This special investigation was reported and published with Crain's Chicago Business.

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.

Those officials, the records show, created a paper trail for the Metropolitan Pier & Exposition Authority—the agency commonly known as McPier that runs the convention center and owns Navy Pier—to obtain the money, ostensibly for the hotel construction.

It was paid out in installments from tax-increment financing accounts filled with revenue cleaved from property tax collections. Shortly after each TIF payment, MPEA shifted the same amount of money to Navy Pier Inc., a private nonprofit set up by the authority in 2011 to operate the popular lakefront tourist destination.

“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.”

That arrangement vividly illustrates a frequent complaint that the purpose of TIF districts has been distorted by Emanuel, and Mayor Richard Daley before him, to bankroll vanity projects at the expense of schools and other neighborhood services.

Emanuel declines to be interviewed for this story, but a spokesman says the $55 million was properly allocated for the hotel project within the confines of a TIF district. The total price to build the hotel was budgeted at $421.5 million, with the bulk of the money coming from loans taken out by MPEA.

The sequence of money transfers raises a red flag for TIF expert T. William Lester, who deems it evidence of flagrant abuse of the program.

“This is an egregious example of the biggest problem with TIF,” says Lester, a professor at the University of North Carolina, Chapel Hill with a focus on city planning. “It takes money and purposely obfuscates the goals of economic development. All the decisions are made behind closed doors.”

TIF districts

Navy Pier, one of the city’s biggest draws for tourists, is home to a giant Ferris wheel, kitschy souvenir shops and the Chicago Children’s Museum, among other attractions. Jutting into Lake Michigan off the upscale Streeterville neighborhood, the pier is far removed from urban blight and any of the scores of designated TIF districts that collectively cover one-fourth of all properties in the city.

TIF spending rules are somewhat elastic, but money isn’t supposed to be spent on projects outside those districts or adjacent ones. Navy Pier doesn’t qualify.

Navy Pier is far removed from urban blight and any of the scores of designated TIF districts. (Manuel Martinez/Crain's Chicago Business)

Under Emanuel, the city has allocated more than $1.6 billion in TIF funding for a variety of projects. The $55 million penciled in for land acquisition and construction of the McCormick Place hotel, known formally as the Marriott Marquis Chicago, was among the largest amounts awarded under the mayor involving a private partner.

The documents reviewed by the BGA and Crain’s do not indicate whether Emanuel was aware that the $55 million was destined for Navy Pier and not the hotel. They do, however, make clear that several of his top aides were clued in on the endgame, among them Deputy Mayor Steve Koch. He also declines to answer questions.

Emanuel had long talked up his desire to jump-start construction near McCormick Place. But he gave no hint of the subplot already well underway when he presided over a groundbreaking ceremony for the Marriott on a blistering summer day in 2015.

“Five years ago, a lot of people thought the sun had set on Chicago’s convention industry,” Emanuel declared at the event. “The sun is rising on Chicago’s convention industry, and another hotel is going up. More jobs are being created, and a future is being built.”

Mayor Emanuel speaks at a groundbreaking ceremony in 2015 for the Marriott near McCormick Place. He begins speaking at timecode 42:10. (Livestream)

By the time Emanuel spoke, $40 million of the $55 million had already made its way through the hotel paperwork facade and over to Navy Pier Inc., or NPI. The final $15 million would arrive five and a half months later.

The hotel and neighboring 10,387-seat Wintrust Arena for DePaul University basketball games are expected to open in coming months.

In response to questions from the BGA and Crain’s, Emanuel spokesman Grant Klinzman acknowledges that the administration was aware of the TIF money maneuver for Navy Pier. It was justified, he says, because the city paid only for TIF-eligible expenses related to land acquisition and costs of building the hotel.

“MPEA was required to demonstrate that the funds were used to reimburse for that project, which they did,” Klinzman writes in an emailed statement. “This move also made it possible for the Metropolitan Pier and Exposition Authority to invest in the (renovation plan) at Navy Pier, helping ensure it remains a top national tourist attraction and economic driver for the city of Chicago.”

