A new plan to pay off debts from the 1992 World`s Fair with Chicago property taxes could cost the city nearly half a billion dollars, City Hall financial experts say.
The plan was first announced by the Chicago World`s Fair 1992 Authority last week in an attempt to persuade the Illinois General Assembly to provide future funding for the fair. The legislature would have to amend state law to put the authority`s plan into effect, and both sides of Chicago`s divided political battleground seemed united in fighting it.
The plan ”ran into a buzzsaw,” one legislative aide said. Two key majority bloc alderman, Bernard Stone of the 50th Ward and Edward Burke of the 14th Ward, denounced it, and administration members close to Mayor Harold Washington also reacted angrily.
”With this, the ultimate liability holder at the end of the fair is the Chicago taxpayer,” one aide said. ”This (the fair) has been put forward as a public-private partnership. But clearly the Chicago taxpayers are the low partners on the totem pole.”
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Washington said at a press conference that he found the authority`s financial plan ”very revealing.” But Washington, pressed by opponents and proponents of the fair, has yet to say whether it should go forward, and his aides, aware of the political pressures, agreed to talk on the condition they not be identified.
The plan, announced without city approval, is called ”tax increment financing,” or TIF for short. It assumes that the fair`s presence on the lakeshore south of the Loop would result in a sharp upgrading of property values in the South Side area just inland from the fair.
The authority argues that the fair should have the right to take the extra property taxes generated by this improvement, the ”tax increment,” and use them to pay off debts owed to the state or to private investors who bought fair bonds. The trouble is that the city has assumed that this development and increased tax revenue would be Chicago`s main payoff from the fair.
The plan assumes the fair`s activities would lead to $1.5 billion in development in the area, which lies between Lake Shore Drive and the Chicago River, and between Roosevelt Road and the Stevenson Expressway.
Property taxes based on present value would continue to go to the city. But any taxes resulting from this development would be put in the TIF fund.
The plan estimated that these would be between $26.25 million and $33.75 million per year.
The plan predicts this money would go to pay off bonds maturing after the fair, during a 14-year period between 1994 and 2008.
At City Hall, budgetary analysts took out their calculators, multiplied 14 years by a possible $33.75 million per year, and came up with a potential overall loss to the city of $472.5 million.
”Add on $24 million (which the fair wants the city to contribute to its
`satellite site` on Navy Pier) and that`s a half billion dollars right there,” one analyst said.
According to the analysts, a Chicago taxpayer living in a $60,000 home would have to pay $34 to $35 more in property taxes each year to make up the difference.
These figures also showed that the loss to the city itself would be $130 million, while the city`s schools, the major property tax beneficiary, would lose $198 million.
John Kramer, the general manager of the Chicago Fair Authority, said these fears were sharply overdrawn.
”The city is not being asked to put up cash, only collateral,” Kramer said.
He argued that the city is ”pledging a small portion of the increment that it wouldn`t get except for the fair as collateral for debt that in all likelihood wouldn`t have to be used.”
He said the TIF would go to pay off $220 million in bonds backed by the state. The total bite out of the TIF fund could not possibly go higher than this, he said, because this indebtedness would be ”capped” at $220 million by the state legislation approving future financing for the fair.
”We would put in enabling legislation to cap this,” he said. ”That forces (the fair) management to live within its revenue base. So any (cost)
overruns would have to be made up by the management, by cutting costs, or would have to be borne by the private sector.”
But world`s fairs are notorious for cost overruns and heavy deficits, with the taxpayer frequently asked in the end to make up the difference. The New Orleans fair last year ended up $130 million in debt, and it managed to stay open until the end of its run only through emergency funds from the legislature.
Against this background, city officials were skeptical that costs for the 1992 fair could be kept within bounds, or that the fair authority would not ask for more state funding or higher bonding power, no matter what ”caps”
are written into the legislation.
This possibility could lead to more of the TIF funds being used.
If increased property values actually rose to $2 billion or $2.5 billion, then TIF would be ”an open-ended fund to cover mistakes or cost overruns or wild spending,” an aide said. ”Do we want to mortgage the next 14 years to pay for the fair?”
The authority suggested that the TIF revenue could go to pay off debts for public projects–the so-called ”residuals”–which it agreed to build to get approval from the city and Park District to hold the fair. These include a harbor, new water and sewer lines, road improvements, bridges and highway interchanges.
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To city officials, this meant that the fair authority, having agreed to build these residuals, would then pay for them with city funds.
”All the residuals we were supposed to get from the fair keep disappearing,” another aide said. ”Now the main residual, the tax base created by developing the Near South Side, is disappearing, too.”
The city also disputes the contention that no development would take place in the TIF area south of the Loop without the fair to act as a catalyst. Such projects as Dearborn Park are nibbling away at the edge of the blighted area, and some critics of the fair suggest it might even slow up development there.
Development in the area requires new streets, sewers and other infrastructure, however, and city officials said the fair, by setting up a TIF there to pay its own debts, ”could take away the one instrument that the city would have to provide this infrastructure.”
At the moment, state law allows only municipalities to set up a Tax Increment District, with the proceeds from increased taxes to be used to retire debt incurred to improve the district.
The fair authority said it wanted to amend the law ”to include the . . . authority in the act`s definition of `municipality.` ”