Issue #134, March/April 2004
Public Dollars and Private Interests
How skid row fought back against Chicago's private developers
By Tiffany A. Meier and D. Bradford Hunt
Until the mid-1960s, Chicago’s West Madison skid row was home to mostly low-income single men and women living in over 2,800 units of often badly run down single-room occupancy (SRO) hotels. Scattered small businesses and retail establishments rounded out a poor, but still intact, neighborhood. That mattered little to city planners who, rather than work with the community, mapped out its wholesale clearance and designated a six-block urban renewal area bounded by the Kennedy Expressway, Washington, Canal and Monroe Streets.
For 10 years, the site languished as various schemes fell through. Businesses were closed, SRO residents were evicted and buildings were demolished, leaving a blighted landscape for most of the 1970s. Finally, in 1979, the city embraced the idea of Presidential Towers: the vision of three politically connected developers Daniel J. Shannon, James P. "Jack" McHugh and Daniel E. Levin. Each had close ties to City Hall, the city’s unions and Mayor Jane Byrne.
The developers designed Presidential Towers as a $233 million self-contained community, hermetically sealed from what remained of skid row. The complex covers two city blocks with four identical 49-story skyscrapers set on a giant base of indoor retail shops, including a grocery store, a health club, a McDonald’s restaurant, enclosed parking and other conveniences. With 2,463 upscale rental apartments, the project is the largest privately owned residential development in Chicago. Guards man the single entrance to the complex at all hours. The architecture, as well as the high security presence, signaled to outsiders that the stores, ostensibly open to anyone, were in fact reserved only for Presidential Towers’ residents. The Wall Street Journal, surveying the scene in 1986, labeled the project "Yuppie Heaven."
But skid row fought back. Presidential Towers became a lightning rod that spurred an innovative campaign by the Chicago Coalition for the Homeless and the areas former residents. The story of their struggles suggests both the possibilities and limits of community action for affordable housing, especially for the homeless.
Massive public subsidies small and large, obvious and hidden, city and federal were used to build Presidential Towers. In 1980 the city sold the site to the developers for $30 per square foot, the price it had paid for the land back in 1968. That same year, the city authorized $180 million in federally tax-exempt city revenue bonds to be used for construction costs (the bonds would not be issued until 1983), at a loss to the federal government of an estimated $50-$60 million in tax revenue. The city also agreed to loan the developers $5.8 million in 1980 at the extremely low interest rate of 2 percent.
Action at the federal level was equally generous. To back the bonds, the FHA granted the developers a $159 million federally insured mortgage for the project, then the largest ever issued for a private development. House Ways and Means Committee Chairman Dan Rostenkowski of Chicago sponsored an accelerated depreciation tax break on certain types of real estate in 1982 that allowed the developers and the other 590 private investors in the deal to save millions on their taxes. In all, the various subsidies amounted to about $67 million in public commitment to Presidential Towers.
This substantial "pork" might not have generated public outcry if not for one final benefit an exemption from low-income housing requirements for the project. In 1980 Congress enacted the Ullman Amendment requiring that housing developments financed with tax-exempt bonds set aside at least 20 percent of their units for low- and moderate-income families. House Ways and Means Committee Chairman Al Ullman (Rostenkowki’s predecessor) was concerned that tax-exempt bonds were being used to build luxury apartment buildings. But Presidential Towers’ developers saw the 20 percent provision as onerous and had the clout to win an exemption. McHugh and Shannon convinced Rostenkowski to write into law an exemption from the Ullman Amendment, sparing Presidential Towers and five other projects from setting aside any units for low-income housing. Shannon, McHugh and Levin claimed, that since they were already in the planning stages in 1980, they should be grandfathered into the pre-1980 law, which said nothing about low-income housing set-asides. This argument ignored the fact that financing was not completed until 1983.
But the discussion of clout, pork and legislative exemptions obscured the real issue at stake in Presidential Towers. Was it good public policy to spend substantial federal and local resources to fund a privately owned redevelopment project for young professionals while avoiding any responsibility for low-income housing or for displaced skid row residents?
The first public voices against the deals recognized this fundamental question. Alderman Lawrence Bloom called the project "another example of how the city scrambles to find funds for its big developer friends while the neighborhoods are starving for money to rehabilitate their housing stock." During his campaign for mayor in 1983, Harold Washington held a press conference on the Presidential Towers’ site and derided it as a "symbol of what is wrong with Chicago." Eleanor Elam, a researcher for the League of Women Voters of Chicago, argued that Presidential Towers "is subsidized housing for people who don’t need subsidies." State Representative Douglas Huff led a march of African-Americans and Latinos in September 1983 to stop construction of the project and was arrested along with six other protestors. Huff wanted more construction jobs for minorities and space for low-income residents in the new towers.
