CHICAGO - A slump in Chicago tourism taxes prompted the Metropolitan Pier and Exposition Authority to draw on Illinois sales tax revenues for fiscal 2009 debt payments on $2.3 billion of convention center expansion bonds, a move that illustrates the need for lawmakers to act quickly on a debt restructuring plan, officials said.
The authority's revenues that go to repay the bonds primarily come from a series of tourism-related taxes on restaurants, hotels, car rental, and taxi rides from the city's airports. Those revenues fell $18.8 million short of what was needed to cover debt-service payments in fiscal 2009 ending June 30. The state's sales tax serves a backup pledge - subject to appropriation - on the bonds and so it was tapped to fully cover the debt service.
The fiscal pressures facing the agency that manages Chicago's Navy Pier and the McCormick Place Convention Center spurred Fitch Ratings to downgrade the agency's credit one notch to A-plus on the expansion bonds last month.
"Without approval from the Illinois General Assembly to restructure its debt or increase revenues, the authority will continue to need state sales tax revenues to meet escalating debt service requirements," wrote Fitch's Melanie Shaker, adding: "This amount will continue to widen without revenue or expenditure adjustments - both of which are outside the authority's control."
The authority has pushed for several years for legislative authorization to restructure its debt, but its efforts have been pushed to the back burner as the state grappled with budget deficits. A significant hurdle also remains the need for a three-fifths majority vote because the legislation involves debt issuance. Even with full Democratic support, House Republican votes would be needed.
"The MPEA would like to get its debt restructured in order to keep from having to tap state sales tax revenues for debt service payments if MPEA tourism tax revenues are insufficient," said the agency's spokesman Jon Kaplan.
Officials there have not yet determined when to renew their push for the restructuring, in the upcoming fall veto session or next year's spring session, but lawmakers believe the time is now as the state grapples with dwindling revenues. The state faced a $12 billion deficit going into fiscal 2010.
"Immediate action is needed so that the MPEA bonds don't continue to suck sales tax revenues away from the state's core budget needs. We can't afford it," said state Sen. Jeff Schoenberg, D-Evanston, who is assistant majority leader and a sponsor of the authority's past restructuring legislation. "It's essential that the restructuring be completed as soon as possible especially with market rates more favorable."
Previous legislation would have allowed the MPEA to extend the final maturity of its debt by six years to 2048, raise its debt ceiling by $350 million to $2.5 billion, and it would have increased the pledged level of sales taxes in the later years of the debt service schedule to $350 million from a current level of $275 million. The additional $350 million borrowing capacity would finance construction of a new tower, parking facility, and other improvements at the convention center's hotel.
In addition to eliminating the need to tap the state's share of sales taxes, a restructuring would give the MPEA the long-term breathing room it needs due to the steep debt-service schedule. The 2002 deal relied heavily on premium securities to raise more cash up front and used a back-loaded amortization structure so as to fit into MetPier's existing bond portfolio without the need for any tax increases.
It was an aggressive schedule built around existing debt repayment and was considered viable given historical growth of the taxes at an average of 5.5%. To help ensure strong ratings and lower interest rate costs, the General Assembly agreed to put the sales tax pledge behind the issue.
A decline in tourism tax collections after the Sept. 11, 2001, terrorist attacks knocked the agency off track as revenue slumped. With revenues falling short of what was needed for debt service, the agency tapped its reserves but those have been exhausted. Though growth later returned and continued through fiscal 2008, it wasn't at a sufficient pace to compensate for the drop and revenues again fell due to the current recession, dropping nearly 6% in fiscal 2009.
In 2010, the debt service schedule hits $139 million. Kaplan said early estimates for fiscal 2010 project tax collections of $105 million, requiring the need for $34 million in state sales tax revenues. Debt service then rises at an average clip of 5.1% until it tops out at $275 million.
The 2002 bond covenants were set up so that in each of the first eight months of the fiscal year an amount sufficient to cover debt service for the year is transferred from a state pool of tourism and sales tax funds. The MPEA had in past years always returned any sales tax dollars to the fund after closing its books on the fiscal year.
Moody's Investors Service last month downgraded the bonds to A2 from A1 in conjunction with its downgrade of the state's credit. Standard & Poor's rates the bonds AA-minus.
