The dramatic decline in tourism taxes triggered by the coronavirus pandemic has increased the state’s debt service burden, a Wall Street rating agency warned Monday.
Last week, the Chicago Dental Society canceled its February meeting at McCormick Place, depriving Chicago of 29,936 visitors expected to occupy 17,305 hotel room nights.
The agency, better known as McPier, subsequently reported that August hotel, restaurant and other tax revenue used to back its bonds plunged by 85%, compared to the same period a year ago.
On Monday, Moody’s Investors branded that continued revenue decline a “credit negative” for the State of Illinois, which has a bond rating a Baa3/negative.
That’s because state sales tax revenue serves as the “backstop” for McPier’s $2.9 billion in bonds, which are primarily bankrolled by tourism taxes, Moody’s said.
“State sales tax revenue covers debt service [up to $300 million] when [McPier’s] pledged tax revenue falls short,” Moody’s wrote in an advisory released Monday.
“Diversion of sales tax will intensify stress on the state’s finances and widen its budget deficit.”
Nearly two months ago, the Lightfoot administration put a $900 million price tag on convention and meeting cancellations tied to the pandemic.
On Monday, Moody’s offered an ominous warning.
“A recovery in tourism nationally to pre-pandemic volume is unlikely before 2023. Recovery of business travel, including for conventions, will take longest,” the rating agency wrote.
Although the decline in tourism taxes is viewed as “credit negative,” Moody’s noted that the immediate burden on the state is “relatively small.”
In the fiscal year ending June 30, 2022, McPier’s debt service is $260 million. That’s only 8.8% of Illinois’ general obligation debt service for that year.
McPier also has the ability to offset tourism tax losses by refinancing debt — which it did, to the tune of $882 million, in March.
“A pending $163 million issue includes additional refunding components and $46.3 million to cover fiscal 2021 and 2022 operating expenses,” the Moody’s advisory stated.
McPier CEO Larita Clark told the Sun-Times in June her agency had responded to the collapse in convention business by adopting a bare-bones budget.
Clark said then that 2,300 out of more than 2,800 employees were not working or had been laid off or furloughed. Employees still working were asked to take 15-day furloughs, she said. Its Wintrust Arena and Marriott Marquis hotel remain shut down for now.