Timeline: How the Navy Pier shell game came together (View on Crain's)

Two key architects of the pier financing plan, former city Planning & Development Commissioner Andrew Mooney and Jim Reilly, former CEO of MPEA, also decline interview requests. So do current leaders at MPEA, including CEO Lori Healey, who agreed to an interview but then canceled 30 minutes before the scheduled time.

The reason for the cancellation, according to an MPEA spokesman, was a pending BGA lawsuit against the authority and NPI on a separate issue. That lawsuit contends that the two organizations have violated state open records law by refusing to make records about pier operations available to the public.

The BGA and Crain’s examined emails that are included in that case’s publicly available court file as well as documents obtained through FOIA. Some key emails that lay out the plan to redirect the TIF money were available in the file.

TIF rules

TIF spending has become an increasingly sensitive topic in Chicago as the finances of the city and its schools have gone from bad to worse. One reason is that TIF revenues are derived by splitting off a layer of property tax money collected within a TIF district that would otherwise be available for a broad range of public functions. By law, TIF dollars are supposed to be used for public projects like schools and libraries or to spur development, public or private, that wouldn’t otherwise occur in blighted neighborhoods.

Several aldermen who closely examined the hotel plan before it was approved say they had been kept in the dark about the true purpose of the TIF money. All of them say they first learned of the maneuver from reporters.

Among them is Ald. Pat Dowell, 3rd, who represents the South Loop neighborhood where the hotel was built and who forcefully supported the project. “The city TIF money that I’m responsible for, that I took before the City Council, was for MPEA and the acquisition of the land and the building of the hotel,” Dowell says. “Navy Pier was not involved in any of this as far as I know.”

The McCormick Place hotel, known formally as the Marriott Marquis Chicago (Manuel Martinez/Crain's Chicago Business)

Meanwhile, several residents who live near the hotel express outrage over the financial misdirect, saying the $55 million could have been put to better use on projects the area needs.

John Jacoby sat on a neighborhood committee that vetted the hotel proposal and noted during the process that the city’s answers on the need for TIF money were ever-evolving. He says nobody with the city ever let on to his group that Navy Pier was the driving force behind the request.

“This is the cherry on top of a crap sundae,” says Jacoby, vice president of the Prairie District Neighborhood Alliance. “This whole situation has been total subterfuge, and for them to put this money into Navy Pier when they didn’t need it is outrageous.”

Emanuel’s administration says it made its intentions to use TIF money for the benefit of Navy Pier public in May 2013 when the mayor first outlined a plan he called Elevate Chicago that included expansion at McCormick Place and the pier redevelopment.

The pier portion included overhauling the south dock walkway, food court and the pavilion inside the front entrance. The convention center component included construction of two hotels, later downsized to one, as well as the arena for DePaul and other events.

Mayoral spokeswoman Molly Poppe says Emanuel’s formal announcement of Elevate Chicago, as well as several news stories about the event, made the connection between TIF funding and Navy Pier clear to the public from the get-go.

They do not. Neither Emanuel’s speech nor the news coverage Poppe cites mention any plan to use TIF money to free up funding for Navy Pier. On the contrary, Emanuel said money to help Navy Pier was made available only because DePaul had pledged $70 million to help pay for the arena. “You could not do Navy Pier without (DePaul’s) participation,” Emanuel said at the time.

Emanuel did mention TIF money, but not in the context of funding for Navy Pier. He simply said the TIF spending tied to Elevate Chicago could create jobs. “So let’s give everybody all the information, and I know they’ll see the whole decision-making,” he said.

But the internal email conversations demonstrate that MPEA officials were confident they already possessed the cash needed to cover their expenses for the hotel. The emails also show that from early on, the convention authority had been counting on the TIF money for Navy Pier.

In July 2013, just two months after Emanuel unveiled Elevate Chicago, MPEA CEO Reilly emailed other MPEA officials and NPI brass saying that the $55 million TIF award for the hotel “will enable MPEA to grant $55M to NPI for its reconstruction project.”

