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* BGA…
Mayor Rahm Emanuel’s administration signed off on an elaborate financial shell game that obscured payment of $55 million for renovations at Navy Pier with tax dollars reserved to fight urban blight, records show.
The bookkeeping jiujitsu appears to violate the spirit, if not the letter, of the controversial tax-increment financing program, which critics say has been widely abused and not used for its intended purpose of spurring development in or near economically disadvantaged neighborhoods.
A joint investigation by the Better Government Association and Crain’s Chicago Business finds that the administration began filtering the money in 2014 through a hotel project at McCormick Place, capitalizing on its Near South Side location as a rationale for tapping funds reserved for struggling communities.
Emails and internal documents obtained through the Freedom of Information Act show that officials at the city as well as the governing body of the lakefront convention complex knew the planned 1,205-room Marriott didn’t need the financing. But they also knew that Navy Pier, 3 miles away and a vast distance from any urban blight, did.
* It’s a long and involved story, but Ben Joravsky breaks it down…
In the case of South Loop TIF deals, the mayor swore up and down he was spending $55 million in TIF dollars on the arena/hotel project at 22nd and Michigan. But thanks to Crain’s and the BGA, we now know the money was diverted to pay for Navy Pier renovations. So it’s a diversion of a diversion. Impressive! I’m not sure Mayor Daley the Younger even tried that—and he pioneered this scam. […]
Surprisingly, state and city officials were up front about the apparent switcheroo—at least in the e-mails they wrote to each other. James Reilly, the former CEO of MPEA—its board is appointed in equal parts by the mayor and the governor—acknowledged the unorthodox transaction in a July 12, 2013, e-mail, one of many Chase and Ecker secured via Freedom of Information Act request: “There is a somewhat complicated series of cash flow issues that we need to get a handle on between the City, MPEA and [Navy Pier] with regard to the Tiff [sic] funds that will come from the City to MPEA to reimburse MPEA for the purchase of the land for the [hotel and basketball arena] which in turn will enable MPEA to grant $55M to [Navy Pier] for its reconstruction project.” […]
Wait, there’s more. In October 2014, Richard Oldshue, MPEA’s chief financial officer, sent the following message in an e-mail to Mark Jarmer, an aide to Illinois house speaker Michael Madigan: “None of this TIF money comes to MPEA as incentive or otherwise. The City is aggregating balances from various existing [TIF] districts as they become available to transfer funds to MPEA which we transfer in full to [Navy Pier]. We don’t keep any.” […]
Dowell says she’ll insist the City Council hold hearings on the deal. That would be helpful—as the council never actually held a hearing on whether to spend the $55 million in the first place. In July 2013, two weeks after Reilly wrote the aforementioned e-mail, Emanuel hammered the deal through on a voice vote—most aldermen didn’t know about it until after the vote was taken. We now know why the mayor wanted to keep it a secret.
* David Reifman, a commissioner of the Chicago Department of Planning & Development, and Lori Healey, chief executive officer of the Metropolitan Pier & Exposition Authority, respond…
By failing to understand the typical approach to how the city expends TIF funds, the authors of this article have created unnecessary confusion and overshadowed the significant public benefits that the Elevate Chicago initiative has achieved. We are writing to set the record straight.
In short, no TIF funds were diverted to Navy Pier.
First and foremost, it’s important to understand the city contributed $55 million toward the $498 million overall hotel project cost as a reimbursement to the Metropolitan Pier & Exposition Authority, not as an upfront payment. This approach protected the public’s interest by only allowing the expenditure of TIF funds after eligible expenses were complete. MPEA advanced the funds for these reimbursable costs through its own sources. Only after MPEA made these upfront payments did the city reimburse it, and the city’s payments were applied only to certified TIF eligible costs related to the hotel and for no other purpose.
It is also important to remember that all of the projects mentioned in the article were announced together in May 2013 as Elevate Chicago, a unified and targeted $1.1 billion investment in Chicago’s tourism and convention infrastructure. Elevate Chicago included Wintrust Arena, the Marriott Marquis Chicago, a privately funded smaller hotel, streetscape work and the first phase of Navy Pier renovations. This was widely reported in 2013.
