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Monday, December 5, 2011

The Park Grill scandal: One for the ages

Posted By on 12.05.11 at 09:00 AM

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Ben Joravsky may not have broken the story of the Park Grill's outrageous 2003 deal with the Chicago Park District—that would be the Sun-Times—but to my knowledge, he's the reporter who followed up on it most doggedly.

The agreement between the Park District and Park Grill principal Matthew O'Malley granted him a 20-year contract despite the bids of two other groups that had offered to pay more. At the time of the Sun-Times's 2005 story, attention focused on O'Malley's having had a baby with Laura Foxgrover, a Park District official whose department oversaw the bidding process. But as Joravsky pointed out in his initial story, the real scandal wasn't just who got the deal and why (O'Malley, owner of Mayor Daley's old haunt the Chicago Firehouse, had clout), but the deal itself.

O'Malley and his partner James Horan "agreed to pay the Park District an annual minimum fee of $275,000," Joravsky wrote. "But in exchange for the Park Grill paying all the build-out costs, the Park District agreed to waive the fee until the 15th anniversary of the contract's start date or until the Park Grill makes $3 million or half its construction costs, whichever's less."

Agreements of this sort based on net rather than gross are . . . unusual, shall we say. "If you're going to make rent contingent on future earnings, you do it on the gross," a prominent commercial leaseholder told Joravsky. "You never, ever, do it on the net!" Another deal maker he spoke to explained why:

"Gross is all your income. Net is what you have after you pay your expenses. Say you're bringing in $10 million. That's when you bring in the accountants. It's nothing illegal, just creative accounting. You have your bills—supplies, salaries, whatever. You pay yourself a salary. You pay your partner a salary. A good accountant can get the net to next to nothing. A landlord who takes his rent based on the net is getting a percentage of nothing. Only a dummy takes a percentage of nothing [my emphasis].

Further sweetening the deal—and further screwing taxpayers—the Park District agreed to pay for the Park Grill's gas, water, and garbage collection. The 2005 Sun-Times story put the annual cost of garbage pickup alone at $245,000. And the annual water bill for a restaurant with an ice skating rink can't be cheap.

After the scandal(s) came out, the city sent O'Malley a letter asserting that the land beneath the restaurant was owned by the city. Because of that, the city should have been party to the deal. It wasn't, so as Fran Spielman reported in Friday's Sun-Times story, the letter asserted that the "20-year concession agreement 'does not authorize your occupation of the Park Grill facilities.'" That's the tack the Emanuel administration is pursuing now. The lawsuit filed Thursday against both O'Malley's group, Millennium Park Joint Venture LLC, and the city's own Park District, seeks to give the city the right to rebid the contract, seeking terms more equitable to taxpayers.

This is far from a first for Park Grill with respect to litigation. After news of the deal broke, Mayor Daley demanded that his aides renegotiate the settlement. As Spielman says, “those negotations went nowhere.” Meanwhile, another perk had emerged. As Joravsky explained in 2005’s "The Poor, Poor Park Grill," the restaurant had been exempted from paying property taxes. Then-Cook County assessor James Houlihan took issue with this, and informed O’Malley and Horan that they’d be billed for 2004. In August 2005 the pair filed a lawsuit against Houlihan, arguing that they had a concession agreement rather than a lease, hence were not subject to property taxes. The case went all the way to the Illinois Supreme Court, which last December ruled in the restaurant’s favor on the grounds that its contract with the Park District was a license rather than a lease.

In 2009, after the appellate court ruled for the Park Grill, Joravsky mulled over the facts of the case:

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.

Since its victory in the courts, Millennium Park Joint Venture LLC has been looking to unload the Park Grill. Spielman reports that a deal with Levy Restaurants—the corporate monster that runs both prestigious establishments like Spiaggia and the new Bar Toma and a shit ton of sports concessions including Wrigley and U.S. Cellular Field—was "imminent." The Levy group would seem to be the ideal, er, nontenant for Millennium Park. The city’s suit seeks to block the deal and try, try again.

There’s an additional irony. O’Malley’s backers included Daley cronies Fred Barbara and Tim Degnan. Defending the Park Grill on Friday was Michael Shakman, whose own lawsuit led to the anti-patronage Shakman decree. Now, as quoted by Spielman, he’s blasting the city’s suit:

"This is a money grab by the city. They see this restaurant that was struggling and now looks like it’s something of value and the city is making an effort to seize some of that value. It’s not a very pretty picture of how to deal with people who step up to the plate and take on a challenging project like this to treat them this way. It’s kind of disappointing."

Poor, poor Park Grill.

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