The Illinois Sports Facilities Authority projects a nearly $30 million shortfall in hotel tax revenues needed to repay a state advance for debt service on Soldier Field bonds, and Chicago will have to cover the gap absent other mitigation actions.
The authority has grappled with shortfalls over the last two years as hotel taxes — the primary source of bond repayment — plummeted amid the COVID-19 pandemic.
Over the last two years, the authority dipped into its own reserves and pushed off debt service through a $19 million
The authority's willingness and ability to do it again is in question. The use of reserves contributed to a downgrade and some board members last year worried about the added burden of restructuring, so it remains unclear whether ISFA will find a way to cover the latest gap that again spares the city.
The authority worked to shield the city from having any money withdrawn from its Local Government Distributive Fund,
a designated portion of state income tax revenues, to the extent of drawing down reserves and refinancing debt, ISFA Chief Executive Officer Frank Bilecki said. “We will continue to work through the shortage and review our refinancing options and how this may affect our long term fiscal health and ratings.”
The steep drop in state hotel taxes in 2021 triggered a reserve requirement under a surety bond guarantee agreement, the amount of which will be determined by how much state hotel taxes recover this year. “As a result, it will be important to have some reserves while we manage the reserve requirement,” Bilecki said.
The agency has not made any final determinations on dealing with the shortfall, but “right now it looks like we would be looking” to the city for help, Bilecki said.
Under the original 2001 deal Mayor Richard M. Daley struck to renovate the Chicago Park District-owned stadium that is home to the National Football League’s Chicago Bears,
The state can automatically withdraw the amount needed to make up the shortfall from the city’s share — $267 million in 2020 — -of income tax revenues doled out through the Local Government Distributive Fund.
While hotel taxes are on the rebound from the pandemic, a full recovery isn’t projected until fiscal 2025.
“It's still not enough for the end of the year to offset the advance so I'm still projecting that we are not going to be close to that number,” the authority’s chief financial officer, Dana Phillips Goodum, told board members at a meeting Wednesday.
The projected shortfall for fiscal 2022 ending June 30 that Chicago is obligated to make up absent other measures taken by the ISFA ranges from $27.6 million to $28.9 million.
Chicago Chief Financial Officer Jennie Huang Bennett and state officials are aware of the latest projections, Bilecki told board members. The city did not respond to a request for comment.
The ISFA has about $415 million of outstanding debt mostly tied to the Soldier Field renovations. Much of the debt issued in 1989 for the authority-owned Guaranteed Rate Field, home to Major League Baseball’s Chicago White Sox, has been retired.
The ISFA board includes a mix of members appointed by the mayor and governor.
A potential $18.4 million gap looms for fiscal 2023. “The anticipated shortfall for 2023 right now is just a projection and can change based on recovery of hotel taxes...and also the ability to refinance and extend the term to 2033,” ISFA general counsel Maria Saldana told board members.
The authority’s 2014 bonds become callable in 2024 and the state budget package signed last year by Gov. J.B. Pritzker gives the authority room to extend debt to 2033 from the current cap of 2032 by keeping the state “advance” in place a year longer.
The authority’s preliminary budget for fiscal 2023 totals $72.15 million with about 85% going to cover Soldier Field-related debt service and other expenses, 11% covering Guaranteed Rate Field-related expenses, and the remainder covering ISFA operations.
The board will approve the state advance amount known as the “chairman’s certificate” at its May meeting ahead of a June 1 deadline. Under the complex structure on the Soldier Field renovation bonds, 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 by the close of the fiscal year. The agency last year approved a $67.3 million certificate.
The authority’s revenues come from a local 2% hotel tax, a $5 million annual state subsidy and a $5 million city subsidy.
The only past deficiency in the ISFA hotel tax occurred in 2011 when the city had to cover a $185,000 shortfall.
The authority is now repaying the 2021 restructured debt service between 2030 and 2032, adding about $468,000 in present value costs to the debt.
While the 2021 restructuring spared the city, Mayor Lori Lightfoot’s administration would also like a long-term fix as debt service ramps up.
Under the pre-refinancing schedule, the agency owed $46.5 million in debt service for fiscal 2021, $49 million in 2022, $59 million in 2027, $81 million in 2031, and $87 million in 2032 when all debt is retired. The restructuring pushed maximum annual debt service requirement up to $90.5 million in 2032 from $87 million.
The pandemic only served to exacerbate the need for a long-term fix as pre-pandemic fiscal 2019 authority hotel taxes of $54.7 million require healthy growth to keep pace with escalating debt service.
“Future bond restructuring could be used to help smooth debt service and lower MADS,” S&P Global Ratings said in a July report.
The Chicago Bears’ lease runs to 2033 and the team’s future use of the stadium is up in the air.
In September, the team signed a $197 million purchase agreement for the now shuttered Arlington International Racecourse in the northwest suburb of Arlington Heights, 25 miles from central Chicago, where it envisions building a new stadium. The deal is not yet final.
Lightfoot has previously cast doubt on the city’s willingness to foot a bill for improvements at Soldier Field or a new city stadium but earlier this month said in two sports radio interviews the city wasn’t throwing in the towel yet.
“We’re going to continue to do everything we can to keep the Bears in Chicago,” Lightfoot said on WSCR-AM 670. The city is working on plans that “I think will make a very, very compelling financial case as to why it makes an abundance of sense for them to stay in Chicago.”
Lightfoot also recently named a 23-member working group to recommend strategic improvements to the 57-acre downtown museum campus that includes Soldier Field. The group is chaired by Richard Price, CEO of Mesirow Financial. Martin Cabrera, head of Cabrera Capital Markets, and public finance attorney David Narefsky, a partner at Mayer Brown, are also members.
“Should the team opt to leave early or not renew, ISFA bonds currently mature in 2032, and are not dependent upon activity in stadium,” S&P said in the July report.
Fitch Ratings and S&P in July
Fitch’s rating is capped at one notch below the state's rating of BBB-minus because a state appropriation is needed to authorize the transfer of pledged state hotel tax revenues to the bond trustee.
S&P caps the rating at one notch above the state but has it two notches below its BBB state rating. The positive outlook reflects the state’s improved GO rating and outlook, ISFA management's fiscal 2022 request of a chairman's certificate sufficient to cover debt service, state COVID-19 social distancing restrictions being lifted and reduced, and stable reserve levels, S&P said.
