Illinois House Speaker Michael Madigan cost taxpayers nearly half-a-billion dollars by blocking repeated efforts to restructure McCormick Place bonds and finance a much-needed second hotel at the convention center, a Crain’s investigation finds.
Between 2005 and 2010, Mr. Madigan stopped five refinancing bills, ignoring declining interest rates that would have saved hundreds of millions. At the time, he never explained why, but his reasons seem petty and political: McCormick Place CEO Juan Ochoa, an appointee of then-Gov. Rod Blagojevich, had fired a Madigan ally at the convention center, and lawmakers from both parties say the speaker wanted retribution.
“It was no secret that Madigan had a beef with Ochoa and wanted him gone,” says state Rep. Angelo “Skip” Saviano, an Elmwood Park Republican who sponsored refinancing bills in 2005, 2007 and 2009. “As long as Ochoa was there, Madigan wasn’t going to give McCormick Place anything.”
But politics may not have been Mr. Madigan’s only motivation. By holding up refinancing, the speaker also denied McCormick Place the money to build a new hotel. That bought time for clout-heavy developers Gerald Fogelson and Cleveland-based Forest City Enterprises Inc. to push a controversial land swap and hotel deal with McCormick Place on property just north of the convention center. Both were then clients of Mr. Madigan’s law firm, Madigan & Getzendanner, but the speaker denies any connection.
As the recession raged in early 2010, the collapse of the real estate market scuttled the deal. That May, after Mr. Ochoa resigned, the General Assembly finally passed legislation that lowered McCormick Place’s debt payments, allocated funds to expand the existing Hyatt Regency McCormick Place and imposed wage restrictions and new work rules on union labor. The House sponsor was Speaker Michael Madigan.
The legislation reduced this year’s debt service by $96 million, but the damage had already been done at the Metropolitan Pier and Exposition Authority, known as McPier, the agency that runs McCormick Place. Denied refinancing for six years, McPier paid out as much as $300 million more in bond interest than it should have and was forced to tap state sales tax revenue to meet its obligations.
Mr. Madigan’s inaction also set off a chain of events that put Chicago’s $8-billion trade show industry — and the estimated 66,000 jobs it supports — at risk. Without revenues from the debt savings and a second hotel, McPier had to mark up its prices in the middle of the recession, driving away two trade shows. With McCormick Place in crisis in late 2009, other shows threatened to leave Chicago unless state lawmakers imposed restrictions on McPier unions.
To find out what went wrong, and what still needs to be fixed, Crain’s obtained internal McPier memos and emails under the Freedom of Information Act, examined state and county records, and conducted dozens of interviews with McPier officials, legislators and others. With Illinois on the verge of insolvency, what emerges is an unflattering view of how the state works — or doesn’t — when politics trumps the public interest.
The exchange didn’t last long, and it failed to attract much attention, despite the gaggle of press covering the final night of the 2010 state legislative session in May. But state Rep. Jim Sacia, a Pecatonica Republican, was determined to ask Mr. Madigan why numerous prior efforts to refinance McCormick Place bonds had failed to come to a vote in the Illinois House.
A month earlier, in a hearing on the McCormick Place legislation, McPier Chairman John Gates testified that failure to refinance sooner had cost taxpayers hundreds of millions in higher interest payments. Reducing debt payments also would have given the agency a surplus of tax revenue that could have been applied to McPier’s struggling operating budget, Mr. Gates testified.
Two of the previous refinancing bills had passed the state Senate only to die in the House. A shocked Mr. Sacia wanted to know why.
At the closing session on May 6, he got his chance to ask Mr. Madigan. “I would be deeply grateful, Speaker, if you could explain to the body how that could happen, if that in fact was the case — did I misunderstand something?” Mr. Sacia asked, according to state transcripts of their testy exchange. “Did a bill pass the Senate that could have saved the taxpayers of this state several hundred million dollars? Would you be kind enough to address that, if you could?”
A brief back-and-forth ended with this terse response from Mr. Madigan: “Mr. Sacia, I’m not sure I understand your question. . . . To repeat what I said, there have been bills that provided for yet another restructuring of the debt payments, but none of those bills dealt with the significant work-rule changes that are in this bill.”
Mr. Sacia got a bit more colorful in a letter after the exchange to his constituents: “This stinks to high heaven and you, the taxpayers, get half-a-billion dollars worth of rotten meat. I can’t wait to hear the explanation for this one.”
He is still fuming today. “I was simply looking for a logical explanation,” he says. “How can we have millions in the taxpayers’ money just going away to higher interest when we had opportunities to bring that interest down?”
Many still wonder why McCormick Place took six years to refinance its debt, as plenty of government agencies, private companies and homeowners were doing at the time.
“A lot of people were expecting (refinancing) to come earlier,” says John Kenward, a bond analyst in Chicago at Standard & Poor’s. With interest rates dropping, “I don’t know why the state wouldn’t have taken advantage of that.”
As for Mr. Madigan, he never spoke of his reasons for rejecting bill after bill. But in response to questions from Crain’s, a spokesman for Mr. Madigan now says the speaker blocked refinancing to prevent the Blagojevich administration from cashing in on contracts for bond work, such as underwriting and legal services. He provided Crain’s an unsigned memorandum of understanding, dated August 2007, in which McPier agreed to allow the state to review and approve all fees and “structuring decisions” related to bond refinancing.
Asked about the financial impact of delayed refinancing, the spokesman says the “consequences were outweighed by (opposition to) becoming part of the Blagojevich fundraising machine.”
Mr. Ochoa says he received the memo but never signed it. A McPier spokeswoman confirms that the agreement never took effect. No matter, Mr. Madigan’s spokesman says. McPier was “engaged in a scheme, and the speaker wasn’t going to allow that to happen.”
Mr. Madigan’s power is so sweeping that few will state publicly what many acknowledge privately. Mr. Gates, who took on the McPier chairmanship in October 2009 after building one of the nation’s largest real estate investment trusts, is now chairman of the Regional Transportation Authority. He says his testimony about the cost of refinancing delays speaks for itself.
State Sen. Kwame Raoul, a Chicago Democrat whose district includes McCormick Place, sponsored two failed efforts to refinance McPier’s debt. But he treads gingerly when asked what happened. “I never got a firm answer as to why the bills never advanced in the House,” he says. “I imagine there was distrust for the (McPier) leadership at the time.”
Mr. Saviano is one of the few to put it more directly. Mr. Ochoa, he says, committed a cardinal sin of patronage politics: He dumped one of Mr. Madigan’s “guys.”
The guy was Jack Johnson, who had worked as a legislative analyst on Mr. Madigan’s staff in the mid-1980s before signing on as McPier’s chief of external relations in 1989. In September 2007, Mr. Ochoa, just eight months on the job, fired him.
Mr. Johnson, now senior vice-president at the Chicago Convention and Tourism Bureau, declines to comment, and Mr. Madigan’s spokesman rejects the story. Management at McPier was “a national disaster,” he says, “looking for other people to blame for their mistakes.”
For his part, Mr. Ochoa says he was well aware of the rumors but chose to ignore them. “The speaker never called me to say he was upset with me,” he says. “I tried to meet with him several times but was never granted a meeting.”