CHICAGO — New members of a revamped Illinois Sports Facilities Authority board took their seats late last week, tasked with the challenge of easing the pressure on Chicago taxpayers to make up for potential shortfalls in hotel tax revenues used to repay $400 million of Soldier Field renovation bonds.
Mayor Rahm Emanuel, who included two public finance banking professionals among his three appointments, on Thursday responded to published reports that the authority required $1.1 million in city income taxes to make up a shortfall in fiscal 2011 hotel revenue that serve as the primary repayment source.
"I don't want the taxpayers of the city of Chicago to be treated as if they're just an ATM machine," Emanuel said.
The ISFA financed, owns, and operates U.S. Cellular Field, where Major League Baseball's Chicago White Sox play, and issued the bonds that financed the renovation of the Chicago Park District-owned Soldier Field, home to the National Football League's Chicago Bears.
The city provides an annual $5 million subsidy from its share of income taxes under the complex deal struck among city, the district, the ISFA, Illinois and Bears officials that paved the way for the authority to sell the 2001 bonds. The income tax serves as a backstop to make up any shortfall in hotel revenues. The fiscal 2011 draw marked the first on the backstop.
The sports authority at a board meeting held Thursday to provide an overview of operations for new members corrected the figure, saying the draw was actually $185,000, and blamed the mistake on a state accounting error. Authority officials also said hotel taxes for the current fiscal year were on a pace to meet the more than 4% annual increase required to cover escalating debt service payments. The $1.1 million figure came from an ISFA audit that the Chicago News Cooperative first reported last week.
Still, the potential risk to already-strained city coffers is a concern for Emanuel's new appointments and the four appointed by Illinois Gov. Pat Quinn. "I have asked for a new board and I gave them clear instructions. … You sit at the table and you represent the people of the city of Chicago," Emanuel said Thursday.
Emanuel recently named Jim Reynolds, chief executive officer of Loop Capital Markets LLC, Norman Bobins, chairman of Norman Bobins Consulting LLC and retired president of the former LaSalle Bank Corp., and Christopher Melvin, CEO of broker-dealer Melvin & Co..
Reynolds raised concerns over the escalating debt repayment schedule and "the open checkbook" on city coffers to plug future hotel-tax gaps. "We need to find a way to end the open-ended exposure," he said.
Restructuring the debt is unlikely. To push debt repayment out further and ease pressure on the hotel tax, the Park District and the Bears would need to negotiate a new lease, as the current expiration is tied to the bonds' maturity and city and state legislation likely would be needed.
The backloaded Soldier Field debt-service schedule was driven by the need to accommodate repayment of the White Sox ballpark bonds which were also covered with hotel taxes. The White Sox bonds were retired in 2010.
Under the Soldier Field deal, the state's pledge to annually appropriate a portion of its 5% statewide hotel tax along with the $10 million in state and city subsidies secures the Soldier Field bonds. Illinois advances the authority the funds needed to cover debt service and then reimburses itself with funds from the agency's 2% tax on hotels in Chicago.
The revenue has long provided just narrow coverage levels and relies on an ambitious growth schedule. Over the last two decades, the authority's hotel tax revenue increased an average of 5.8% annually, but it took a dramatic hit following the Sept. 11, 2001, terrorist attacks, and over the last 10 years has grown at a slower clip. The tax again took a sharp dive in fiscal 2009, declining by 12.6%.
An advisor said another option that could help avoid the future need for city income taxes is the renegotiation of various maintenance and operating contracts with the White Sox and park district.
When the Soldier Field deal was done, then-Mayor Richard Daley dismissed concerns that additional city subsidies would be needed to repay the bonds, saying at a news conference in 2001, "I remain absolutely confident that taxpayers are not at risk."
The city added $16.5 million of capitalized interest in an 11th-hour structural change to the deal to shield taxpayers for at least the first two years of debt repayment.
