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Chicago digs into casino bids with eye on fiscal boon

Chicago will have its eye on which among five bids offers the best odds for fiscal and economic gains as it takes the next step in picking a developer to build and operate a casino and resort complex.

The city received five proposals from potential developers and operators by a late October deadline. On Friday, Mayor Lori Lightfoot’s offered a deeper look at the proposals and an initial, general assessment of the fiscal prospects as its review begins.

While the city will look at a range of factors in making its pick “a large consideration of this project will be the overall economic and financial impact that’s brought to the city,” Chicago’s Chief Financial Officer Jennie Huang Bennett said at a briefing Friday.

“As we expected, the proposals have demonstrated universally that the city will see a sizeable benefit as a result of the casino development,” Bennett said. “We know there will be a material improvement to revenues to the city as well as overall economic impact.”

All five begin the review process on equal footing and all are in the “ballpark” of a past estimate that a permanent casino located downtown, once up and running, could generate about $200 million in annual revenue for the city.

The economic boost from construction and permanent jobs and consumer spending should also bolster tax collections although the city can’t yet put a value on those benefits as it reviews the projections laid out in the proposals and conducts its own studies, Bennett said.

“We do expect for there to be an overall city tax revenue benefit. Jobs create income taxes, consumer activity creates sales, restaurant, amusement taxes. Economic development helps support property taxes, so we do expect for that to generate significant impact to our city revenues,” Bennett said.

The city could see an initial upfront payment but Bennett previously said it’s too early to determine its size as the review of proposals is only beginning. The city hopes to make its pick and present an agreement to the City Council early next year. Several proposals provide a number, with one offering an upfront payment of $25 million and another offering $50 million.

None of the proposals are seeking public financing and are “fairly self-contained in terms of their need for financing,” Samir Mayekar, deputy mayor for economic and neighborhood development, said in the briefing. But the city said it’s still too early in the development process to close the door on any city help, in areas such as infrastructure, that could be financed through tax-increment financing.

The administration views the casino revenue it expects to see flowing in the next few years as a means to tackle growing costs that pose longer-term threats to the city’s efforts to reach structural balance in 2023 and maintain it.

“The city continues to pursue various new revenue sources to address potential out-year budget gaps. One of the key revenue sources targeted would be generated from a casino within the city,” reads the offering statement on general obligation refunding bonds being sold as part of a roughly $1.2 billion refunding under the GO and Sales Tax Securitization Corp. credits early next month.

The original state legislation that paved the way for the city’s first casino license requires any casino revenue “be expended by the city to satisfy the city’s employer contribution obligations to” the police and fire funds.

The legislation doesn’t require the funds supplement scheduled contributions so the new revenue won’t bring up weak funded ratios, but it will ease pressures on the city’s corporate fund to cover rising contributions.

The police fund makes up $12.1 billion of the city’s $33 billion of net pension liabilities for 2020 and fire makes up $5.6 billion. The police fund is 22.2% funded and the fire fund is at 19%. The city’s collective funded ratio of its four funds is 23.5%.

The 2022 budget marks the third year the city will have made an actuarially based contribution to police and fire and the first for its municipal and laborers’ funds after the conclusion of five-year funding ramps to actuarially based contributions.

The funding schedules are designed to reach a 90% funded ratio by 2058 for all four, but weak funded ratios will persist for several decades.

The Rivers Casino at the 78 proposal.

“Although we have climbed that ramp, what that means is that the annual increases won’t be in the hundreds of millions going forward” but the city still anticipates annual contributions for police and fire will rise about $40 million annually so that’s “part of the reason why these new revenues are so important to our financial landscape,” Bennett said during the briefing.

City contributions to all four funds jumped to a collective $1.68 billion in 2020 from $1.3 billion in 2019 as an actuarially based contribution hit for police and fire. Contributions rose to $1.8 billion in 2021 and will jump again to $2.28 billion in 2022 as actuarially based contributions hits for the municipal and laborers’ funds. Increases then are projected to level off, rising at more modest levels to $2.33 billion in 2023, $2.37 billion in 2024, and to $2.41 billion in 2025.

One potential snag in the city’s expectations is pending state legislation that could receive a vote during the legislature’s spring session. It would bring the cost-of-living adjustments, or COLA, for all police in the city’s older tier one benefit scheme up to a simple 3% annual increase despite their birth date. The city has long made the upgrade every few years as birth dates hit.

