The Chicago Park District is so short of funds it's cutting programs, raising fees, and telling community groups that if they want a playlot, soccer field, or running track, they'll need to raise the money themselves. Nevertheless, it has somehow found roughly $22 million to spend on Streeterville real estate for its central office. The district has been renting there since 2001, and officials say the conversion to ownership, which the board approved in February, will save about $720,000 a year in property taxes.
That sounds good—if only it were that simple. A close look at the transaction shows public officials making irresponsible deals with powerful people at great expense to taxpayers.
For decades the Park District paid no taxes or rent for its central office, which was housed in a building it owned on McFetridge Drive between the Field Museum and Soldier Field. But in 2001, Mayor Daley got the goofy idea of spending roughly $600 million on a widely condemned makeover of Soldier Field, and the Park District's headquarters had to be razed.
District officials packed up and moved to a high-rent Streeterville office space in the Time-Life building at 541 N. Fairbanks. Why there as opposed to, oh, say, just about anywhere else? They've never had much of an answer for that question. Tim Mitchell, the current Park District superintendent, says he wasn't around back in 2001. And David Doig, who was superintendent from 2000 to 2005, says he vaguely recalls that the location was good and the price was right.
At the time Park District flacks said a central location would be convenient for members of the public who needed to get there. Except the public doesn't really need to get there—the central office holds the administrative staff and computers but no programs, and monthly board meetings are usually held in neighborhood parks. Anyone who actually did need to visit would find expensive parking and the nearest train stop about half a mile away.
The building was owned by the Teachers' Retirement System of Illinois, the massive pension fund that oversees the retirement and disability savings of thousands of teachers throughout the state. The TRS has been in the news lately because former board member Stuart Levine is now the key witness against Tony Rezko, who's on trial for, among other things, shaking down contributions from investment firms looking to do business with the fund.
By early 2006 the fund had decided to sell the building and offered it to the Park District, which took a pass, according to Eva Golterman, a spokeswoman for the pension fund. "I think you can understand why the Park District would not want to be in the business of operating commercial real estate," Golterman says.
Fair enough. But the pension fund also offered to sell the Park District only the six floors—or 110,000 square feet—it occupied, and the district rejected that proposal as well. "You'll have to ask the Park District about that," says Golterman.
According to Mitchell, the district decided not to purchase the floors because "we didn't have the money then."
The fund ended up selling the building for about $61 million in June 2006 to a consortium that included Golub & Company, which has owned or managed more than $4 billion worth of commercial property around the world, and Wachovia Bank, based in North Carolina. (In December of that year Eugene Golub, who owns Golub & Company, contributed $50,000 to Mayor Daley's reelection fund.) When the deal went through, the Park District was asked to start paying some of the building's property taxes.
Here's why. As a government entity with taxing authority, the Park District doesn't have to pay taxes on its property or property it rents that's owned by another public agency. But in our convoluted system, even taxing bodies like the Park District can end up paying property taxes when it leases from for-profit landlords. In this case, as long as the building was owned by the pension fund—a public entity—no one had to pay property taxes on the Park District's space, which accounted for about 22 percent of the property, according to the county assessor's office. The fund was responsible for the taxes on the other 78 percent of the building. But when Golub bought the building the tax exemption on the district's space vanished. Golub would be responsible for taxes on the entire property, and it had the option of passing those costs on to its tenants, including the Park District. And it did.
Mitchell says the district would have to pay those taxes through 2013, when its lease expired. So to avoid paying another five years of property taxes, or about $3.6 million, the district decided to spend $22 million to buy the floors it occupied. Get it?
"We didn't really have a choice," says Mitchell. "It's my understanding that we can't ask for a waiver on the property taxes."
Actually, according to Katherine Ridgway, spokeswoman for the state department of revenue, there is a process by which the owner, in this case Golub, could try to renew the exemption for the 110,000 square feet rented by the district. It would start by submitting an application to the Cook County Board of Review, which would pass its recommendation to the state department of revenue. "The department of revenue would make a decision," says Ridgway. If the state denied the exemption, she says, Golub could take its argument to the courts.
Would Golub have been granted an exemption? Well, various tax-law geeks I've consulted say that it would have been an uphill battle. "Personally, I don't think they would have got the exemption," says an official with the Cook County Board of Review. "But that's not the real question. The real question is why is the Park District responsible for the property taxes in the first place."
Ah, a good question indeed. Why should it be the Park District's problem if Golub doesn't have the same tax exemption as the pension fund? "If I were the Park District, I'd make Golub pay the tax bill," says the county official.
But the Park District has a response to that. The district has to pay because—get ready for this—in the initial rental agreement parks officials agreed to pay the property taxes if the pension fund sold the building. "It's in the lease—we're responsible for the taxes," says Mitchell.
Tax experts at the county say determining who pays what share of property taxes is usually part of lease negotiations. The Park District should have been in a position to get a good deal in 2001 since it was agreeing to rent a significant portion—more than a fifth—of the pension fund's building. So why did its leaders make such a—in the opinion of every expert I've talked to—monumentally boneheaded agreement? Again, Mitchell says he doesn't know ("I wasn't around when they signed the lease") and Doig says he can't remember.
According to Mitchell the Park District got a lot tougher in its recent negotiations with Golub. Originally the company offered to sell the district its space for $35 million (or $297 a square foot). But the Park District held firm, finally bringing Golub down to about $22 million ($197 a square foot). "We have the money now," says Mitchell. "It's a good deal."
But still not as good as the one the Park District passed up in 2006, when the pension fund offered to sell the same space for $12.3 million, or $112 a square foot.
Golub, on the other hand, did get a pretty good deal. Back in 1988, the pension fund paid about $77.50 a square foot for the building. Golub bought it for $112 a square foot in 2006. Then the Park District agreed to buy its portion for $197 a square foot in 2007. In other words, the price of the building's square footage rose about 45 percent in the 18 years between 1988 and 2006 and then 76 percent more in the last year.
In short, the Park District agreed to pay more in 2007 than it would have had to in 2006 to buy its space in a high-rent building that it really doesn't need—all in order to avoid paying property taxes it shouldn't have to pay. On top of that, the district then paid too much in property taxes (see sidebar).
It seems obvious that the district could make better use of all that taxpayer money by setting up shop somewhere cheaper—maybe something could have been worked out with its Soldier Field tenant, the Bears. The city and Park District own property all over the place—couldn't something have been found? .
Mitchell says it would cost at least $30 million to move their computers and equipment and refit a new building. (Of course, these calculations were made by some of the same wizards who negotiated the lease.) Besides, he says, there is no space—absolutely none—available in any building owned by the city or Park District. So the district has no choice but to stay in Streeterville, and as long as they're staying they might as well own. Think of it as a onetime expense, says Mitchell: "We won't have to pay rent anymore."
A side note: The Park District got the $22 million for this real estate purchase from a pool of money created when it leased four downtown garages in 2006. If you remember that harebrained scheme, the district had to lease those garages to pay off the debt on Millennium Park. The park might have been paid for by raising the hotel-motel tax, but—oops!—that one was already overburdened by the reconstruction of Soldier Field, which is why the central office had to move in the first place.
At a press conference announcing the leasing of those garages Mayor Daley promised to spend at least $122 million refurbishing neighborhood parks. Make that $100 million.
I'm hoping this $22 million is the last the public has to shell out for the dreadful Soldier Field project. But, this being the Chicago Park District, you never know.v
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Time-Life building, 541 N. Fairbanks