I thought I recall reading that the plan was to just close Canal at the tracks and tunnel Clinton under them. Any traffic on Canal northbound to Kinzie would just divert to Clinton via Milwaukee.
Canal won't work because it's an oblique crossing, and skewed to the south between Fulton and Kinzie, so there wouldn't be enough room to meet grade between Fulton and the tracks, and the old CNW right-of-way leading to Kinzie Street railroad bridge is in the way as well between Kinzie and the tracks. So, close it off and use it for local access only. Yeah you lose a bit of connectivity, but connectivity is not all that great anyway; at rush hour, this is probably the worst "
Akazu no Fumikiri" (Crossing that never opens) in all of Chicago, and a fourth lead track for Union Station would make it even worse. I think losing a bit of connectivity would be worth it in order to remove the potential safety issues due to the frequent trains, poor visibility, and oblique angles at this crossing, not to mention eliminating the opportunity for trespassers to wander into the tunnel leading to Union Station.
Clinton, on the other hand, is a right angle exactly halfway between Kinzie and Fulton, and there is no ground level railroad right-of-way in the way either. A grade separation couldn't go over the tracks, because of the lead tracks to Ogilvie Station which are above Clinton there, but going under the tracks is perfectly possible there, with reasonable grades and vertical curves that would even accommodate light rail, let alone buses and trucks. There is a minor problem of a couple alleyways for some condos on the west side of Clinton south of the tracks. This problem is supposedly it's solvable but I'm not sure the details. The idea that jumps out at me is to buy out Jefferson Tap & Grill and just connect the alleys to Jefferson instead of Clinton. There are no such constraints north of the tracks, and a big grassy area was even left between Clinton and and Alta K Station when it was built, which I suppose would allow the west side of Clinton north of the tracks to be excavated without any retaining walls. I'm not sure what utilities may need to be relocated, so I'm not saying it would be cheap or easy, but it's definitely possible.
As for the drainage problem, I'm not sure what the official plan is, but to me there seems to be a simple solution: just hook it up to the Deep Tunnel - that's what it's for, right? I believe it's located directly below the river so it's not far away.
I think the grade separation for Clinton and closure at Canal were actually prerequisites for the Carroll Avenue Transitway, since it would not be allowed to cross the Union Station lead tracks at grade. I believe it was also accounted for in the WLTC plan as well as the underground right-of-way for HSR left beneath K station.