Chicago again on the spot for Soldier Field tax shortfall

Chicago hotel taxes pledged to repay Soldier Field renovation bonds will fall $9 million short of what’s needed for debt service this year, leaving the city on the hook for a as early as 2026 for $84 million, but debt repayment relies only on hotel taxes and a city and state subsidy, not on stadium or game-related revenue.

The authority grappled with shortfalls after hotel taxes plummeted amid the pandemic.

Initially, the authority dipped into its own reserves and then pushed off debt service through a $19 million scoop-and-toss restructuring in order to spare Chicago from having to cover the gap.

The use of reserves contributed to a downgrade and board members considered further restructuring within the confines of the current debt schedule a credit risk, so the onus last year fell on the city to cover a $27 million shortfall.

Under the original 2001 deal Mayor Richard M. Daley struck to renovate the historic downtown stadium, the city is on the hook should the authority’s hotel tax and the city and state subsidies fall short of what it needs to eventually repay an “advance” of state hotel taxes pledged to bondholders.

Under the complex structure a “state advance” of up to 60% of a 5% statewide hotel tax is pledged to the bonds but the agency must repay most of that advance at the June 30 fiscal year end. The authority’s revenues come from a local 2% hotel tax, a $5 million annual state subsidy and a $5 million city subsidy.

The state can automatically withdraw the amount needed from the city’s share of income tax revenues that flow to what’s known as the Local Government Distributive Fund to cover any gap. The city received about $359 million in LGDF revenues in 2021.

Besides last year, the only past deficiency in the ISFA hotel tax occurred in 2011 when the city had to cover a $185,000 shortfall.

“Talking with our financial advisor there weren’t really any other options for this year” like a restructuring or reserves because of the potential ratings impact, Bilecki said of this year’s anticipated $9 million draw.

 The authority’s board, a mix of city and state appointees, approved what’s known as the “chairman’s certificate” Monday. It notifies the state of the “advance” amount of hotel taxes are needed to cover debt service and operations.

ISFA’s request for the full amount last year along with the ongoing hotel tax recovery helped lift its bonds out from an S&P Global Ratings junk rating. S&P raised the rating to BBB-minus from BB-plus in May 2022.

When the authority opted not to request the full amount in 2020 to shield the city from making up the shortfall by using reserves, S&P had knocked the rating down to BB-plus from BBB.  Plummeting tax revenue also contributed.

S&P caps the rating at one notch above the state under its priority lien criteria that takes into account the credit quality of the obligor where taxes are distributed and/or collected and the strength of the security pledged. The state is rated A-minus.

Fitch Ratings last affirmed the bonds’ BB-plus rating in June. Because of the need for a state appropriation on the advance, Fitch caps the rating at one notch below the state which is currently BBB-plus with a positive outlook.

The Chicago Bears are pursuing a stadium project in the northwest suburb of Arlington Heights, where the franchise spent $197 million to purchase the shuttered Arlington International Racecourse.

It’s not seeking direct public subsidies to finance construction, but the team does have its sights on state legislation that would provide property tax certainty for the stadium and more expansive mixed-use entertainment development by freezing values and allowing for negotiated decisions on payments to local taxing districts.

The legislative package in House Bill 610 would establish rules not just for a new Bears stadium but also “megaprojects.” It received a subject matter hearing before House Executive Committee Wednesday.

The legislation being led by Rep. Marty Moylan, D-Des Plaines would impose a 3% surcharge on online sports betting at the stadium complex and divert some sales, liquor and hotel taxes to fund infrastructure improvements in the region.

A $3 per-ticket surcharge would go to repay Chicago for the subsidies it’s provided to repay the Soldier Field debt. It would not go directly to repay remaining bonds as some have reported, Moylan said in an interview.

State Rep. Kam Buckner, D-Chicago, noted the outstanding debt and the city’s expected loss of amusement tax revenues if the Bears move.

“I think it’s important to also talk about the loss of that tax revenue from the amusement sales tax,” he said.

Moylan acknowledged those concerns and said negotiations over the summer would take them into account with the goal of reaching agreement on a package ready for a vote in the fall veto session.

“This bill would help fuel the biggest economic development project in the northwest suburbs but equally important it would be another valuable tool for developers of megaprojects across Illinois to create tens of thousands of jobs and spur massive economic growth,” Moylan said.

The Bears said in a statement that the legislation “provides an excellent foundation” to work closely with businesses, labor leaders and concerned municipalities.

Johnson has said in public comments that he’d like to negotiate with the Bears in an effort to keep the team in the city.