Chicago’s Recovery Put at Risk After Iconic Downtown Trashed
(Bloomberg) -- Shattered glass, stolen goods and boarded-up storefronts in Chicago’s downtown are fueling concerns about the city’s ability to recover from the pandemic-induced recession.
The central business district generates $1.8 billion a year in property, sales, hotel and amusement taxes -- critical for a city that just two months ago forecast a $700 million shortfall for the year. Chicago isn’t alone. The economic shutdown to contain the spread of the coronavirus has dealt a massive blow to tax collections, leaving U.S. cities facing $360 billion in budget gaps through 2022, according to the National League of Cities.
Mayor Lori Lightfoot didn’t hesitate to condemn the ransacking of dozens of stores and businesses in the city’s Loop and iconic Magnificent Mile by hundreds of people, following a shooting incident Sunday between police and a 20-year-old man on the South Side. Lightfoot called it “brazen and extensive criminal looting and destruction” that undermines the recovery efforts from Covid-19 closures.
“What it’s signaling is a concern for companies that may be thinking of Chicago as a home base, whether they are currently here or looking to relocate,” Eric Smith, a vice chairman of BMO Harris Bank in Chicago, said in an interview.
The downtown has long been an economic engine whirring with offices, stores and restaurants that draw companies, jobs and residents. While other parts of Chicago lost population over the last two decades, the city’s center attracted 100,000 residents.
The threat to that vitality was underscored Wednesday night, when Lightfoot’s administration announced that overnight restrictions to downtown would continue through the coming weekend. The move highlighted the mayor’s central challenge: preserving the city’s economic heart while lifting up struggling parts of its South and West sides.
Samir Mayekar, deputy mayor of economic and neighborhood development, said owners of businesses large and small “are upset and they are frustrated and they are sad about what happened on Monday.” But he said they’re also confident in the diversity of Chicago’s economy and strength in consumer spending.
“We have not heard of pullbacks,” he said in an interview. “That is not what I am hearing from corporate leaders. Of course, there is concern at this time, but they sense there is a plan for recovery.”
To prevent an erosion of its corporate status and loss of more residents, the city must ensure businesses and residents feel safe but also work with corporate and community members to address the root causes of the strife spilling onto the streets, said Smith, who helps oversee BMO’s efforts to invest in under-served Chicago neighborhoods. Access to capital and jobs is crucial -- something Lightfoot has been working on since taking office in 2019, he said.
After the pandemic crippled those efforts, Chicago’s offices were just starting to see some workers come back, shoppers return to stores and diners eat out, said Jack Lavin, chief executive officer of the Chicagoland Chamber of Commerce.
“We are at a crossroad,” Lavin said. “To recover, we need to get the looting and criminality situation under control.”
Lavin said the business community recognizes that it needs to do more to develop impoverished neighborhoods if Chicago is going to thrive. That’s especially true in a city that was under financial duress even before Covid-19 cratered economic activity. Moody’s Investors Service lowered the city’s credit rating to junk in 2015 partly due to high pension costs.
“All of Chicago is in trouble,” said La Shawn Ford, a state representative whose district includes parts of Chicago’s West Side and some suburbs. “There was a time when you saw need for development just on the West Side and South Side. Now, you have one Chicago that needs capital, development and more confidence to make investors and businesses believe that Chicago is the place to come.”
Boarded-up buildings, long a staple of some neighborhoods, dot the Magnificent Mile and the Gold Coast. “The tale of two cities is one city,” he said.
Chicago Alderman Stephanie Coleman said she’s focused on changing the narrative of her ward and attracting investment. Her ward includes Englewood, where Sunday’s police shooting incident that sparked the downtown unrest occurred.
“It’s not only our time,” she said in an interview. “It’s our turn.”
The key for the city’s future will be whether the recent incidents are isolated or if they become a trend that makes businesses and residents consider leaving, said Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois in Chicago.
“Let’s not lose sight of the bigger picture in the longer term,” said Ty Schoback, senior analyst for Columbia Threadneedle Investments, which owns Chicago debt. “Chicago has an incredibly vibrant and diverse tax base and local economy.”
The vandalism and theft in Chicago’s downtown was the second episode this year, the first spurred by the death of George Floyd, a black man who died under the knee of a white police officer in Minneapolis on May 25.
Lightfoot has begun to focus on investments in neighborhoods, particularly minority communities, that have lost businesses, jobs and residents, Pagano said, but decades of under-investment can’t be erased quickly. “Just because we have exposed an injustice doesn’t mean magically that kind of thing disappears,” he said.
With the pandemic forcing many people to work from home, businesses already were questioning if they wanted to concentrate in downtown locations, said Howard Cure, director of municipal bond research for Evercore Wealth Management LLC, which holds Chicago debt as part of its $9.1 billion in assets under management. Safety issues worsen those concerns.
“The riots and looting give businesses reasons to reassess their long-term commitments,” Cure said.
On Tuesday, at least a couple dozen retailers along Michigan Avenue, along which the Magnificent Mile runs, were boarded up or closed. Some smaller businesses are shutting their doors indefinitely.
But the impact on commerce isn’t limited to downtown. “There’s no business,” said Jackie Jackson, who with her daughter owns two chocolate and dessert shops, Kilwins, in Hyde Park and the South Loop. “There is no tourism. There’s nothing going on.”
Jackson, a Black woman born and raised in Chicago, said her Michigan Avenue shop was looted in May. She’s concerned the unrest along with the pandemic is keeping customers away. She’s built a third location on Navy Pier but has postponed that opening until next year. Her rent is due, and if she doesn’t make a payment later this week, her landlord plans to send her a default notice, she said.
“We’ve never missed paying the rent,” she said. “It’s just very disappointing.”
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