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Analysis: Tax funds used for Marriott hotel near DePaul arena controversial

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(Piper Schad / The DePaulia)

$55 million in Tax Increment Funding (TIF) went towards the new Marriott Marquis hotel near the DePaul arena site in the South Loop. (Piper Schad / The DePaulia)

Six days after the partnership between DePaul, the Metropolitan Pier and Exposition Authority (McPier), and the city was announced in 2013, Chicago’s Board of Education announced that 50 public schools would close.

To critics, the project was the perfect example of the misuse of public funds, siphoning public money for flashy developments rather than schools. But alongside the arena, the project was also announced with a lavish new Marriott hotel with the goal of revitalizing the area surrounding McCormick Place.

Citizens, including DePaul students, protested. When it came time to approve the project, city aldermen voted for public money to be moved from the arena to the hotel project in March 2014. In total, $55 million of government-funded taxes, or the use of Tax Increment Funding (TIF), went towards the hotel project.

A little more than a year from completion, community groups are still torn over whether using tax increment funding for a commercial project is ethical in revitalizing the city and tourism.

For TIF funds to be used, the requirements mandate the neighborhood in question must be considered “blighted,” with evidence of deterioration, excessive vacancies and stunted property values. It also must pass the “but for” requirement, meaning that the area would not develop on its own but for the TIF funding.

“Both of those (conditions) are violated in this instance,” said Tom Tresser, a community activist and public defender. Tresser has been embroiled in community work in Chicago for more than 20 years.

“You’re telling me the convention center is blighted, and you are telling me the Marriotts don’t have enough money and wisdom to figure out how to fund their hotel, right next to another hotel that is operating successfully in a booming area,” he said. “That requires $55 million of public cash?”

The purpose of TIF, according to the City of Chicago, is to promote public and private investment across the city. Property taxes in TIF districts are essentially frozen for 23 years, and excess taxpayer money is diverted into redevelopment projects.

The TIF Act was established nearly 40 years ago to improve blighted neighborhoods and redevelop them to help the residents and businesses in the area, according to the Illinois State Bar Association’s (ISBA) website.

But what exactly does it mean to be a blighted neighborhood? According to the ISBA, a blighted neighborhood should contain at least five of the 12 factors to be considered for development. Some of these include excessive vacancies, dilapidation and code violations. Yet many TIF districts are put in place in areas that some say are  already economically stable.

Located at the corner of Prairie Avenue and Cermak Road and just across the street from the arena, the 39-story Marriott Marquis hotel will feature more than 1,200 luxury rooms. McPier has overseen the entire development process and will act as landlord to Marriott.

The $55 million in TIF money awarded to Marriott was eligible to be spent in several ways: land acquisition, demolition and site preparation, consultant fees and hotel construction costs, according to a City of Chicago document. McPier estimated that hotel development costs would total approximately $400 million.

The DePaul arena and Marriott hotel fall within Ald. Pat Dowell’s 3rd Ward. Dowell said the construction of the Marriott Hotel will benefit the community through job growth, as well as increase tourist attraction to the neighborhood.

TIF districts in Chicago. (Michael Schmitt / The DePaulia)

TIF districts in Chicago. (Michael Schmidt / The DePaulia)

“To utilize TIF dollars, to acquire the property and to build the hotel translates into thousands of construction jobs, thousands of permanent jobs in the hotel, in addition to the spinoff benefits that generate from the hotel even being there,” Dowell said.

The fairness and value of Chicago’s TIF funding has been debated since its inception in 1977.

“Both the arena and the hotel are being publically financed by McPier,” Tresser said. “They are going into the debt market and the debt they are taking is expensive. I mean, they are going to the payday loan store with this.”

McPier funds its projects with taxes taken from a variety of places, paid for city residents. There is a surcharge on restaurant bills located between North Avenue and the Loop, surcharges on rental cars and a retailers occupation tax on the gross receipts from food prepared for immediate consumption, alcoholic beverages, and soft drinks.

