Sweet Deal

The company that shuttered the west-side Brach’s plant in 2003 is coming back, enticed by $880,000 in TIF funds.

Kurt Mitchell

By Ben Joravsky
January 5, 2007

ON NEW YEAR’S Eve 2003 Barry Callebaut, the world’s largest chocolate manufacturer, finished closing the old Brach’s candy factory in Austin, throwing the last of its 3,500 employees out of work.

At the time, outraged city officials unsuccessfully begged the parent company to reconsider. Now, three years later, the holiday spirit has apparently softened the hearts of the Daley administration. On December 12, the Community Development Commission, whose members are appointed by the mayor, approved an $880,000 grant to Barry Callebaut. The grant, recommended by the city’s planning department, will help the company cover the cost of moving its North American corporate headquarters from Quebec to the old Montgomery Ward building at 600 W. Chicago.

The subsidy comes from—where else?—the city’s tax increment financing program. I’ve written extensively about the trouble with TIFs: just for starters, they raise property taxes, divert millions from schools and parks, and endanger the city’s fiscal future by keeping hundreds of millions of dollars a year in revenues off the books. (For more, see chicagoreader.com/tifarchive.) But in some ways the actual TIF deals, the details of which the city generally makes difficult to uncover, are even more outrageous.

Barry Callebaut’s Christmas present comes from the Chicago-Kingsbury TIF, which was created on April 12, 2000, largely to subsidize the restoration of the Montgomery Ward building and the redevelopment of the surrounding land. State law requires that TIFs be intended to stimulate development in blighted communities that developers and investors would otherwise ignore. According to planning department documents, the area around Chicago Avenue and the Chicago River in River North qualified because it was “not expected to be redeveloped by private entrepreneurs” without the TIF.

This is obviously dubious. For one thing, the development of old River North factories into art galleries and lofts had been going on for years without much in the way of TIF subsidies. For another, the city had already committed to demolishing the Cabrini-Green housing project—the single greatest impediment to high-end development in the area. As more than one developer has told me, the forced expulsion of thousands of poor CHA residents from Cabrini-Green—an enormous logistical and legal endeavor that has cost tens of millions of federal and local dollars—provided the necessary catalyst for the economic transformation of the near north side. With the poor moved out and their old high-rises leveled, any developer who can’t make a fortune in River North without a handout should think about getting out of the business.

In any event, between the moment the City Council created the Chicago-Kingsbury district and the moment it expires in 2023, all new property taxes generated within its boundaries get diverted into a fund that’s largely controlled by Mayor Daley and the local alderman, Walter Burnett of the 27th Ward. By 2023 the city expects that will be about $280.7 million—money that otherwise would go to entities like the schools, the parks, and the libraries.

The first big payout went to EPort, the massive renovation and construction project on the Montgomery Ward property along the banks of the river. A consortium of some of the city’s most successful developers got about $28 million in TIF funds to help create more than 2,000 residential units, 1.8 million square feet of commercial space, and an 80-slip marina. In exchange, the developers promised to build about 230 units of affordable housing, half of which would be set aside for displaced Cabrini-Green residents. The other housing would be sold at market rate, with units fetching as much as $800,000.

The Community Development Commission, which oversees TIF deals, approved the E-Port subsidy in August 2001. That was a few months after Brach’s—which at the time was owned by Swiss billionaire Klaus Jacobs, who also owns Barry Callebaut—announced it was moving the Austin jobs to Tennessee, Mexico, and Argentina. The two developments illustrate the striking contrast between boom and bust in Daley’s Chicago.

After that announcement aldermen, activists, residents, and clergy pleaded with Brach’s to reconsider, arguing that it would lead to a devastating loss of jobs and tax revenue, as well as raise welfare and unemployment. Brach’s became a subsidiary of Barry Callebaut in 2003, and not long after that company officials said the decision was final. But city leaders kept up the pressure. On October 9, 2003, 28th Ward alderman Ed Smith sent a letter to Jacobs, asking “in the spirit of cooperation and mutual benefit” for the old Brach’s factory to be “redeveloped to provide the type of manufacturing jobs that keep Chicago neighborhoods healthy and strong.” The letter was cosigned by Alicia Berg, then the city’s planning commissioner, and Jerry Roper, president of the Chicagoland Chamber of Commerce, as well as west-side leaders.

About two weeks later, Barry Callebaut sold the property for about $2.2 million. The 30-acre site remains boarded up to this day.

Now Barry Callebaut is coming back. The company hopes to begin moving to Chicago Avenue in a matter of months, said Jerry Hagedorn, CFO for North American operations, at the December 12 development commission meeting. According to Hagedorn the company will relocate about a dozen employees from other cities and hire as many as 90 new employees. There won’t be any manufacturing jobs: the closest thing to candy-making will happen at the on-site Chocolate Academy, where chefs will be trained to use gourmet chocolate in their kitchens. “We’re very excited about our project here in Chicago,” Hagedorn said.

The commissioners couldn’t have been more amenable. They made no mention of the families thrown into ruin when Brach’s left the west side. In fact, they made no mention of Brach’s at all. Moreover, they didn’t ask anything remotely resembling a critical question about why the world’s largest chocolate manufacturer needed $880,000 to move to Chicago. (I would have asked Hagedorn, but he didn’t return my calls for comment.)

Alderman Burnett (who received at least $10,500 in campaign contributions from E-Port’s owners between 1999 and 2003) was on hand to endorse the deal. First he praised the CDC’s members, many of whom are successful real estate lawyers and developers. “Some of you lose millions of dollars just being here,” he said. Then he thanked Barry Callebaut for deigning to take the city’s money. “It gives me great pride to be here,” Burnett said. “This is a candy company coming to the city of Chicago, bringing job opportunities to Cabrini-Green. Everyone knows people in Chicago love chocolate.”

The commission then unanimously approved the subsidy. The proposed deal now moves to the City Council; because it has the alderman’s support its approval is virtually certain. It’s a sweet deal for E-Port’s owners, who get a tenant to fill vacant space. It’s a sweet deal for Barry Callebaut, which gets taxpayer money to defray moving expenses.

It’s unclear, however, how the public will benefit. Presumably we get a boost in civic pride from having Barry Callebaut claim Chicago as a corporate home, and that’s a big deal to Mayor Daley: over the last five years he’s directed TIF funds to help Boeing, United Airlines, USG, and now Barry Callebaut either stay in town or move their corporate headquarters here.

But that doesn’t translate into more property tax dollars for financially strapped schools or tax breaks for property owners. All new property tax dollars in a TIF district go into the TIF fund.

The new headquarters likely won’t help people who lost their jobs at the Brach’s factory—Burnett didn’t mention them. And despite his optimism, I don’t see how it will benefit past or present Cabrini-Green residents. I doubt many of them have the skills required for the high-end jobs Barry Callebaut will be bringing to its new headquarters.

There is of course the head tax, the monthly $4 per employee fee all companies with 50 or more workers pay to the city. If Barry Callebaut makes good on its plan to hire up to 100 workers next year the city will be raking in about $4,800 annually. So in 183 years or so we’ll have made back the $880,000 we gave to Barry Callebaut.

But hey, that’s a better deal for taxpayers than the USG arrangement I analyzed five weeks ago. We’ll need 270 years to recoup the $6.5 million the city gave them. As TIF deals go, I guess we can call the Barry Callebaut subsidy progress.

For more on Chicago politics, see our blog Clout City.

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