When Mayor Jane Byrne offered Hilton Hotels Corp. a $100 million tax break to build a flagship hotel in a decaying downtown area, she touched off a wave of criticism that the city was giving away too much revenue.
The controversy ultimately killed the Hilton deal, but now the mayor has received 14 new bids for a variety of ambitious projects on the same site, all without the tax relief she insisted was vital to downtown redevelopment.
Chicago was counting on construction of the 1,800-room hotel because it faces the same dilemma as other aging cities: trying to keep the downtown from becoming a ghost town after 5 p.m. A combination of high interest rates, fragile financing and a preference for more profitable office space has caused long delays on many highly touted projects.
To speed the process, many cities began offering prospective developers a major break on local property taxes during the 1970s. The program grew rapidly in cities such as New York, prompting charges that it amounted to a giveaway for luxury housing and other projects that didn't need public subsidies. In the last two or three years, urban planners say, many cities have become more cautious about eroding their tax base.
"It can be an extremely delicate balancing act," said George Barker, an official with Maryland's Enterprise Development Co., founded by Harborplace developer James W. Rouse. "The issue a city must decide is whether to perhaps lose a project, which could trigger a turnaround in terms of downtown revitalization, because it is unwilling to grant a tax break that is unavailable to the public at large."
In St. Louis, where dozens of developers are having half their property taxes forgiven for up to 25 years, city officials said they are curtailing the program only slightly. They said these tax breaks have helped to attract office buildings, a downtown shopping mall and a $130 million hotel-retail complex being built by the Rouse Co.
"When you're in an urban environment that's trying to come back, like St. Louis or Cleveland or Philadelphia, you have to use every tool you can," W. Lynn Edwards, St. Louis' director of development, said. "Obviously it means lost revenue. But does it mean projects that wouldn't have gone forward anyway? No one can answer that."
Chicago tried to follow St. Louis' lead in 1980 by starting its own tax-relief program. There is no shortage of modern, concrete-and-glass office buildings springing up here, and space in the aging North Loop area had been fetching $300 to $400 a square foot.
But most builders have shied away from commercial or retail projects in the area, and the once-vibrant shopping strip along State Street deteriorated as customers headed elsewhere.
As a result, the North Loop remains a mix of offices, liquor stores, rental-car counters and a row of exploitation film houses.
"We need pathways to pull the half-million people who work in this area to State Street, through recreation and theater," Miles Berger, chairman of the Chicago Plan Commission, said. "An 1,800-room hotel would mean a lot of out-of-town people who need to be fed and entertained."
But the plan soon ran into the political realities of doing business in Chicago. "We haven't been getting the best proposals because everyone knows the process is going to be greased," said Alderman Martin Oberman.
Mayor Byrne secretly signed a contract with Hilton last year without giving any other firm a chance to bid on the project. The terms were generous: The city would acquire a choice parcel of land, demolish all structures on it and then sell it to Hilton for $50 a square foot, a fraction of the going rate. Hilton, in turn, would build a $200 million hotel and exposition center.
Byrne declared the site a "blighted area," a move that would make Hilton the first company to be excused from paying more than half its property taxes for the next 13 years. Community leaders complained that other neighborhoods were in far greater need of tax relief.
Byrne's aides secured a $7.4 million urban development action grant (UDAG) from Washington with a promise that the Hilton hotel would create 2,100 new jobs. But Hilton later admitted that it planned to close an older hotel nearby, meaning that most of the jobs would merely be transferred to the new project.
To complicate matters further, Byrne's coordinator for the North Loop plan, developer Charles H. Shaw, resigned, saying he might have a conflict of interest because he was dickering to build in the same area he was overseeing. When that fell through, Shaw joined Hilton to help push the hotel project.
After experts testified that Hilton could make as much as a 23 percent profit without the real estate tax break -- and up to 33 percent if it were granted -- Cook County Assessor Thomas Hynes rejected the plan.
Hynes offered a compromise in which Hilton would get some tax relief if the hotel proved unprofitable, but the company dropped the project, saying that financing no longer was available.
In recent months, 14 local developers have submitted proposals for the site, most involving a mix of office space and smaller hotels. One plan is for a 210-story building with condominiums, a hotel and a heliport; another is for a huge Japan Center with restaurants and stores.
Unfortunately, all these proposals violate the city's guidelines, which don't allow for any office space because they were tailored specifically for Hilton. This forced the city to promise new guidelines, delaying the process another year or longer.
Berger pointed out that no firm has been able to come up with an 1,800-room hotel.
"In the final analysis, the marketplace tells you what you can do," he said. CAPTION: Pictures 1 and 2, A supporter of building the 1,800-room Hilton Hotel in the decaying down-town North Loop area is Miles Berger, chairman of the Chicago Plan Commission, who stands in front of a state office building under construction. The parking lot-covered site the city would have cleared and sold to Hilton hotel chain for construction of the $200 million hotel and exposition center if the tax-break arrangement had not raised a storm of controversy. By Steve Smedley for The Washington Post