Making Millennium Park
- Financing Development
- Finding New Revenue
- Sustaining Operations Through Partnerships
- Analysis and Evaluation
- Lessons Learned
- Discussion Questions
- Video Production Credits
This three-part video teaching case study examines how Chicago’s Millennium Park was financed and how it is currently funded so that it can remain a city asset for years to come. The purpose of this case study is to explain the different ways this megaproject was financed so that students can critically assess the decisions made by the city throughout the development process.
Public-private partnerships, debt financing, tax increment financing, urban redevelopment
1996 – 2006
- Analyze the different policy and funding options available to urban decision-makers when planning and financing public infrastructure projects
- Evaluate the benefits and risks of public-private partnerships in the financing of parks vs. other public infrastructure projects
This case traces the evolution of Millennium Park, from Mayor Richard M. Daley’s 1998 introduction of the planned makeover of an underused rail yard adjacent to Grant Park, through the new park’s opening in 2004, and its subsequent history. It weaves together video interviews and informational text to illustrate the funding mechanisms and strategies for public infrastructure projects, in particular those involving public-private partnerships. The project was also beset with cost overruns, delays, engineering challenges, and problems with management and oversight. The relatively pedestrian scheme unveiled in 1998, with an estimated cost of $150 million ($120 million public and $30 million private), grew in scope and ambition to an almost half-billion-dollar undertaking ($270 million public and $220 million private). While the end product has been widely hailed, its complex funding picture reflects the political and economic realities confronting its managers.
On March 30, 1998, nine years into his tenure as Mayor of Chicago, Richard M. Daley unveiled plans to convert an underused Illinois Central rail yard on the northwest corner of Grant Park into a new green space and performance venues in time for the turn of the millennium. The mayor and his supporters touted the proposed Lakefront Millennium Park as completing the shoreline scheme advanced by Daley’s hero Daniel Burnham in his 1909 Plan of Chicago. The new reclamation plan called for the creation of a transit hub topped by a massive green roof spanning the railroad tracks. This would take the form of a 16-acre Beaux Arts-inspired park, designed by architectural firm Skidmore, Owings & Merrill (SOM). As then-chief financial officer, Walter Knorr, recalls, the presentation was short on financial details (Knorr 2018). The mayor and his senior staff had been advised by SOM to avoid specifics on the topic of cost. In general terms, parking revenue could anchor the project’s financing. Daley also sought to tap private resources to construct the new park. Confronted at the press conference with the inevitable question of the project’s price tag, then-transportation commissioner, Tom Walker, cited the ballpark figure of $150 million that was hashed out during a city hall planning meeting days earlier and was based on SOM’s qualified cost estimates.
Knorr found the occasion somewhat awkward. Too many variables remained unclear for a solid estimate of the cost to build the park. From that point, the project’s fiscal planners had to play catch-up. Knorr and his staff and other city officials had to adapt to a constantly shifting set of requirements, planning the project and scoping out funding on the basis of scant and rapidly changing information. Typically, in such major infrastructure projects, planners had the benefit of feasibility studies and pro forma financial statements outlining various scenarios before committing to a strategy. Given the preliminary state of the park design and the relatively tight initial deadline of the new millennium, this wasn’t possible. One thing was clear from the start, though. The mayor pledged that taxpayers wouldn't foot the bill for the public investment in the project.
From his first inauguration in April 1989, Mayor Daley was focused on developing Chicago’s downtown and especially its shoreline. Daley came into office with the backing of groups who shared his interest in remaking the lakefront and building an economic development strategy around tourism, finance, real estate, and global business. Projects like the renovation of Soldier Field and Navy Pier (and eventually the creation of Millennium Park) were catalysts for tourism and real estate development, raised property values, and helped attract businesses and professionals to the central city. Like the rerouting of Lake Shore Drive and the creation of a landscaped campus around the museums in Grant Park, they were large-scale public works and infrastructure projects that created jobs and provided contracts for local firms.