In sum, MPEA advanced all of the funds for the hotel project, some of which were later reimbursed by the city. Only once MPEA received reimbursement from the city did it have sufficient funds to support other Elevate Chicago projects, including a capital investment in the improvement of Navy Pier, which it owns.
posted by Rich Miller
Wednesday, Jul 26, 17 @ 11:33 am
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Reifman’s excuse is a distinction without difference, a lawyer’s response. It wasn’t TIF money that went to the Pier, it was MPEA money that was freed up by the TIF money. They clearly already had the money for the hotel and did not need more, but more was available so they took it. Might not be violating the letter of the law but it violates the spirit I think.
Comment by Perrid Wednesday, Jul 26, 17 @ 11:51 am
Money is fungible. You’d think a smart guy like Ben Joravsky would understand that.
If I give a dollar to Oswego Willy, and Willy gives a dollar to VanillaMan, did I give VanillaMan a dollar?
This is a non-story. Between Joravsky and the CTU, anytime TIFs are mentioned, people start foaming at the mouth.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 11:51 am
- “We don’t keep any,” Richard Oldshue, chief financial officer of MPEA, wrote about the TIF funds in an October 2014 email to a legislative analyst in Springfield. “We pass it along in full. . . . It’s a one-time arrangement that we are just a middleman in. We don’t actually get any funding.”
The MPEA’s CFO says it’s a pass through then it’s a pass through of TIF funds to Navy Pier.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 11:53 am
- “In sum, MPEA advanced all of the funds for the hotel project, some of which were later reimbursed by the city. Only once MPEA received reimbursement from the city did it have sufficient funds to support other Elevate Chicago projects, including a capital investment in the improvement of Navy Pier, which it owns.”
The MPEA owns Navy Pier yet Navy Pier Inc. keeps all the profits. Navy Pier Inc. claims that they are a nonprofit, and not subject to disclosure or FOIA requests.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 11:57 am
“If I give a dollar to Oswego Willy, and Willy gives a dollar to VanillaMan, did I give VanillaMan a dollar?”
You did if you planned with OW to execute the transaction that way.
Comment by Lobo Wednesday, Jul 26, 17 @ 11:59 am
–“If I give a dollar to Oswego Willy, and Willy gives a dollar to VanillaMan, did I give VanillaMan a dollar?”
You did if you planned with OW to execute the transaction that way.–
Bingo. The emails are damning and it absolutely IS a story.
Comment by MacombMike Wednesday, Jul 26, 17 @ 12:01 pm
===If I give a dollar to Oswego Willy, and Willy gives a dollar to VanillaMan, did I give VanillaMan a dollar?===
If Oswego Willy’s accountant says “We don’t keep any. We pass it along in full to VanillaMan. We don’t get any of 47th’s money,” then yes, you gave VanillaMan a dollar.
Comment by Robert the Bruce Wednesday, Jul 26, 17 @ 12:02 pm
- “They clearly already had the money for the hotel and did not need more, but more was available so they took it.”
Then why did Reilly take out an additional $400 million loan from Citibank?
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 12:04 pm
47th ward -
It’s more like Willy asking for ten bucks to get a meal, when in fact he’s already eaten and not hungry and then Willy turns around and gives it to VanillaMan without your knowledge or consent. In that case you have been deceived.
Comment by Perrid Wednesday, Jul 26, 17 @ 12:04 pm
The funny thing is that Navy Pier isn’t any less appropriate/inappropriate a target for TIF funding than the hotel. You could even argue that it’s more appropriate, since it’s a free, important public facility instead of a pricey hotel.
People “foam at the mouth” about TIFs because they’re arguably overused. Yeah, lots/most TIF spending would be done anyway with property tax dollars (schools, infrastructure, econ dev, etc), but it boxes in where you can spend that money. When it boxes it in to thriving areas, like the South Loop, you’re probably pouring money into areas that don’t really need it.