By January 2014, as the administration was preparing to ask the City Council to approve the Elevate Chicago project, Reilly sent an email with the subject line “TIF/Navy Pier transfer” to then Planning Commissioner Mooney, Deputy Mayor Koch and other city planning officials declaring that the authority had cash on hand “set aside for (hotel) land or the Pier whichever way you want to look at it.” Reilly also asked city officials to accelerate TIF payments because the Navy Pier project needed the cash.

By August 2014, the city was forwarding TIF payments to MPEA, which was then turning around and within weeks writing checks for the same amounts to NPI, records show. As this was happening, MPEA CFO Oldshue was explaining the arrangement to others.

“Nominally in the (agreement between MPEA and the city for the TIF funds) we’re receiving $55mm from TIF to reimburse hotel project costs but that’s just the bookkeeping for requesting the transfers,” he wrote in an October 2014 email to a research analyst for Illinois House Speaker Michael Madigan. “Ten days after MPEA receives the money we pass it along in full to NPI.”

Oldshue explained it again in an email later that month to a prospective candidate to replace Reilly as MPEA’s CEO. Oldshue said funding for the pier’s renovation would include $55 million in TIF money “which MPEA transfers dollar-for-dollar to NPI upon receipt.”

Oldshue declines to comment for this story.

Experts say the fact that MPEA officials could write checks to Navy Pier for the exact amounts so quickly after receiving them from the city demonstrates that MPEA didn’t need the TIF cash. “On the surface it looks like there is some kind of sleight-of-hand bookkeeping taking place here,” says Rachel Weber, a professor in the urban planning and policy department at the University of Illinois at Chicago.

“If the intent from the beginning was to move these monies or to free up monies that would then be used for a project in a non-TIF area, then it calls into question whether or not there was a legitimate need for that $55 million,” says Weber, who served on an Emanuel-appointed task force to increase transparency and efficiency in the city’s TIF program.

While MPEA may not have needed the money, NPI did. The price tag for the first phase of Navy Pier’s renovation was eventually set at $115 million. With $60 million in seed money initially provided by MPEA on track to be fully spent by mid-2014, $55 million was needed to complete work. The city and MPEA thus set in motion the plan to cover that difference.

Aldermen’s reaction

Several Chicago aldermen say they were shocked to learn the full story of what happened to the $55 million and accused Emanuel of misleading them in pushing the proposal through the City Council in a 46-3 vote in March 2014.

Prior to that vote, Reilly and Mooney testified before a City Council committee and promised that the money would go exclusively for land acquisition and construction costs for the hotel. “What’s concerning to me is that we were told the hotel couldn’t go forward without the TIF. But clearly it could have,” says Ald. John Arena, 45th.

One month after the City Council approved the project, the MPEA board passed a resolution that allowed the transfer of money to Navy Pier. But the publicly provided agenda from that meeting gives only the title of the resolution, without a detailed description of it.

Just hours after that vote, Reilly appeared before the Plan Commission and discussed the $55 million in TIF funding. He assured the commission that the money was “just going towards the hotel,” according to a transcript.

NPI CEO Marilynn Gardner declines to comment, but a spokeswoman for the nonprofit says the MPEA resolution made the TIF plan “transparent” to the public.

Ald. Scott Waguespack, 32nd, one of the three aldermen who voted against the hotel TIF in 2014, accuses the Emanuel administration of acting in bad faith. “It’s a deliberate omission . . . to lead us down a different path than what was really happening,” he says.

Waguespack subsequently introduced legislation in the City Council to tighten standards governing the use of TIF funds. He says the McCormick Place-Navy Pier deal was a clear example of why TIF needs tougher oversight.

“I knew it was a boondoggle. I just didn’t know it was a Navy Pier boondoggle,” says Waguespack, who adds that he may push to claw back the $55 million from MPEA. “Here they deserve more than a slap, though. The money needs to come back to the city.”