In late June the Illinois Appellate Court ruled in favor of the Park Grill in its fight against the Cook County assessor, dropping the curtain on the latest act in one of the more sensational scandals of Mayor Daley’s reign.
The ruling received little coverage, but at one point the restaurant, right under the Bean in Millennium Park, was front-page news, yet another example of the connected and powerful in this town managing to catch multimillion-dollar breaks at taxpayer expense.
That was back in 2005, when the Sun-Times revealed that the owners had managed to win the Park District’s competitive bid process for the right to operate in the prime space—even though their bid was the lowest of three. Officials said they liked the group’s experience.
The investors included Matthew O’Malley, who also owns the Chicago Firehouse, where Daley took George W. Bush in 2006 to celebrate the president’s 60th birthday; relatives of Tim Degnan, the mayor’s former chief of staff and political strategist; and Fred Barbara, a Daley friend, millionaire businessman, and nephew of the late alderman and mobster Fred Roti.
As the Sun-Times reported, the Park District gave the restaurant a sweet deal to boot, agreeing to pick up the cost of their water, gas, and garbage collection, which together may cost taxpayers at least as much as the restaurant pays to use the space.
Even better, the grill was exempt from property taxes.
Anything else? Oh, yes—how could I have forgotten? O’Malley had a child out of wedlock with Laura Foxgrover, the daughter of a former judge jailed years ago on unrelated corruption charges. Foxgrover worked in the division of the Park District that oversaw the bidding process. As the Sun-Times so artfully summed things up: “The Chicago Park District awarded a 20-year lease to run the swanky restaurant at Millennium Park to a businessman who got a top Park District official pregnant during the negotiations.” Foxgrover said she had nothing to do with awarding the contract.
In any event, Cook County assessor James Houlihan was particularly drawn to the bit about the property-tax exemption. As he saw it, a for-profit restaurant operating inside one of the city’s busiest tourist attractions should be responsible for its fair share of taxes. In 2005 Houlihan notified the owners that he’d assessed the restaurant at $502,550, meaning they’d have to pay thousands of dollars. They sued to keep the county from making them.
At the heart of the dispute was the legal distinction between a lease and a concession agreement. According to the assessor’s office, a lease essentially governs a relation between a landlord and a tenant over a fixed space, like a room or a building. If a for-profit company has a lease to operate on Park District property, it has to pay property taxes.
In contrast, a concession agreement gives someone permission to operate on a public space—say, a hot dog vendor who roams around the park. Concessionaires don’t have to pay property taxes.
Houlihan argued that the Park District’s agreement with the Park Grill amounted to a lease. The restaurant’s lawyers countered that since the contract wasn’t called a lease, it wasn’t one.
In 2007, circuit court judge Richard Billik ruled in favor of the restaurant. Houlihan appealed and the case came before the Illinois Appellate Court late last month. There, for those keeping score at home, justices Shelvin Louise Marie Hall and Robert Gordon ruled for the restaurant; Warren Wolfson dissented.
Park Grill lawyer Stephen Novack didn’t return my call, but he told Crain’s: “We are extremely pleased with the ruling of the court.”
Houlihan’s spokesman, Eric Herman, did get in touch, and he was pretty bummed. He says Houlihan has not decided whether to appeal.
For my money, the most compelling part of the story is why Park District officials didn’t just call the contract a lease to begin with. Is it possible they didn’t know the difference between a lease and a concession agreement? Or were they trying to give the Park Grill a very substantial property tax break because, you know, it’s so risky operating a restaurant in the middle of one of the city’s tourist meccas?
I put these questions to Jessica Maxey-Faulkner, a district spokeswoman, and she e-mailed back: “The enacting statute that created the Chicago Park District prohibits the District from conveying any property interest to a private entity. (70 ILCS 1505/15b).” In other words, she says the Park District isn’t allowed to lease out its land.
But the statute doesn’t prohibit the district from making the Park Grill—or any tenant—pay property taxes. On the contrary, the statute clearly states that the Park District “shall have the power to grant licenses, easements and rights of way, subject to any condition that may be determined by the District.” In other words, had the district insisted it be written into the contract, the Park Grill would have had to pay up, just like the rest of us.
The dispute is extra curious in light of another property-tax dispute involving Park District property—in this case, the district’s own headquarters at 541 N. Fairbanks.
The district bought six floors there in 2007—using $22 million collected in the 2006 deal to lease four downtown parking garages, even though Mayor Daley initially said that money was earmarked for neighborhood parks. Previously the district rented its office space from the building’s owner, the Teachers’ Retirement System of Illinois, a pension fund. But in 2006 the property was sold to a consortium that included Eugene Golub.
Suddenly the Park District was on the hook for a huge property tax bill. You might think that as a tax-exempt governmental body it wouldn’t have to pay. But under our convoluted property tax system the district is only exempt if it owns the building or if it’s renting from another governmental body.
As soon as Golub bought the building, someone had to pay property taxes on the space the Park District rented. And why should it be the district as opposed to, say, Golub? Because district officials, in their infinite wisdom, had signed a lease with the pension fund in which they’d agreed to pay the property taxes should the building be sold.
Facing a $3.6 million tax bill, the district had no choice but to buy the property for $22 million, according to parks superintendent Tim Mitchell. (Don’t ask me—I only report this stuff.)
Meanwhile, a few months after purchasing the property, Golub donated $50,000 to Mayor Daley’s reelection campaign.
So somehow or other, negotiating these deals, the Park District agreed to pay property taxes with, you know, the money it gets from the public’s property taxes. And it decided that the Park Grill, a company made up of mayoral contributors, wouldn’t have to pay any property taxes on space it was renting from the public.
I don’t know who’s putting these things together, but, please, for sake of this city, keep them far, far away from the Olympics.
Ben Joravsky discusses this column weekly with journalist Dave Glowacz at mrradio.org/theworks. And for more on Chicago politics, see our blog Clout City.