Comment by whetstone Wednesday, Jul 26, 17 @ 12:07 pm
===It is also important to remember that all of the projects mentioned in the article were announced together in May 2013 as Elevate Chicago, a unified and targeted $1.1 billion investment in Chicago’s tourism and convention infrastructure. Elevate Chicago included Wintrust Arena, the Marriott Marquis Chicago, a privately funded smaller hotel, streetscape work and the first phase of Navy Pier renovations. This was widely reported in 2013.===
Navy Pier, the events center, the hotel, these are all public assets owned by MPEA. The City supports MPEA because it is an economic engine as both NAvy Pier and the Convention Center bring in millions of tourists to Chicago. No one is disputing that the hotel and events center were eligible for TIF funds. If that “freed up” MPEA bond proceeds to find the renovations at Navy Pier, what difference does it make? Money is fungible. There is no mis-use of public dollars in this story, there are simply people who don’t understand the common practices involved in public finance.
Every TIF dollar that could go into the hotal project freed up an MPEA dollar that could be spent on Navy Pier. The hotel project costs that were reimbursed by TIF funds were appropriate and eligible expenses. Really, this isn’t terribly complicated.
But TIFs are today’s bogeyman.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 12:10 pm
All I really want to say is this…
Great discussion, great points, I’m evjoying it.
If someone puts me and - VanillaMan - on separate trains, mine from NYC heading to Philly, - VanillaMan -’s Philly to NYC and the debate is when and where the trains meet…
Comment by Oswego Willy Wednesday, Jul 26, 17 @ 12:20 pm
- “If that “freed up” MPEA bond proceeds to find the renovations at Navy Pier, what difference does it make?”
The MPEA has over $4 billion in long term debt. The MPEA deficit is now at $1.6 billion.
14 trade shows have left McCormick Place after the 2011 reforms.
MPEA revenue from Exhibition Facilities is down 49.51% from 2009.
Since the reforms exhibitors costs have increased up to 300% while workers at McCormick Place make less.
The MPEA debt service is ramped and the MPEA doesn’t have sufficient tax revenue to pay its current debt service.
In FY 2016, The MPEA tax collections were $146,792,729.
In FY 2019, The MPEA debt service will climb to $220,885,000.
In FY 2020, The MPEA debt service will climb to $232,885,000.
In FY 2021, The MPEA debt service will climb to $245,883,000.
After FY 2021 it gets much worse.
Does that make a difference?
Comment by Anonymous Wednesday, Jul 26, 17 @ 12:28 pm
===Does that make a difference?===
No, because that’s not what we’re talking about.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 12:29 pm
47th: What you describe is perfectly normal, I agree.
But re-read that Oldshue quote please. I don’t think what you describe is what happened. Instead, looks to me like Rahm funneled TIF money to Navy Pier.
Comment by Robert the Bruce Wednesday, Jul 26, 17 @ 12:30 pm
Anon 12:28 pm was me.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 12:30 pm
===looks to me like Rahm funneled TIF money to Navy Pier.===
DePaul put up something like $70 million too. You could argue that Rahm funneled DePaul money to Navy Pier. Again, it makes no difference.
Elevate Chicago was a plan to invest in tourism. There was a pool of money from MPEA bonds that could be used, there was a lump sum from DePaul that went into the pot, and the City via TIF funds had another $55 million, but TIFs could only be used for certain purposes in a certain, specific geographic area, and Navy Pier wasn’t eligible for TIFs.
But renovating Navy Pier was a priority of Elevate Chicago, and Navy Pier is owned by MPEA. So every appropriate and eligible project expense for a TIF dollar, freed up a non-TIF dollar for use at Navy Pier.
It’s like you have a ten gallon tub. Seven gallons of water come from MPEA via bond proceeds, 2 gallons come from DePaul, and the last gallon comes from TIF. You pour that money out with five gallons going to the hotel, three gallons going to Navy Pier, and two gallons going to the events center.
Believe me, there are bond covenants involved in this too, in addition to the laws governing TIF. The TIF funds were dedicated only to eligible expenses, and the eligible expenses far exceeded the TIF dollars involved.