Chicago and surrounding Cook County in the mid-1990s had capped property taxes following a tax revolt in the adjacent, so-called ‘collar,’ counties (Fegelman and Becker 1995). Thus, Knorr sought to identify funding sources other than politically fraught property taxes. He proposed the selling of parking revenue bonds. The appeal of the parking scheme was that the city’s funding could come through the sale of tax-exempt bonds supported by revenue and parking taxes from city-owned parking garages rather than general obligation bonds, which would be supported by the city’s full faith and credit and are payable from a dedicated property tax levy.
The City, with the approval of the city council, sold $150 million in parking revenue bonds, a figure based on an estimate of the number of parking spaces and anticipated parking rates, factoring in operating expenses and debt service, according to Knorr. Because he wasn’t able to secure firm estimates of the planned garage’s construction costs or anticipated revenues, Knorr had to include in the bond offering a “limited general obligation” backup pledged to other city revenue streams. These could include, various taxes and fees, though not additional property taxes, explained David Narefsky, a partner at the Chicago-based law firm of Mayer Brown, which represented the city and other parties in financing and managing aspects of the Millennium Park project. “The City was taking the risk that parking revenues would be sufficient,” he said (Narefsky 2018).
The bond terms were somewhere between a “moral obligation” pledge to pay any shortfall in parking revenue from general revenues or other property tax and the strict “full faith and credit” requirements of general obligation municipal bonds. “I think that’s stronger than a moral obligation, which often we see as I have a limited stream of revenue that’s pledged to pay off some debt, and if that’s insufficient […] as an executive branch issuer, I promise I will put an appropriation for the deficiency into the next budget. I can’t make the legislature approve [it, but] hopefully they will do the right thing,” Narefsky said.
The city in 1999 would issue a further $40 million in parking revenue bonds under the same terms, again with city council approval. Mayor Daley enjoyed the support of the legislative body representing Chicago’s fifty wards, largely by respecting their traditional autonomy in matters of local services and their veto power over zoning board decisions (Spirou and Judd 2016). Not long after the $190 million bond issue, it became clear that in the face of the park’s expanding footprint and more ambitious program, additional public money was needed (Washburn 2000).
Finding New Revenue
Edward Uhlir, an architect and head of research and planning for the Chicago Park District, was credited with the original notion of creating a new park as a massive green roof over below ground parking. Mayor Daley chose Uhlir to direct the Millennium Park project. In organizing his bid to remake the Illinois Central rail yard, Daley appointed John Bryan, president and CEO of Illinois-based consumer products giant Sara Lee Corp., who was a well-known Chicago arts patron and fundraiser, to head the private fundraising effort. Initially, this meant a capital campaign for the Millennium Park project to raise $30 million of the original $150 million total estimated costs. However, Bryan had a more ambitious vision for Millennium Park that featured enhancements underwritten by private donors and raised over $200 million in private funds to construct marquee features like the Frank Gehry-designed Pritzker Pavilion and Anish Kapoor’s iconic Cloud Gate sculpture. To support the new features above ground, the City fortified the underground parking garage, which drove up construction costs and reduced parking spaces and parking revenue. The cost of the Millennium Park project ballooned from an initial estimate of $150 million to $490 million. The City and Chicago Park District officials scrambled to come up with the funds to pay for construction costs and sizeable debt payments to see the project through to completion.
Knorr found a solution in tax increment financing (TIF). Illinois adopted TIF legislation in the late 1970s, and by the late 1990s Chicago had dozens of TIF districts. Because Millennium Park was just outside the Central Loop TIF district, across Michigan Avenue, it didn’t qualify for TIF funds. On the suggestion of William Luking, a consultant to the Mayor's Office of Governmental Affairs, the Daley administration in late 1999 successfully lobbied the state legislature in Springfield to amend the TIF law to permit the use of TIF funds in a public works project separated from a TIF district by a public right of way. This narrowly tailored legislative change allowed the city to redirect almost $100 million to Millennium Park (Uhlir 2005). Controversially, the city used TIF funds to supplement parking garage revenue in order to make debt payments (Martin and Cohen 2002).
The city’s creativity in making up shortfalls in parking revenue extended to the use of interest rate swaps, in a short-lived deal with Bear Stearns, to make its quarterly bond payments. The investment bank paid a termination fee in excess of $12 million to the city to cut its losses on the deal (Washburn 2003).