It mirrors firefighter legislation that was also sponsored by state Sen. Robert Martwick, D-Chicago, who argued the permanent change provides a more accurate view of the funds’ health. Lawmakers approved and Gov. J.B. Pritzker signed the firefighter legislation into law in April over Lightfoot’s objections that the city can’t afford such a mandate.

The firefighter cost amounts to $18 million to $30 million annually and up to $823 million by 2055 when the fund is slated to reach a 90% funded ratio. The police fund poses a greater annual burden of up to $90 million and as much as a total price tag of $3 billion.

“The police COLA increase would be very expensive for the city,” Bennett said in a recent interview. “Police would be another $3 billion which is ultimately unaffordable for us, so it is something we are very concerned about and monitoring very closely.”

Bennett also said in the interview the city has no plans in the works to securitize the future stream of casino revenues, but it remains on the table, although the state legislation poses a limiting factor for any deal with the mandate that the city’s take go to public safety pension funding.

Lightfoot and her predecessors have long eyed establishing the city’s first casino to capture revenue that is now lost to competitors in suburbs and across the Indiana and Wisconsin borders.

The state awarded Chicago its first casino license in 2019 as part of an expansive gambling package that allowed for six additional casinos to help support a $45 billion state infrastructure. There are 10 casinos currently operating in the state.

Details of the five proposals include:

  • Bally’s Corp., Proposal #1: $1.8 billion property in the Chicago Tribune Publishing Center with 500 rooms; six restaurant/cafes and a food hall; three bars and lounges; 3,000-seat, 70,000 sq. ft. entertainment venue; 20,000 sq. ft. of exhibition space; outdoor/rooftop green space including bars, lounges and pools; 3,400 slots and 173 table games.
  • Bally’s Corp., Proposal #2: $1.6 billion property in McCormick Place Truck Marshaling with 500 rooms; six restaurant/cafes and a food hall; three bars and lounges; 3,000-seat, 70,000 sq. ft. entertainment venue; 20,000 sq. ft of exhibition space; outdoor/rooftop green space including bars, lounges and pools; 3,400 slots and 173 table games.
  • HR Chicago, LLC: $1.7 billion property from Hard Rock International at One Central project site with up to 500 rooms, eight restaurant/cafes and a food hall, six bars and lounges, 3,500-seat Hard Rock Live, Rock Spa, Hard Rock Music and Entertainment Experience, 3,400 slots and 166 table games. The One Central project is a more sweeping development with a new transit hub that relies on billions in uncertain state financial incentives.
  • Rivers Chicago at McCormick, LLC: $1.3 billion property at Lakeside Center at McCormick Place managed by Rush Street Gaming, LLC utilizing McCormick Place’s 2,900 hotel rooms with ability to add 250 or more additional rooms; 12 restaurant/cafes including a food hall; four bars and lounges in addition to full bars at seven restaurants; 4,200-seat updated Arie Crown Theater; direct covered access to McCormick Place Convention Center; dramatic lakefront setting with outdoor dining, entertainment and other lakeside programming; 2,600 slots and 190 table games.
  • Rivers 78 Gaming, LLC: $2.0 billion property managed by Rush Street Gaming, LLV in the eight-acre riverfront entertainment district at the northern end of the mixed-use 78 neighborhood with 300 rooms; eight restaurant/cafes and a food hall, five bars and lounges; Riverfront plaza; Observation Tower with indoor/outdoor viewing space; Harbor Hall multi-purpose riverfront venue for live entertainment, culture/arts and community programs with rooftop space; 2,600 slots and 190 table games.

Required elements include a casino-resort with 500 hotel rooms or less, meeting spaces, restaurants, bars, and entertainment venues. The proposals pitch various sites which will be part of the negotiations. The license holder could operate a temporary casino for up to 24 months with a potential 12-month extension as a permanent facility and resort venue is developed.
Members of 11 city departments make up a city committee charged with making a recommendation on the proposals to Lightfoot. The mayor’s choice would face a City Council vetting. If approved, the Illinois Gaming Commission would still need to sign off on the pick. A public hearing on the proposals is set for next month. The city will use consultants to develop independent design, feasibility, financial, traffic, workforce, and legal reports.

Moody’s Investors Service, the sole rating agency to rate Chicago at a junk level of Ba1 level with a stable outlook, last year labeled the state changes as a credit positive. Civic and research groups have warned against relying heavily on gambling revenues given their economic-driven fluctuations. Adjusted gross receipts for casinos fell 4.8% in fiscal 2021 following a 30% decline in fiscal 2020, according to the Illinois Commission on Government Forecasting and Accountability.

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