The majority of TIF funds are funnelled into  Loop projects, something Tresser identifies as problematic and economically corrupt due to the clear violation of the two TIF requirements.

Further, in a practice known as porting, TIF money is transferred between districts often without overseeing, since the Department of Planning and Development is free to move the funds as they wish. As a result, taxpayers who do not live in the South or West Loop may be contributing to the large sums awarded there, and these sums of money are linked to developments such as the Marriott Hotel.

The arena and hotel development brings to attention how much TIF money is spent throughout Chicago, and to what extent in each neighborhood. The Calumet/Cermak TIF district, located on the border of the South Loop, lies nestled between larger districts including Bronzeville, the Pilsen Industrial Corridor and the Near South.

The city shifted its attention to the area when the Calumet/Cermak district, which is next to the South Loop district, was initially not considered never blighted. With historic Printer’s Row on one side and Motor Row on the other, the area was an industrial hub for the first half of the 20th century. Since then, most of the buildings have either been abandoned or converted into residential housing. The Redevelopment Plan states: “The Project Area, while not yet a blighted area, may continue to decline and deteriorate and, without the intervention of the City, may become a blighted area.”

(Piper Schad / The DePaulia)

The new hotel and DePaul arena promise to bring tourism – and therefore additional revenue –  to the city. (Piper Schad / The DePaulia)

The small Calumet/Cermak district — which includes the arena and hotel — receives more than $57 million in TIF investments according to data from the City of Chicago website, the Near South district across the street receives almost $270 million, making it the most funded of all districts. Comparatively, the Pilsen Industrial Corridor, which is slightly larger than the Near South District, only receives about $23 million in TIF funding — 10 times less than the amount the Near South receives.

“That’s why you have new a Ferris wheel being built in Navy Pier,” Tresser said regarding the supposed benefits of tourism. “It is about tourism, it is about attracting, it’s about building up the central Loop, it’s about these sort of things that will draw people and keep people in Chicago. You’ll get them to visit us and spend money and that is what you keep hearing will make us a great city.”

The Prairie District Neighborhood Alliance (PDNA), the group that represents the neighborhood affected by the two projects, has been split on whether the project is good for the community.  PDNA secretary Alex McCann said he sees the need for tourism in the area.

“I think that it’s a great addition to the neighborhood,” McCann said. “The new Marriott Hotel and DePaul arena have the ability to be somewhere people want to come visit. It will grow development in the area – so new restaurants, new parks, new nightlife options.”

Those who are opposed are primarily concerned about parking and noise, McCann said. Some question whether or not this money could have been better spent.

“I think their major concern is that it really isn’t needed,” McCann said.  “That’s what I’ve been hearing from residents in the area …  they are asking if this money could go towards anything else, such as maybe schools or up-keeping more police in the area.”

The divide of the PDNA board illustrates the mixed reactions of taxpayer money being given to private enterprises. President of the PDNA Tina Feldstein welcomes TIF funding in the district but would like to see alternative projects like a new neighborhood high school or improved infrastructure.

Local business owner and DePaul grad Bob Lassandrello is also in favor of the Marriott. His establishment Motor Row Brewing also received a small TIF reward. When he bought his building in 2005 the neighborhood was much less developed than it is now.

“There weren’t any real businesses,” Lassandrello said. “I think Burger King was here and that was pretty much it. All these building were not necessarily abandoned but they were empty. And so it was never a neighborhood that felt unsafe, it just felt deserted.”

As a business owner Lassandrello welcomes the new additions to the Near South, which he says only have the potential to benefit Motor Row Brewing.

“People are excited,” Lassandrello said. “There’s potential for the neighborhood to be not only an annex to McCormick Place but a thriving, enclave of its own.”

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Analysis: Tax funds used for Marriott hotel near DePaul arena controversial