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You got hosed: Taxpayers foot bill for Water Works Restaurant

When “It’s Our Money” started asking questions in March, officials insisted that the city doesn’t pay utility bills for Water Works Restaurant & Lounge, a private business owned by the politically-connected Michael Karloutsos.

When "It's Our Money" started asking questions in March, officials insisted that the city doesn't pay utility bills for Water Works Restaurant & Lounge, a private business owned by the politically-connected Michael Karloutsos.

The high-end eatery leases space in a historic city-owned building near the Philadelphia Museum of Art. It has crystal chandeliers, $39 dinner entrées, and an outdoor deck with a stunning view of the Schuylkill River.

Why would the fancy place need taxpayers to cover its bills? Robert Allen, Parks & Recreation's property and concessions management director, initially said the city wasn't and first deputy commissioner Mark Focht said he didn't "know of any facilities in Parks & Recreation's system where the city is paying utilities for for-profits."

But, after probing by "It's Our Money," the city has acknowledged that taxpayers have footed the hefty bill for Water Works Restaurant for the majority of its six-year existence and the Nutter administration has launched an investigation.

The city revealed that it has been covering the restaurant's utilities only after "It's Our Money" requested documents showing that Water Works paid its own bills. Allen said he discovered that the city had been mistakenly paying utilities for the past year following our inquiry.

"The problem is not that the restaurant is not paying," Allen wrote in an email. "We dropped the ball administratively and failed to issue the bills."

Allen said that the city paid for electricity, gas and water for Water Works from its opening in 2006 until 2010, and then again for about the past year. Electricity for that year alone cost taxpayers $70,000, according to mayoral spokesman Mark McDonald, and he estimates taxpayers have paid $225,000 on electricity since its opening.

The total paid on all utilities is likely in the hundreds of thousands of dollars. Allen said he couldn't provide an accurate number because Water Works shares its city-owned building with a Water Department museum, and the equipment needed to measure each entity's utilities wasn't installed until 2010.

Allen said the restaurant paid for its own utilities for some time between 2010 and 2011, although the city did not produce any documents to back up the claim, and Karloutsos doesn't remember being billed.

The Water Department and other utilities don't bill the business directly because the city has to sort out the amount used by each entity, Allen said. He added that the city would recoup the money from the past year.

The restaurant's concession agreement with the city, signed in 2005, states that the restaurant is responsible for the costs. Allen said the city paid the restaurant's utilities from its opening to sometime in 2010 because a submetering system, which measures utilities used by the separate entities in the building, wasn't installed.

The city won't recoup the money from those years because "there was no way to measure utility usages at the time," Allen said.

Citing the investigation, McDonald couldn't say why the equipment wasn't installed for several years. The restaurant opened before Nutter took office.

"In the wake of the inquiry from 'It's Our Money' regarding the Water Works Restaurant and its utility bills, the administration is investigating the issues that have been raised," he said. "Because we're investigating this … I'm not able to discuss any of the details."

Water Works Restaurant has been the site of political fund-raisers for Nutter and Sen. Bob Casey, as well as a primary party for then-candidate Barack Obama. Karloutsos also ran the 2002 Illinois gubernatorial campaign for Paul Vallas, former Philadelphia schools CEO, and was later a consultant for the district.

Karloutsos said Water Works would pay for its utilities as soon as it received a bill. He vehemently denied that his connections had anything to do with the city picking up the tab.

"There is no inside job. There is no preferential treatment," he said. "I don't think any taxpayer in Philadelphia would pay an invoice that they haven't seen."

Karloutsos also stressed that his restaurant helped to restore a national historic landmark, which was once in such disrepair that people wouldn't walk by because "they would be afraid of what would be going on there."

Holly Otterbein writes for It's Our Money, a joint project of the Daily News and WHYY funded by the William Penn Foundation, that works to shed light on where your tax dollars are going.