The Phoenix Revisited: Hanover Park Park District

By Steven G.M. Stein
and Robert A. Lashbrook

Ancient legends of the phoenix relate that the fine bird was destroyed and reborn from its ashes. The Hanover Park Park District story is not so dramatic, but a similar disaster and rebirth occurred over the last four years.

In the winter of 1977-1978 the Park District was confronted with a multi-faceted disaster. A default on Park District revenue bonds was imminent; the recreational facility which was to produce the revenue to support those bonds was not doing so; the Park Board was threatened with lawsuits by bondholders; and the Securities and Exchange Commission was soon to review the bond sale. This situation had been created through circumstances over which the Park District had no control and it appeared that the resolution of the problems was not within its grasp. It was also a dramatic reversal from the well-functioning solvent municipality which existed only three years previously.

In February, 1974 the District's architect presented the Hanover Park Park District Board a proposal for a multi-use recreational facility containing tennis courts, racquetball courts, a gymnasium, hockey rink, a studio ice rink, meeting rooms and Park District offices, all of which would be constructed on Park District land. The architect did not propose to build the facility in a conventional fashion. Instead, a fabric roofed structure making use of natural light was proposed. After visiting similar fabric roofed facilities the Board agreed that the Park District should plan a facility and bids should be let.

Because of statutory limitations the Park District could not obtain funds for such a facility through general obligation bonds alone. Instead, the Park District used general obligation bonds in conjunction with revenue bonds. Revenue bonds were to be retired with income generated by use of the facility by local residents. Despite the use of both kinds of bonds, sufficient funds for all phases of the project could not be obtained and the ice hockey rink and the ice studio were dropped from the project. In the summer of 1975 construction started.

The first of many problems which were to culminate in the winter of 1977-1978 surfaced in December, 1976, when the project was completed, four months later than originally planned. The delay had made sales of tennis memberships in the facility impossible for the winter of 1976-1977. Moreover, and with more long range impact, the heating and cooling problems of a fabric structure had not been properly anticipated and the tennis facility was too cold to play in during the winter. To further complicate matters, the floors of the racquetball courts suffered water damage. These events combined to reduce facility use and lower revenue. Thus, it just became a matter of time until the Park District's income was insufficient to pay the revenue bondholders.

The Park District first failed to make payment on the revenue bonds in the spring of 1978. The default not only caused the bondholders to seek relief but also caused the SEC to become involved. The SEC questioned why the Park Board had not disclosed at the time the revenue bonds were sold that ice facilities had been dropped from the project. Since these facilities were revenue producing, the SEC contended that a disclosure should have been made to the bondholders.

Today the Hanover Park Park District runs an architecturally distinctive, recreational facility with day-lighted tennis courts warmed by a new gas-fired forced air heating system installed in February, 1980. The racquetball courts have been repaired. The bondholders suit has been resolved and payments on outstanding bonds are up to date. Membership in the facility is up and it appears revenue will be sufficient to meet the Park District's obligations. This dramatic turnaround occurred in less than two years.

Hanover Park's recovery had its genesis at the same time its problems seemed deepest. The Park District Board and Director, Robert Lashbrook, decided to retain attorneys, engineering consultants, and municipal bond consultants of the highest caliber. To these people it entrusted its problems and it gave them full cooperation. The focus of the plan developed by these experts was not merely to engage in long litigation or delaying tactics in order to give the Park District breathing room. Such an approach, in their opinion, would have worsened the situation in the long run. Instead, restructure of the debt and correction of the facility's defects was recommended.

Illinois Parks and Recreation 26 May/June 1981

Restructure of the debt was predicated upon an Illinois statute, not previously applied in any similar situation, which allowed the Park District to float a general obligation bond to satisfy a tort judgment. In order to satisfy the statute's requisites the Park District's attorneys negotiated a settlement which allowed the bondholders to file a friendly suit resulting in an unopposed tort judgment. Based on this judgment the Park District issued general obligation bonds and these bonds were exchanged for the defaulted revenue bonds. This exchange of revenue bonds for general obligation bonds had never been done in Illinois before. More importantly, as a condition of. this exchange, the bondholders agreed to buy an additional $263,000.00 in bonds to provide funds for repair work necessary to make the facility viable.

The SEC determined that the Park Board had unintentionally misled various investors who had purchased revenue bonds. No criminal charges were filed and no sanctions were entered against the Park District Board.

By February, 1980, most of the needed repairs had been made. This created an environment suitable for tennis and racquetball play and the Park District's finances were stable. More good news was on its way, however. The Park District had sued the architect for its errors in design and in October, 1980 the lawsuit resulted in a $290,000.00 settlement, one of the largest of its kind in Illinois. These funds were used to redeem the $263,000.00 in revenue bonds purchased by the former revenue bondholders and to provide additional funds for the facility operation; this substantially reduced debt service expense.

The lesson of the Hanover Park Park District is that big problems need special solutions. Instead of becoming mired in suits with the bondholders and the SEC, the Park District negotiated a resolution from which it obtained funds to make the immediate repairs necessary. Only after the Park District had placed its facility on the right track did it turn its attention to a lawsuit against the architects. A partnership of sophisticated counselors capable of finding such solutions and Park District personnel able and willing to work with them made the phoenix's "rebirth" possible.

Steven G.M. Stein is Principal, Fohrman, Lurie, Sklar & Cottle, Ltd. Attorneys, Chicago, Illinois. Robert A. Lashbrook is Director of Parks and Recreation, Hanover Park Park District.

Illinois Parks and Recreation 27 May/June 1981