Oldshue is speaking a form of short hand to Jarmer, or at least isn’t being as precise in that e-mail as he would be with a ratings agency for example.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 12:43 pm
==It’s like you have a ten gallon tub. Seven gallons of water come from MPEA via bond proceeds, 2 gallons come from DePaul, and the last gallon comes from TIF. You pour that money out with five gallons going to the hotel, three gallons going to Navy Pier, and two gallons going to the events center.==
Wasn’t this a riddle from Die Hard with a Vengeance?
Comment by City Zen Wednesday, Jul 26, 17 @ 12:58 pm
47th -
It’s not fungible.
Navy Pier Inc. is a separate entity.
Navy Pier Inc. shares no income with the MPEA.
The MPEA leases Navy Pier to NPI for $1 and subsidizes Navy Pier’s operations and capital improvements.
Burying the MPEA in debt will ultimately cost taxpayers billions and allows NPI to operate in secrecy and without public oversight.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 1:05 pm
Chicago 20, Navy Pier is owned by MPEA. It is operated by Navy Pier Inc.
Try again.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 1:06 pm
Try this Kellyanne.
“On July 1, 2011, MPEA entered into a long-term lease with Navy Pier, Inc. “NPI”, a not-for-profit corporation, to operate Navy Pier. While MPEA continues to own Navy Pier, NPI is responsible for developing and operating it.”
http://www.mpea.com/wp-content/uploads/2017/05/NEW-FINAL-Financial-Plan-5-10-17.pdf
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 1:35 pm
*sigh*
Let’s say you own a house that you rent to someone else. You decide your house could use some updating, maybe make it more attractive and increase its value as an asset. So you decide to add an addition, blow out the kitchen and re-do the bathrooms.
Do you think your tenant is going to pay for these upgrades? Maybe when the lease is up, you can consider charging higher rent, but until then, the burden is on the owner to pay for this, not the tenant.
I can’t make it simpler for you to understand than that, but trust me when I tell you, Navy Pier is owned by MPEA. MPEA is responsible for capital improvements.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 1:41 pm
TIF’s should be outlawed. Statewide. Now.
Comment by blue dog dem Wednesday, Jul 26, 17 @ 1:54 pm
Commercial leases are far different than residential leases. Typically in commercial leases it’s the tenants who pay for their own capital improvements and build outs.
Anytime you want to lease me your prime location lake front home for $1 a year and for the next 99 with you paying for all my upgrades improvements just let know and I’m there.
In this case the owner is a municipal corporation which set up a nonprofit entity for questionable and probably illicit reasons to hide their operations from the taxpayers who are footing the bills.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 2:39 pm
===questionable and probably illicit reasons to hide their operations===
Is that you, Rep. Drury? Sounds like a case for the U.S. Attorney. Are you really suggesting someone is breaking the law?
NPI is a manager. They can probably operate Navy Pier more efficiently than government employees could. There are good arguments for and against privatization, but no one has ever suggested that this type of arrangement is “illicit.” If you can back that up, you have no business saying it here. Put up or shut up 20.
And, most importantly, none of what you’ve said on this thread has anything to do with the actual topic of this thread. Good day sir.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 3:08 pm
–First and foremost, it’s important to understand the city contributed $55 million toward the $498 million overall hotel project cost as a reimbursement to the Metropolitan Pier & Exposition Authority, not as an upfront payment–
There are 44,000 hotel rooms in the city proper.
In 2016, Chicago added 1,675 hotel rooms. Another 4,000 will be added this year and next with 15 new properties currently under construction.
So why was it expected that any public money would be required to build a hotel next to McCormick Place?
That’s absurd.
https://www.choosechicago.com/meeting-professionals/hotels-venues-and-convention-centers/hotels-venues/inside-chicagos-hotel-boom/
Comment by wordslinger Wednesday, Jul 26, 17 @ 4:20 pm
===So why was it expected that any public money would be required to build a hotel next to McCormick Place?===
Word, you’ve been to McCormick Place I’m sure. You know what happens after the shows let out? The convention attendees hop back on their buses and go back to their hotels on Michigan Avenue, a mile or two from McCormick Place.
