Jacksonville officials and developers of the largest private real estate project in downtown history are engaged in a high-stakes battle that could change how the city doles out incentives for economic development.

At issue is whether TriLegacy Group, developers of The Shipyards, misused $36.5 million in city funds earmarked for a public park and an extension of the Northbank riverwalk. While city officials insist all of the money should have been spent on public improvements, financial records show TriLegacy used millions of tax dollars to make mortgage payments, pay salaries and market the development.

Located on the banks of the St. Johns River, The Shipyards has been called the keystone in a decades-long effort to revitalize Jacksonville's downtown. The 10-year, $860-million project includes office and residential towers, a marina and a large retail shopping area.

Shortly after the TriLegacy controversy came to light, Mayor John Peyton announced a 60-day moratorium on taxpayer incentives to developers. Peyton asked the Jacksonville Economic Development Commission -- the 8-year-old, quasi-independent authority that doles out incentives -- to "step back and review (its) successes and failures." The mayor also ordered the JEDC to cut its payroll and find other ways to save money.

While officials say the moves are unrelated, the TriLegacy controversy has unnerved City Hall. Until both sides agreed to a self-imposed gag order, city lawyers and TriLegacy representatives traded heated charges. While TriLegacy lawyers claimed the developer had broad leeway to spend the $36.5 million in incentives as it saw fit (as long as the public projects are eventually completed), city general counsel Rick Mullaney insisted any money spent on private aspects of The Shipyards violated the language and spirit of the incentives agreement.

Perhaps more troubling were bank statements that the developer provided to the city that showed TriLegacy had few financial reserves and was routinely late in paying some contractors. Published reports detailed how TriLegacy had just $10,000 in its bank account before the city wired $17 million on March 31, 2003. TriLegacy spent $15 million of that money within five days.

The JEDC has been a lightening rod since Mayor John Delaney combined several city economic and business-related departments to form the agency. Delaney sold the consolidation as a way to spur job growth and business development -- particularly in the city's poorer neighborhoods.

The commission has been criticized for giving tens of millions of dollars in cash and tax breaks to some of the city's wealthiest corporations, including millions for projects in the already prosperous Southside. The JEDC has also had a difficult time quantifying the impact its incentives have had on economic growth and employment.