CHICAGO — Faced with rising debt service costs and sagging tourism revenues, the Metropolitan Pier and Exposition Authority will ask Illinois lawmakers who return to work today for the power to restructure its debt and extend a state debt-service subsidy.
The pleas of the authority — which manages McCormick Place Convention Center and Navy Pier in Chicago — have fallen on deaf ears in recent years as the state grappled with budget deficits and faced a political corruption scandal that led to the removal last year of Gov. Rod Blagojevich.
The revised plan, however, is now tied to major labor-rule reforms and contractor practices aimed at enhancing Chicago’s appeal as it competes with major centers in Las Vegas and Orlando. It comes after McCormick Place lost several major conventions last year. The plan is supported by Mayor Richard Daley and Gov. Pat Quinn.
“This proposed legislation will be a major step in meeting the dual goals of making MPEA self-sustaining and ensuring the highest levels of customer satisfaction at McCormick Place,” authority board chairman John Gates said at a news conference Monday with Quinn and Daley to announce the legislation.
“We can do what it takes, pass this legislation to modernize our business model, create new jobs and growth … or we can continue to operate at a competitive disadvantage and watch the steady decline of one of our state’s most important economic resources,” he said.
The health of the convention and trade show industry is vital to the city and state’s financial well-being with billions spent annually by visitors to the city. It also boosts Chicago’s national reputation as a tourism destination spot. Officials argue that swift action is needed to preserve and expand the 65,000 jobs and $8 billion in economic impact supported by conventions and trade shows at McCormick Place.
The restructuring is needed to provide the MPEA — a state agency also known as MetPier — with both near-term fiscal relief and long term financial stability and would ultimately save the state money, according to chief financial officer Richard Oldshue.
A slump in tourism taxes prompted the agency to draw $18.8 million in Illinois sales tax revenue for its fiscal 2009 debt payments on $2.1 billion of convention center expansion bonds. An estimated draw of $34 million is again expected this year as collections from MetPier’s taxes on restaurants, car rentals, hotels, and taxi rides from the city’s airports won’t keep up with debt service demands. The state’s sales tax revenue can be used as a backup pledge — subject to appropriation — on the bonds.
Under the revised multi-layered debt restructuring plan, the MPEA is asking the state to extend a $31.7 million annual debt service subsidy on a 1984 revenue bond issue to 2032, 17 years past the 2015 maturity of the bonds. About $140 million remains outstanding.
The maturity schedule would be left intact. The subsidy is supported by various dedicated tax revenues, primarily coming from the state sales tax.
The bill would also give the agency the ability to extend the maturity on its $2.1 billion of bonds by eight years to 2050 from 2042 and extend the collection of its tourism taxes and the state sales-tax backup pledge by another 10 years to 2060.
The plan is devised to allow MetPier to spread out its restructuring of debt. It also establishes a first priority claim on the additional increments of debt capacity for repayment of draws on the sales tax backup before it can be used to raise new capital, a move that officials hope will help sway lawmakers, Oldshue said.
“The plan gives the authority the flexibility to fix its debt structure in a rational and efficient manner in a challenging market,” he said. “You solve the most pressing issues immediately and then through a series of issues we can reach a stable financial structure.”
If no action is taken, officials estimate that the subsidies will cost the state a total of $800 million. If enacted as proposed, about $200 million would be shaved off that number through 2015 and $400 million through 2025.
“This gives the state a cure [from having to cover the tourism tax shortfall] while we also don’t have to fix this structure all at once, which would be difficult because of the challenging market environment,” Oldshue said.
Beginning in 1992, the authority’s expansion bonds, including its $1.5 billion 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 authority’s expansion bonds.
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 MetPier 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 revenue again fell due to the current recession, dropping nearly 6% in fiscal 2009. In 2010, the debt service schedule hits $139 million and then rises at an annual clip of 5.1% until it tops out at $275 million.
Previous restructuring legislation that was proposed but did not pass would have allowed the MPEA to extend the final maturity of its debt by six years to 2048 and raise its debt ceiling by $350 million to $2.5 billion. It also would have hiked the pledged level of sales taxes in the later years of debt service to $350 million from a current level of $275 million.
MetPier argues it is currently at a competitive disadvantage to other major facilities because even with the capital subsidies, it receives no operating subsidies.
The fiscal pressures spurred Fitch Ratings to drop the expansion bonds credit one notch to A-plus over the summer. Moody’s Investors Service recently downgraded bonds supported by the state tax subsidy to A3 after it downgraded the state. Standard & Poor’s rates the expansion bonds AAA.
MPEA officials are pressing for fast action as they worry about the fate of other convention contracts, but swift approval is unlikely during the new session that began yesterday. The work rules could pose a hard sell for lawmakers who face re-election this year, depending on union pressure.
The extension of state debt service subsidies also could prove difficult for lawmakers to swallow, and several of them reacted to the proposal by supporting a counterproposal to restructure MetPier’s board. That measure cleared the House yesterday.
“I think lawmakers are saying you have to professionalize the agency and cleanup some of these management issues before addressing the financial and labor questions,” said Steve Brown, spokesman for House Speaker Michael Madigan, D-Chicago.
The state’s own liquidity and fiscal crisis also represents a significant hurdle as it will be the focus of the new session and lawmakers and Quinn are not expected to attempt to address budget issues until after the February election primary.
MetPier said the bill would complement ongoing efforts to streamline its organization and cut operating costs. The board announced in November that it would cut 20% of its employees to help trim a budget gap estimated at nearly $29 million.
It has negotiated some work rule changes and is revisiting food service contracts. The legislation would allow the MPEA to audit contractors at its facilities, eliminate certain work rules and prevent union strikes.