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player ready...A deal to privatize the poorly run and languishing Port of Chicago has fallen through, the latest stalled effort by the Emanuel administration to privatize or commercialize public assets.
Denver-based Broe Group said Monday that it had “amicably suspended negotiations” with the Illinois International Port District, which oversees the port.
“We made excellent progress on many details,” Alex Yeros, managing director of The Broe Group, said in a statement. “However, we were unable to come to full agreement in our negotiations with the Port District during our 60-day exclusive negotiation period.”
Broe would not say why talks failed but left the door open to future negotiations.
Port District Chairman Michael Forde said in a statement that “Broe has asked for some critical changes in terms, and the port has determined not to extend the exclusivity period that Broe requested.”
Mayoral spokesman Tom Alexander declined to say what “critical changes” Broe was seeking.
“Mayor Emanuel believes the port is a valuable asset, and with strategic investment, it can drive economic growth in our city,” Alexander said. “However, he has made it clear that he will not repeat the mistakes of the past by supporting a deal that does not protect taxpayers and the competitive future of the port.”
Now the Port District will “negotiate with the other bidders who have submitted strong proposals,” Forde said. He did not identify those suitors.
Broe had proposed attracting $100 million in investment to the port during the first decade of the lease and attracting nearly $500 million in economic investment over the lifetime of the proposed 62-year contract. It also anticipated creating 1,000 full-time jobs, based on projected new users and cargo at the port.
Suspension of talks with Broe is the latest in a number of setbacks and delays in Mayor Rahm Emanuel’s push to privatize or commercialize public assets to pay for projects and programs without borrowing more money or raising taxes.
In September, Emanuel pulled the plug on the possibility of a long-term lease on Midway Airport after the number of bidders dropped to one.
The Chicago Infrastructure Trust, launched with great fanfare in March 2012, has been behind schedule in rolling out its first initiative to make city buildings and schools more energy-efficient.
A deal for digital billboards along area expressways hasn’t generated any of the $15 million that Emanuel is counting on to balance this year’s budget, and a street-level marketing program has yet to take off.
Emanuel held a rare Sunday news conference in July to announce the port privatization deal.
“Through smarter and efficient management of Chicago’s port, we will reinvigorate a critical asset for our city in the area of transportation and trade,” Emanuel said then in a statement. “We are taking what was an underutilized, run-down port and turning it into an engine of opportunity.”
The oddly timed weekend announcement came just days before the Illinois auditor general released a blistering 155-page report detailing instances of rampant mismanagement at the port, sloppy record-keeping, issuance of no-bid contracts for sizable purchases and generally poor oversight by the Illinois International Port District — problems mostly predating the Emanuel administration.
The district, which employs just six people, owns and operates the Port of Chicago as a landlord, leasing land, buildings and docks to private operators.
The report detailed numerous shortcomings, some going back decades, in how the port operated, from big-picture failings, such as having no long-term strategic plan for developing the port, to day-to-day operating failures, such as not having written leases with some tenants and many instances of poor or nonexistent record-keeping.
It said the district’s policies governing use of port facilities and services, including rates for dock and wharf fees, hadn’t been updated in 30 years, also noting the rates are the lowest among several comparable ports.
“Our review found pervasive management problems at the district,” the report said. “The district had few written policies and procedures, and those that did exist needed updating.”
Forde, the Port District’s relatively new chairman appointed by Emanuel, requested the audit, knowing it was likely to be critical. He was not involved with the port during the time of the audit period, in 2010 and 2011, except for the final two weeks. He took office in December 2011.
“As the audit points out, the previous port board favored patronage over performance and wasteful spending over profit,” an Emanuel spokeswoman said after the audit was released.
A different report, written last year by outside consultants, said the Port of Chicago is in desperate need of capital investment “to redesign facilities, effectively market its property and re-establish relationships with key stakeholders of the region’s freight transportation system.”
Experts have said that without a deep-pocketed partner willing to pour hundreds of millions of dollars into infrastructure and marketing, the Port of Chicago has little hope of reaching its potential.
The port faces tough competition from the port at Burns Harbor, Ind., which has flourished, in part because the steel industry remains active there. The Chicago port, which acts as a connector between the Great Lakes and the Gulf of Mexico, leases to tenants who move such commodities as scrap metal, lumber and grain.
The money-losing Port District climbed into the black last year for the first time since 2001, and it turned over management of its historically money-losing golf course to Kemper Sports at the start of this year.
The solution to the port’s woes was to bring in a private port manager, not so the Port District or city could make money directly from the port, but to develop it as an economic asset.
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The preliminary deal with Broe called for the company retaining 90 cents of every dollar in new revenue generated by port operations, with the remaining 10 cents going back to the Port District, a hybrid city-state entity. Broe also would pay the agency $1 million a year. The shared revenue would be used to pay down the district’s debt, around $30 million, and its pension liability, around $5 million.
Of the Port District’s nine members, Emanuel appoints five and Gov. Pat Quinn selects the other four, who are confirmed by the state Senate. Asked why the port deal fell through and the governor’s reaction, Quinn spokeswoman Brooke Anderson said the deal Emanuel announced with Broe was negotiated exclusively by the city.
“The state of Illinois has not been part of these discussions,” she said.
Broe said Monday that it will continue to operate the railroad at the port as it has for 20 years, adding that the port “holds great potential for a private operator and the city of Chicago, and we look forward to continuing our existing business there.”
Broe said it will also continue its partnership with Olive-Harvey City College to facilitate opportunities for city students to build skills in business logistics.
“We believe in the potential of the South Side of Chicago and will continue to proactively seek economic development investments in the area,” Yeros said.