CHICAGO - The Metropolitan Pier and Exposition Authority will sell $937 million of revenue bonds next month because the Illinois Supreme Court yesterday upheld the constitutionality of a special restaurant tax that is a key revenue source for backing the bonds.
The plaintiffs, restaurants and patrons within a special downtown Chicago and city airport taxing district, had charged that the 1% tax on restaurant meals violates the state and federal constitutions.
Their lawsuit targeted how the taxing district was put together and how the Illinois General Assembly passed legislation for the tax last year.
However, the state high court affirmed the Cook County Circuit Court's dismissal this summer of the charges, stating that it found "no merit to any of the plaintiffs' arguments."
Proceeds from the bond issue will be used to build a 1-million-square-foot expansion of the McCormick Place convention center in Chicago.
John Schmidt, chairman of the authority, said he was "delighted" with the court's unanimous decision, adding that the authority expects to price the bonds some time in December.
Scott Greene, an attorney for the plaintiffs, said his clients were "disappointed" with the court's decision. He added that the plaintiffs may petition the court for a rehearing or take the case's federal arguments to the U.S. Supreme Court. "At this point, we haven't reached any decision," he said.
Schmidt dismissed the viability of any further litigation against the restaurant tax, saying he did not think any new filing would hold up the bond issue.
Authority officials had put the entire bond issue on hold until the restaurant tax case was adjudicated. The legislation authorizing the $937 million of bonds and new tax revenues for debt service had stipulated that the restaurant tax must be adjudicated before the authority could use those revenues to back bonds.
James Fricke, the authority's director of budget and treasury management, said authority officials will meet with the underwriting team, led by Smith Barney, Harris Upham & Co. and Donaldson, Lufkin & Jenrette Securities Corp., within the next few days to settle on a final structure for the deal.
He said the 35-year issue, backed by the restaurant and other taxes approved by the state legislature last year, will include serial, premium, capital appreciation, and current interest bonds. He added that the capital appreciation and premium bonds will be insured, but that the authority has not yet selected an insurer.
The bonds will also be secured by a portion of state sales tax revenues that the authority can draw on for debt service if revenues from the tax package are not sufficient.
In addition to the restaurant tax, the state has authorized a 6% tax on auto rentals in Cook County and a 2.5% tax on hotel rooms in Chicago. Per ride fees of 75 cents to $1 on taxi, limousine, and bus trips to and from the city's two major airports also have been imposed.
The authority has estimated the entire tax package will raise $53 million in 1993, climb to $93 million by 2004, and remain at that level through 2021. Authority officials have said revenues from the restaurant tax will account for about 20% of the annual debt service needed for the bonds.
All the taxes went into effect Oct. 1, except for the per ride airport fee collection, which is scheduled to begin Jan. 1. Schmidt said it was too early to tell whether the revenue collections are meeting the authority's estimates.
Fricke said ratings for the bond issue would be sought from all three rating agencies. The authority's $379 million of outstanding bonds, secured solely by a pledge of state sales tax revenues, are rated A-plus by Standard & Poor's Corp. and A by Moody's Investors Service. The authority currently has no rating with Fitch Investors Service Inc.
Meanwhile, a second lawsuit contesting the constitutionality of the per ride airport fees on suburban limousine and out-of-state bus lines servicing the airports is expected to be moved from federal district court to the Cook County Circuit Court shortly, according to James McGurk, attorney for the limousine and bus companies.
Schmidt contended, however, that the suit has no merit and would not effect the revenue stream for the bond issue. He said the fee is estimated to raise a total of $7 million a year, with only $1 million to $1.5 million of that amount coming from non-city vehicles.