Sustaining Operations Through Partnerships
Revenue from the parking garage continued to fall short of debt payments. To meet the rising debt service costs, the city might have to consider raising property taxes or tapping into other revenue streams, like sales taxes, license fees, and franchise fees, Narefsky noted. “Then you might create a budget shortfall, so you’d have to figure out how to solve that problem,” he said. Another option was restructuring the debt, deferring debt service until revenue projections improved. The city could also consider a Public-Private Partnership (PPP) and lease the park district-owned garages to a private operator and use the proceeds to repay the underground garage revenue bonds, for parks capital improvements, offset loss of parking revenues, and cover transaction costs for the lease deal. ‘Public-private partnership’ describes a wide range of relationships. It typically refers to a long-term agreement between a government entity and the private sector to share the risks and rewards of delivering an essential public service. Government can be a meaningful player in many deals, such as contracting for engineering, construction, or other services qualifies, but it does not automatically make for a PPP. The term has come to be applied to projects with a significant reliance on private-sector finance, risk sharing, and often design, management, and operations.
In 2006, the City entered into a Public Private Partnership (PPP) and negotiated a $563 million deal to lease four city and park district-owned garages in and around Grant Park to Morgan Stanley for 99 years (Dardick 2014). As part of that deal, which saw parking rates rise, the city agreed not to build or approve competing parking in the area. The city ran afoul of this provision, to the tune of an almost $60 million penalty.
Despite these and other complications, Chicago’s internationally recognized Millennium Park, with its iconic Frank Gehry music pavilion, the glass towers and video screens of Jaume Plensa’s fountain, and Anish Kapoor’s mesmerizing stainless steel sculpture Cloud Gate, ranks among the top tourist draws in the U.S.
Beyond tourism, the 24.5-acre park is credited with spinning off significant economic activity, including spurring over a billion dollars in residential development (Kamin 2014). From the park’s opening in 2004, the reviews have been positive, validating the massive commitment of public and private resources that went into converting a disused rail yard, parking lot, and neglected green space into a civic gem.
Analysis and Evaluation
Millennium Park’s success came at a high price—nearly half a billion dollars—and it was a magnet for a host of big-city complications. Like most major urban infrastructure projects, the park was the product of power politics, in this case benefitting from the backing of a powerful mayor, Richard M. Daley, who counted both the city’s business community and many of its traditional political constituencies as allies. This alignment of key interests gave the park project the support to evolve into an aesthetically and functionally successful undertaking, but it also opened the way to what some observers have described as extravagant costs and instances of outright corruption (Dardick 2014).
Though ultimately successful, Millennium Park was the product of a broad-brush concept and ad-hoc planning. The amount and sources of public money, which came to include funds generated through tax increment financing (TIF), and the influence of private parties in the creation and running of public amenities, generated controversy on top of practical, fiscal challenges.
During Walter Knorr’s 13 years as Chicago comptroller and chief financial officer, many significant projects had what he terms a “short fuse” between concept and announcement, affording little opportunity for detailed financial prep work. Lakefront mega-projects like the development of Millennium Park and the renovation and financing of Soldier Field, and associated infrastructure capital programs, fit this pattern. “That was the environment of day - announcing public works projects even if all the details, including financing plans, were still in flux,” he said.
City officials and their advisors set out to meet Millennium Park’s provisional price tag of $150 million with a combination of revenue bonds and private donations. The undertaking would have benefitted from a schedule that allowed for time to fully scope the project, including detailed engineering cost projections and contingencies, and a formal, independent feasibility study of the prospective parking garage revenues, according to Knorr. And, given the scale and complexity of the infrastructure involved, the project called for an internal engineering project manager. “So much was not contemplated from the beginning - the doubling of the size of the park, the loss of 20 percent of the parking spaces when the Harris Theatre was added, and the infrastructure needs to accommodate the generous private funded projects,” Knorr said. “As a result, the project ‘budget’ escalated quickly, forcing the city to resort to the TIF assistance.”