But these protests had little effect. Instead, achieving a measure of social justice at Presidential Towers would require a grueling 10-year campaign by the Chicago Coalition for the Homeless. The Coalition, founded in 1980 by Les Brown and led by John Donahue after 1990, entered the fray meekly at first, with a small campaign to save the area’s remaining SROs. In June 1982 the city posted a 21-day demolition notice on the Starr Hotel and offered only $10 to residents as a "relocation fee." The Coalition worked with legal aid lawyers to file suit, eventually settling in 1984 for $437,000, with each Starr Hotel resident receiving a maximum of $4,225. Still, the Coalition’s efforts in defending run-down SROs could not generate much enthusiasm. But when Presidential Towers opened in 1985, the Coalition had a rallying point.
Beginning in 1986 and continuing through the early 1990s, the Coalition organized a series of public demonstrations that escalated in pressure and improved in tactics over time. An early protest involved a march at Presidential Towers and the Major Hotel, the last SRO in the area, with a small number of homeless people wearing signs proclaiming, "From poverty to fair housing" and "Fair housing makes a difference." By December 1986 the Coalition had grown bolder, leading 100 protesters into the lobby of Presidential Towers and using bullhorns to insist that Levin agree to house the Major Hotel residents there. Police broke up the demonstration but not before city newspapers reported on the demand.
Meanwhile, Presidential Towers struggled to attract renters. The owners fell three months behind on their mortgage payment. A soft rental market, coupled with continued protests, helped sink plans to expand the development in 1989. Nonetheless, the Major Hotel was demolished and, despite Levin’s promises, no replacement housing was forthcoming. Instead, each resident received $225 in "relocation expenses."
Presidential Towers was officially declared in default on its $159 million FHA loan in November 1990, requiring FHA to pay its largest insurance claim ever. The FHA and HUD weighed two options. One was to foreclose and sell President Towers at an estimated loss of at least $40 million to the taxpayers. A second option was to refinance the project (with some loss to the federal government), let Levin and his partners keep control and impose new conditions. HUD Secretary Jack Kemp chose the second path but it would take four years to reach a final deal.
During this period, the Coalition escalated its pressure on both HUD and Presidential Towers. First, the Coalition blocked an effort by the developers to get even more taxpayer subsidies in the form of tax-exempt state bonds through the State of Illinois Development Finance Agency (IDFA) again, without any concession to low-income families. The Coalition and its new ally, Homeless on the Move for Equality (HOME), led 70 homeless people and activists to the IDFA Board Meeting in December 1991 to demand that Presidential Towers set aside 20 percent of its units for the poor. The IDFA was sympathetic, and the developers pulled their request for state bonds.
In February 1992, 300 protestors, mainly women and children, carted sofas, lamps and chairs to the main entrance of Presidential Towers as part of a "move-in" protest. Donahue noted that nearly 200 apartments were then vacant and prospective tenants were on hand. They delivered 82 rental applications to the building’s management, all of which were subsequently denied for "insufficient income."
Presidential Towers had become the Coalition’s "signature" campaign and the focal point for building a broad base of support. The Coalition partnered with allied organizations such as the Rehab Network, the Statewide Housing Action Coalition and the Interfaith Council and attracted positive media attention and the support of progressive politicians. Slowly but deliberately, the Coalition was developing a powerful voice for its goal of setting aside 20 percent of apartments for low-income families and the homeless.
In March of 1992 the Coalition, along with ADAPT, a disabilities rights group, cornered Rostenkowski at a fundraiser in Chicago and demanded a meeting. When the Congressman dodged the scheduled meeting, Coalition members flew to Washington and protested at his offices there. Back at Presidential Towers, the Coalition held a candlelight vigil with 100 homeless people, advocates and religious leaders. In another protest, nearly 100 homeless women and children entered the complex to eat at McDonald’s and march around the lobby. During the holidays, the Coalition led a group of carolers to the Towers. In one of its more audacious moves, the Coalition again commandeered the lobby and set up an old-fashioned "Town Hall meeting" to re-enact the political deals surrounding the development, a protest carried live on Chicago’s local public radio station, WBEZ. Coalition members played the roles of Levin, Byrne and Rostenkowski. Surprised security guards called the police, but not before the "guerilla theater" tactics generated publicity for their cause.
