John Chase and Danny Ecker have written a most damning account of Tax Increment Financing abuse in Chicago. Perhaps you’ve heard of it. The BGA’s Chase and Crain’s Ecker worked for months reading transcripts, watching press conference videos and sending FOIA requests to City Hall for specific emails. They were looking into $55 million in City TIF money that was given to McPier for part of the construction cost of the almost-completed 1,000 room hotel across from McCormick Place.
What they found was an intriguing sleight of hand in which the TIF money was used for land acquisition for the hotel, but an equal amount of money from other McPier funds was immediately sent to Navy Pier to complete its current renovation.
“It’s overly clever, so give them credit for being clever,” says Chase. “Technically the TIF money was used on the hotel, on the land acquisition for construction, $55-million. ‘We’ve got receipts here and we handed (over) that money, and it just so happened to free up the exact same amount of money.’ What that doesn’t get at, if you give them that argument, which is still a little fuzzy in my mind because it’s not 100% explained, but just you give them that argument. They still don’t answer the second question which is the ‘but for’ clause, which is you have to prove that you needed the money. MPEA, look at it the way any developer wants to go and ask for TIF money, they want to build a project and they say, and they are sitting on a bunch of money and they want to go to an alderman and say, “Hey, I need 55-million bucks, otherwise I’m not going to build this thing.” And then an alderman presumably should go, “All right, well let me make sure you really need this money. Let me look at your books. Let me see what’s going on here. What exactly, how much money are you sitting on?” And we have from these emails it is clear from the head of MPEA, we have money for the hotel or Navy Pier, but not both. So they could have paid right there and then, they could have paid for the hotel. They are acknowledging they had the money on hand to pay for the hotel, so what was the real motivation for that $55-million? It was clearly Navy Pier because they got to do both, and because Rahm Emanuel said in 2013 you know, “Well all this soup will allow us to be creative financially,” and they were able to do both.”
“If TIF money is all based on need and you can’t do this but for the TIF money coming in, this development, well you know it was clear from these emails and from all the records we found that MPEA had all the money it needed for the hotel,” Ecker adds. “It was actually Navy Pier, this organization run by a separate private non-profit that has no blight to it at all that really did need the money.”
Adding to the confusion is the fact that, when the project was originally announced, the Mayor said that the TIF contribution was to be used for the construction of an arena, or “event center” adjacent to the hotel. DePaul was identified as the major tenant for the new building, although it would also be used for large convention events and the like.
“It was an event center, right, they were very careful about that,” Ecker explains. “So there was a lot of blow-back from the public on this. There was a lot written about it, and yet throughout all this discussion they ended up having to sort of tweak this agreement to say okay, none of this TIF money is actually going toward the event center, the arena, it’s all going to go to the hotel. I mean there was a lot written about it. And yet somehow it was not made clear or no one understood or reported that there was this whole arrangement going on behind the scenes to say ‘well they are actually using this TIF money to go to the hotel which just frees up the money to go to Navy Pier. And if that were the case I’m guessing there would probably be even more public blowback and it might not have gone through.”
Mayor Emanuel’s defense so far has revolved principally around job creation. he touts the thousands of construction jobs at both the Pier and the hotel, and the hundreds of jobs running these attractions, at least some of which will hire local residents. But Chase says the jobs argument doesn’t necessarily justify the expenditure.
“The idea that the only place to create jobs is at McCormick or Navy Pier, while those are certainly big and they certainly generate a ton of revenue for the City of Chicago and nobody wants to see them fail, the idea of taking from this pot that’s supposed to be set aside for a certain region or neighborhood, and to fight urban blight and to do this, whether they found a legal loophole or whether they actually…the money, that argument is almost, you know, that’s just one piece of the argument, those could have created a ton of jobs and generated a lot more for the neighborhood that created that TIF money.”
“I think there is, there are records that show that yes, this TIF money went to reimburse expenses related to construction of the hotel,” Ecker explains. “But, what these emails show, and as we’ve said, this was not the purpose of the TIF money, you know, and that was sort of this… If you want to call it staying within the legal boundaries that’s one thing, but this was not, this was sort of a blatant abuse of this system. You know in order to say well this is just going to be a front and it’s going to obscure what we are actually doing here, so if you want to call that within, just a good loophole that they found that’s one thing, but it certainly underscores this whole point about TIFs, and that’s long been scrutinized as this program that has very little oversight and it can be used as a slush fund for the Mayor.”
So, in the end, was this elaborate ruse worth it? Mayor Emanuel has said that in the past couple of years Chicago has regained its title, and is once again the nation’s leader in conventions. And tourism, the City claims, is at its highest-ever level. So did these investments trigger the bump? Chase says we won’t know for a while, because the hotel and event center aren’t even open yet. And with increased competition from mid-sized cities and the general drop in conventioneering due to on-line meetings and tightened budgets, Chicago’s overall convention business will likely continue to drop over the long run.
“But,” he asserts, “What we can say and what should be tied to these projects in perpetuity is the way these were done was not above board, you know, and this was a totally misleading way that it was done. So whether you want to say the end justifies the means, we don’t even know, because we don’t know if these are going to be worth the investment and whether they are going to be money-making efforts. But we can say that clearly this was done unscrupulously.”