The city is attempting to revitalize Motor Row, that stretch of Michigan Avenue near Cermak, just west of McCormick Place. One way to do that is to generate more foot traffic in the area. You do that first by keeping more people lodged in that area. You also do it by creating events that bring others to the area. Those people with money in their pockets become customers for local restaurants, shops and maybe some day, galleries.
It’s not as if there is a shortage of hotel rooms in the city, you are correct about that. But there is a shortage of hotels within walking distance of McCormick Place. That is a big piece of the puzzle that Elevate Chicago is/was trying to solve.
And if Lori Healy or the McPier Board wants to hire me to do some PR work, they should contact Rich for my info. This pro-bono work is for the birds.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 4:28 pm
$498 million for 1,205 hotel rooms.
In other words each of those MPEA hotel rooms will cost taxpayers $413,278.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 4:37 pm
–$498 million for 1,205 hotel rooms.
In other words each of those MPEA hotel rooms will cost taxpayers $413,278.–
That’s Marriott’s cost, if I’m reading these stories correctly.
And to 47s point, it appears Marriott did not need the $55M, which is how it ended up at Navy Pier.
I’m aware of the ongoing Motor Row initiative.
I would think Blue Demon basketball will provide all the foot traffic necessary.
Or a casino, which is what I think everyone is still banking on.
Comment by wordslinger Wednesday, Jul 26, 17 @ 4:45 pm
===Or a casino, which is what I think everyone is still banking on.===
Don’t forget the Sky too, Word.
Chicago 20 didn’t even read his own link. Marriott is being brought in as an operator and the MPEA projects positive cash flow after factoring in debt service. Of course, I wouldn’t have to point this out to this Warren Buffett wannabe if he had bothered to read to page 22 of the link he shared above. It’s all out there for everyone to read. No secrets.
And to your larger point, Wordslinger, and it’s a good point, the hotel may not have needed TIF funds, but Elevate Chicago did. That’s Reifman’s point, my point, the Mayor’s point, MPEA’s point, etc.
This isn’t about an arena for DePaul or whether a Marriott Marquis needed public financing. This is about a massive investment in tourism infrastructure for Chicago.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 4:53 pm
Kellyanne -
I read the link. The projections are optimistic at best and worse inaccurate.
There is no more incentive fund.
The MPEA tax revenues will drop by the State’s fee of 2%, the MPEA tax revenue will not generate surpluses.
In FY2016, Interest and amortization costs exceeded MPEA tax revenue by $64,075,000.
The current MPEA tax revenue would not to increase by 127% to break even.
The projections assume current ADR’s when the vast majority of these rooms will be sold in blocks, at a hefty discount below the average daily rate.
I’m not your self proclaimed expert who bought a B&B in Union Pier, MIchigan and keep refinancing it until the cash flow stopped only to sell millions short to the realtor.
The biggest thing you missing in your equation is the lack of demand.
The projections show occupancy rates that are at a minimum 25% less than current occupancy rates in Chicago’s CBD.
For example, let’s take a show like Graph Expo.
In 2018 how many exhibitor and attendee room nights do you feel will be staying at a MPEA hotel?
The MPEA has an inventory of 2,463 rooms.
How many will be block purchases?
How much will they spend on food, $8.86 Pepsi’s and parking?
In this case the answer is easy.
$0.
The longtime McCormick Place fall event the Graph Expo 2018 show is in Orlando.
You can apply the same math to 14 other trade shows that have left McCormick Place after the reforms.
By the way Navy Pier is not managed by Navy Pier Inc.
SMG manages McCormick Place and Navy Pier.
In the end the MPEA owes over $4 billion plus $7.3 billion in interest for at least the next 35 years and the State of Illinois is the guarantor.
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 7:42 pm
- would need to increase 127%
Comment by Chicago 20 Wednesday, Jul 26, 17 @ 7:43 pm
If you keep calling me Kellyanne, you’d better hope we never meet in person.
Also, other than blah blah blah, do you have any opinion on whether TIF funds were inappropriately “diverted” to Navy Pier? Because if not, then you’re wasting my time.
I said good day sir. Now (deleted) off.
Comment by 47th Ward Wednesday, Jul 26, 17 @ 8:06 pm