion once it’s completed and is generating tax revenue through equity payments doled out over 20 years. Dunn rolled out the public subsidy proposal early this month.

Gov. J.B. Pritzker’s administration and lawmakers have said they are open to the idea but the prospects of legislation passing this session are a long-shot, said several lawmakers who cited the crowded agenda that the legislature still needs to tackle before adjourning May 31.

"This is the opportunity to create mobility for the lakefront that doesn't exist today,” Dunn told lawmakers at a recent subject matter hearing of the House Revenue and Finance committee.

“We are investing equity in a public asset,” and after the 20-year payment period “the state takes ownership,” Dunn said during the hearing.

The handout provided to lawmakers raised the specter of the potential for the state to transfer the new transit asset to the pension funds, but it contained few details. Contributions hit $9 billion in fiscal 2020 and the new administration is looking for potential fixes to bolster funding without diverting from spending on services.

Pritzker named a task force to consider asset sales and transfers as one option following the lead of some other states like New Jersey, which has transferred its lottery to improve the funded ratio of its public pension system. A report is due this summer.

"We need to think boldly and innovatively and what the legislation proposes is for the private sector to put the money upfront,” and when the new revenue comes in “the state participates and then the state gets an asset for its pension," Jack Lavin, president of the Chicago Chamber of Commerce who is a proponent of the project, told lawmakers at the hearing.

Several lawmakers from both parties offered positive assessments but said more study was needed.

The development on a 34-acre site over existing rail tracks is being billed as a means to generate $120 billion in new taxes for the city, Cook County, and state over a 30-year period with the transit hub providing an improved connection between the downtown, airports, and neighborhoods to the city’s museum campus. The campus is just to the east of the development and McCormick Place convention center is to the southeast. The undeveloped site only generates $23,000 in tax revenue now.

The transit piece is needed because the existing site is not currently buildable. That’s not due to the rail tracks, but to the presence of a rail storage yard, Dunn said. In a worst case-scenario in which the commercial-residential buildings are stalled, Dunn said the state still benefits from the additional revenue generated by use of the hub and other development expected around it.

Dunn said he wasn’t trying to rush approval, but he cited the upcoming expiration of assistance the project could receive under the U.S. Department of Transportation’s $35 billion Railroad Rehabilitation and Improvement Financing program. Transit-oriented development credit assistance in only available until December 4.

Passage of state legislation “gives us the ability to enter into a contract with state to activate this development" and then proceed to secure the federal funding, Dunn told lawmakers who questioned the need to pass something in the current session. The $1 billion in estimated federal help would be used to offset the state’s contribution, Dunn said.

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Public-private partnership State and local finance Public pensions City of Chicago, IL State of Illinois Illinois