These creative protests also empowered many of the low-income and homeless individuals who participated in them. Della Mitchell and Cathy Osberger, Coalition staff members, recruited protesters at local homeless shelters, then trained them in community protest, including crafting a message, handling the media and making their voices heard. Several leaders emerged, including Desiree Maurer, who offered eloquent first-hand testimony at public hearings and events. With the help of Mitchell, a group of homeless women formed a nonprofit housing development corporation called Brand New Beginnings, Inc., and renovated their own building to house 24 formerly homeless families.
The managers of Presidential Towers challenged the protests, asserting in a letter to residents that, while the complex was being "targeted" as a "symbol" by the Coalition, its owners "firmly support and have worked to help solve the problems of the homeless." The Coalition responded with a letter of its own to residents, explaining that Presidential Towers displaced over 2,000 units of low-income housing and that the complex is "the most heavily subsidized privately owned housing development in the country that does not accept low-income residents."
The demonstrations and a flurry of letters from the Coalition to HUD put significant pressure on Secretary Kemp, who faced further protests when he visited Chicago. Donahue led a Coalition group to a Kemp speech at a local hotel where they demanded a meeting. Kemp eventually sat down with Donahue, but Kemp sought a middle ground. He was not willing to let Shannon, Levin and McHugh off lightly in any federal "workout" of their defaulted loan, nor did he subscribe to the Coalition’s demands for 20 percent of units. Instead, he asked developers to come up with $12.8 million of their own money to reach a deal. More importantly, he conceded an important principle to the Coalition by demanding 5 percent of the units for low-income housing. But Kemp had only limited leverage since the developers knew that foreclosing and selling the project was the least desirable option for HUD.
Negotiations stalled until the spring of 1994, when Henry Cisneros took office as HUD secretary. Discussions centered on what percentage of "very low-income" residents, possibly even the homeless, would be allowed to move in. In April 1994 both sides agreed that 165 units in Presidential Towers would be set aside for low-income groups. Fourteen apartments would be reserved for those whose income was 50 percent or less of area median income; 56 apartments for those who were 65 percent or less than the median; and 55 apartments for those who were 80 percent or less than the median. In all, low-income housing would now constitute 7 percent of Presidential Towers, not the 20 percent envisioned under the Ullman Amendment. Still, the Coalition won an additional commitment from HUD for 1,014 additional low-income units to be built elsewhere around the city with federal funds. The Coalition’s pressure and campaign had extracted concessions from both HUD and the developers, and it claimed a victory for affordable housing and social justice.
In 1995 low-income residents began moving into Presidential Towers under the terms of the HUD agreement. More than 1,000 applications were made for the 165 slots. Managers applied our normal resident standards to screen applicants, rejecting most for poor credit history. Only those working or with access to Social Security or disability were accepted, and families dependent on welfare did not make the cut. Progress was slow and by the spring of 1995, only 25 applicants all women had moved in. Because Presidential Towers included only a handful of two-bedroom apartments, women with more than one child had little chance of being accepted.
Over the years the agreement to house low-income families has eroded, while the value of Presidential Towers has soared. The projects manager admitted that only 94 low-income families were still living in the complex in 2002, far less than the 165 negotiated eight years earlier. Levin says that Presidential Towers is no longer bound by the agreement because a sale and refinancing have allowed it to pay off its original FHA-guaranteed mortgage. As low-income tenants have left, they have not been replaced, he says.
Nonetheless, Presidential Towers proved to be a catalyst for the Chicago Coalition for the Homeless. Its 10-year effort gave the Coalition the passion and energy to sustain its campaign and achieve gains elsewhere. In recent years the Coalition has steadfastly pushed for setting aside a portion of new housing in the city for low-income families. Mayor Richard M. Daley rejected these appeals in 2003 as too threatening to developers, despite the admitted success of the experiment at Presidential Towers. But the Coalitions strength resulted in a remarkable January 2003 agreement with the city to end homelessness in Chicago by 2013.
Tragically, John Donahue, the tireless public voice of the Coalition, will not be alive to pursue this dream. He died of lung cancer on November 18, 2003, at age 64. The former Catholic priest was profiled in Studs Terkels most recent oral history Hope Dies Last: Keeping the Faith in Troubled Times. Donahue told Terkel, "Some people who are better off have the luxury of losing hope. But poor people never lose hope. They can’t afford to."
Chicago Coalition for the Homeless