This piece was reported in collaboration with Pando.com.
On March 5 the City Council voted 46-3 to approve Mayor Rahm Emanuel's proposal to spend $55 million in property taxes on a new Marriott hotel in the South Loop—part of his ambitious development plan that also features a basketball arena for DePaul University.
The vote followed a September decision by the Metropolitan Pier and Exposition Authority, a state-city entity, to award Marriott the coveted contract to run the new hotel.
Following the council vote, the mayor and his aides crowned themselves wizards of economic development. "The hotel will generate new taxes and jobs while supporting the area's planned revitalization," said Andrew Mooney, the city's planning commissioner.
However, what the mayor and his aides didn't mention—and what has gone unreported until now—is that in the year leading up to the lucrative deal for Marriott, the hedge fund of one of Emanuel's largest campaign contributors bought millions of shares of stock in the hotel chain.
That hedge fund, Citadel LLC, is run by billionaire Kenneth Griffin, whom Forbes last fall deemed the wealthiest man in Illinois. He is famous in the financial world for making a killing in high-frequency trading.
Griffin, though, is not just a financial speculator. He's also a generous political contributor. At the national level he was a major fund-raiser for Mitt Romney, and in February he hosted a fund-raiser at his home for New Jersey governor Chris Christie.
In Illinois, Griffin has donated to former mayor Richard M. Daley (at least $162,000) and former governor Rod Blagojevich ($70,000). He's also a big backer of Bruce Rauner, the Republican candidate for governor: Since November, he's donated more than $500,000 to Rauner's campaign. That includes about $49,000 in in-kind contributions for allowing the Rauner campaign to use his private aircraft.
That said, out of all the relationships Citadel has forged with politicians, few appear to be as close as the one the firm has developed with the Chicago mayor behind the Marriott deal.
Griffin describes Mayor Emanuel as his "good friend." Over the last three years Griffin and his wife, Anne Dias Griffin, have together donated more than $210,000 to Emanuel's campaign. And other Citadel employees have donated at least $172,000 to the mayor's war chest.
Additionally, in December, Emanuel appointed Dan Widawsky, then a top Citadel executive, as the city's comptroller, overseeing the Department of Finance.
When asked to comment, a Citadel spokesman said: "We appreciate the opportunity to contribute to your story but are going to pass at this time."
Mayor Emanuel's press office did not respond to a request for comment.
On February 19, 2013, Mayor Emanuel and Governor Pat Quinn announced that McPier would build a giant hotel not far from the McCormick Place convention center. That May they announced that DePaul would be constructing the basketball arena.
Ironically, the publicly subsidized hotel deal runs counter to Kenneth Griffin's stated free-market ideology.
And in September the McPier board of directors, whose members are appointed by the mayor and governor, announced that they had chosen Marriott—over Hyatt and Hilton—to run the hotel. According to McPier spokeswoman Mary Kay Marquisos, McPier did its due diligence through "a two-phase process" of review.
Marriott is also one of dozens of companies in which Citadel has a stake.
According to SEC filings, the firm began buying major portions of Marriott stock in late 2012. By September 2013, SEC filings showed the hedge fund owned 2.3 million shares of Marriott. As of the last SEC filings at the end of 2013, Citadel owned roughly 1.6 million shares of Marriott stock worth an estimated $89 million.
According to Nasdaq figures, Citadel became—and remains—one of the 25 largest institutional owners of Marriott stock.
The hotel chain's new offering will be a 1,200-room luxury hotel on prime land not far from the convention center and right by the new stadium. There's also the prospect of even more business down the road for the hotel, should the mayor get state approval to put a casino in the vicinity, as is widely expected. (Griffin himself has been a strong opponent of bringing a casino to downtown Chicago.)
Among the hotel's amenities will be a 300-seat restaurant, a rooftop bar, a coffee shop, several banquet rooms, a fitness center, and an indoor swimming pool.
Best of all from Marriott's perspective, someone else is picking up the construction tab: the public. Indeed, with Mayor Emanuel's subsidies and tax exemptions, everyone's property taxes will rise to pay for Marriott's new crown jewel and compensate for the property taxes Marriott won't be paying, since the real estate will still be owned by McPier, a governmental entity.
Ironically, the publicly subsidized hotel deal runs counter to Griffin's stated free-market ideology. In support of that end, he's donated $500,000 to Stand for Children, which has fought teachers' unions; $300,000 to American Crossroads, Karl Rove's super PAC; and at least $1.5 million toward causes backed by the Koch brothers, the billionaires who have funded efforts to bust unions, roll back environmental protections, and defeat President Obama.
In speeches and interviews Griffin has lashed out at business executives who put the needs of their companies over Illinois while accepting tax breaks and public subsidies.
"Government being involved in picking winners and losers invariably leads to a loss of economic freedom and encourages corruption," he told the Tribune last year.
Yet the taxpayer-financed Marriott project is very much a governmentally engineered deal, siphoning public resources into a tax increment financing scheme that will underwrite a private hotel chain.
As everyone in Chicago should know by now, tax increment financing (TIF) is a program in which the city annually diverts roughly $500 million in property taxes—paid in the name of schools, parks, police, and other public services—into bank accounts largely controlled by the mayor.
The money is supposed to be used to boost development in blighted communities so poor they would otherwise receive no development.
But state laws governing TIFs are so riddled with loopholes that the mayor is free to create them virtually wherever and however he wants.
That explains why the South Loop—a relatively vibrant, well-off community—still qualifies for TIF funding.
TIFs also divert property tax dollars from public schools that are so broke many of them struggle to pay for basic supplies like toilet paper.
Moreover, the mayor is earmarking money to build the Marriott at the very moment he says he has to jack up property taxes and cut payments to pensioners because the city can't afford to make good on its pension obligations.
In short, the city claims it doesn't have money for its schoolchildren or retirees, but it somehow has plenty of cash to enrich a hotel corporation—one that just so happens to be partly owned by one of the mayor's largest contributors.
In a speech last year before a downtown business club, Griffin criticized the mayor for closing only 50 schools—he said at least 100 should have been shuttered.
If the mayor's South Loop megaproject keeps siphoning off more desperately needed property tax dollars from the school system, Griffin may ultimately get his wish.
After this article was published, Citadel submitted the following response:
Your April 8 story regarding Citadel and the firm's investment in Marriott Corp. was completely irresponsible and showed total disregard for factual reporting and sound editorial judgment.
The piece is comprised of nearly equal parts baseless speculation devoid of any real factual grounding and preposterous conclusions. Any direct or indirect innuendo that Citadel or its founder acts with anything but the highest standards of integrity in all of its business and investment processes is categorically wrong.
Your story was a disservice to our city, our firm and readers of your publication.
Adam C. Cooper
Senior Managing Director and Chief Legal Officer