Late last week, U.S. Department of Transportation (USDOT) Secretary Ray LaHood and Mayor Rahm Emanuel announced the City of Chicago was accepting a $100 million federal loan to fund completion of the city’s river walk, a plan that would make a six-block stretch into a Millennium Park-like experience. It’s certainly an opportunity to beautify some prime downtown real estate, investing in local money as well as tourism and small businesses. And Millennium Park – though it came in well over budget – has still proven to be everything planners hoped, a very positive footprint for downtown. But after the initial announcement, there are still lingering questions to the deal that the city should answer before construction on the project begins. [PDF of the press release]
1. The terms of paying back the loan.
As Sun-Times City Hall reporter Fran Speilman reported last week, the city is being hazy on plans for revenue to repay the 35-year loan.
Emanuel and his Transportation Commissioner Gabe Klein were somewhat sketchy on where the revenues will come from to repay a 35-year loan with no payment schedule until construction that is scheduled to start in 2014 is completed two years later. A little over 70 percent of the revenues will come from … the existing tour boat fees, which were re-bid last year. Right there, we’ve got the bulk of it covered, Klein said. We’ve got retail leasing. We’ve got various other advertising and sponsorship opportunities, which we’re not even heavily counting on. And we’ve been extremely conservative in our estimates on revenues purposely because we knew we’d have to go through a very rigorous process, which we have, with the U.S. Transportation Department.
Seventy percent is a good chunk of money and would certainly be a positive for taking care of any lingering debt. But as the economy has been slow to rebound – particularly in Illinois – that’s banking on the revenue coming in at expectations. Where will the remaining 30 percent – $30 million – and additional revenue come from? Ads? Taxes on businesses? It’s admittedly not a huge chunk of money but more transparency would be nice in lieu of the disaster that is the parking meter lease.
2. Is there allowance in case this project goes over budget and over schedule?
Anyone who has ever watched home renovation shows on HGTV or elsewhere knows that nothing ever comes in on-time and on-budget. The best example? The project’s comparison, Millennium Park, which was four years late and $325 million over-budget. Granted, the River Walk doesn’t affect as large a foot print as Millennium Park, but the likelihood is still there for the unforeseen. Will the city be able to provide overage costs? Will the city have the ability to increase the loan and how long it has to pay back the loan?
3. Why a loan and, therefore, more debt?
The city is in enough debt as it is right now, especially given the parking meter deal and the gobs of money the city actually owes as a result of that – a deal Emanuel vowed to fight, to a degree, because of the financial burden and structure of the 75-year arrangement. The CTA has been able to secure plenty of federal funding for renovations and projects to rebuild its infrastructure. Were there better avenues to pursue to secure the money to pay for the river walk like federal funding? Why was the decision made to accept the loan and add to the money the city owes to various entities? $100 million over 35 years may not seem like a lot, but with the city still fighting steep debt, are the long-term revenue projections that good?
4. The big question: Why use a loan for this project?
To ignore the long-term benefits of the river walk project would be fool-hardy; using Millennium Park example as a comparison, there are certainly benefits for the city to reap here, including more beautified green space downtown. But the question at this moment in time for the city is one of priorities. With the largest single closing of public schools in the nation looming and a police department in need of more cops to continue holding back the city’s murder rate, is this the best use of a loan? True, the loan and development can exist independently from those items but again the concern is that the project stay within budget and not cause more debt than is intended. And if the city is willing to incur temporary debt for this loan, have they spent the same amount of time researching similar loans to help cushion the number of school closings or to help pay for additional police? If the effort and risk is being taken on something of this nature – something more superficial – than isn’t the effort and risk worth taking on more important endeavors to the city’s infrastructure?