While Millennium Park harnessed the resources of public and private sectors, it wasn’t until after the park was open that the city entered into what would be widely recognized as a formal public-private partnership – the lease of the Millennium Park garage and the other Grant Park garages to a private entity. Knorr counts this as a successful PPP. “It resulted in the city defeasing (paying off) the Millennium Park revenue debt,” he noted. “The transaction was done on the heels of the very successful Chicago Skyway lease hoping for a similar payoff – proceeds in excess of debt defeased. However, the penalty paid by the city because of the disconnect between the lease covenants and the later public parking conflict issue certainly dampened the transaction's success.” Chicago has a mixed record with PPPs, including an unsuccessful effort to lease Midway airport and an unpopular 2008 deal to lease the city’s parking meters to an investment consortium led by Morgan Stanley. The latter arrangement helped the city eliminate some budget shortfalls, but also saw parking rates and customer complaints soar (Spirou and Judd 2016).
- Imagine that you are a Chicago city council member representing the interest of your community, what are your questions and concerns when the plan to build Millennium Park and the strategy to fund it was proposed?
- What are some of the pros and cons of using revenue bonds in general?
- What are some of the pros and cons of using TIF?
- What are some of the pros and cons of using a P3 model?
- What other financing or funding options could the city have used to pay for the park?
- What are the pros and cons of Rachel Weber’s suggestion towards the end of the series – implementing a special assessment to pay for the park?
- Municipal finance is more than just numbers, it is also about how and why cities spend the revenue they collect from taxes and fees. Looking at a map of where Millennium Park is located (see here), do you think the city of Chicago made the right choice in building the park where they did? Compare the year 2000 demographics and existing parks in the Central Loop district (demographic data) to that of a place like Brighton Park (demographic data) or Calumet Heights (demographic data). What about the decision to build a park in the first place – could the city have made a different kind of investment in that area or another area of the city?
- What are your takeaways from this case and how might it be applied to similar projects in the future?
Dardick, Hal. 2014. “Millennium Park built 'the Chicago Way',” Chicago Tribune, July 13.
Fegelman, Andrew and Robert Becker. 1995.“Cook County Now Knows Rewards, Pain of Tax Caps,” Chicago Tribune, September 30.
Kamin, Blair. 2014. “Millennium Park: 10 years old and a boon for art, commerce and the cityscape,” Chicago Tribune, July 12.
Knorr, Walter. 2018. Interviewed by phone, October 29 and November 13.
Martin, Andrew and Laurie Cohen. 2002. “Millennium Park Fund Plan Fails,” Chicago Tribune, January 13.
Merriman, David. 2018. Improving Tax Increment Financing (TIF) for Economic Development. Cambridge, MA: Lincoln Institute of Land Policy.
Narefsky, David. 2018. Interviewed by phone, October 29 and December 10.
Spirou, Costas and Dennis R. Judd. 2016. Building the City of Spectacle: Mayor Richard M. Daley and the Remaking of Chicago. Ithaca and London: Cornell University Press. Kindle Edition.
Uhlir, Edward K. 2005. “The Millennium Park Effect,” Economic Development Journal 4, no. 2, (Spring).
Washburn, Gary and Andrew Martin. 1997. “Daley Springs to Defense of City’s TIFs,” Chicago Tribune, November 5.
Washburn, Gary. 2000. “City Fires Millennium Park General Contractor,” Chicago Tribune, June 6.
Washburn, Gary. 2003. “Millennium Park deal terminated,” Chicago Tribune, August 27.
Video Production Credits
Production Company: Skalawag Productions
Executive Producer: Mark Skala
Director/Producer: Monica Zinn Producer: Kyle Goldhoff
Associate Producer: Bailey Synclaire
Director of Photography: Aaron Dolan
Editor: Khalil Williams
Motion Graphics: Ryan Kelly
Archival Researcher: Juanita White
Drone Footage: Aaron Dolan
Project Supervisor: Dakin Henderson
Advisors: Ge Vue & Jenna DeAngelo Martin
Barry Brecheisen/WireImage via Getty Images
Chicago Tribune. All right reserved. Distributed by Tribune Content Agency, LLC
Library of Congress
Millennium Park Foundation
Ralf-Finn Hestoft/Corbis Historical via Getty Images
The Times of Northwest Indiana