CHICAGO — Chicago Mayor Rahm Emanuel’s plan to privatize the Illinois International Port District in a deal aimed at revitalizing the long-troubled agency suffered a setback this week after the city and its lead bidder halted talks on a final lease deal.
Emanuel, Gov. Pat Quinn, and Emanuel’s hand-picked district board chairman Michael Forde who took on the post in 2011 announced a tentative lease agreement in July handing the district’s operations over to Broe Group.
The firm was among the bidders who participated in a request for proposals process earlier this year. Under the preliminary terms, the district which owns the Port of Chicago was expected to lease most of its facilities Broe, a Colorado-based international investment and management company.
A final master lease agreement had remained elusive and negotiations were suspended this week. “The Broe Group presented a proposal that had significant economic benefits. We made excellent progress on many details. However, we were unable to come to full agreement in our negotiations with the Port District during our 60-day exclusive negotiation period,” the firm said in a statement.
Forde, a partner at Mayer Brown LLP, said in statement: “Broe has asked for some critical changes in terms, and the port has determined not to extend the exclusivity period that Broe requested,” he said. “The port is a valuable asset and the board’s main goal is to protect and enhance it for the future.”
The district now intends to negotiate with other bidders deemed to have strong proposals. “We are open to all offers that meet the board’s stated objective in this competitive process,” Forde said.
Under the preliminary deal with Broe, the company and “other parties” were to have invested up to $500 million in infrastructure over the next decade. Emanuel had touted the proposed deal for the estimated 1,000 jobs it was expected to create, a key goal for the city when it launched the selection process for a private operator/investor. The district would retain ownership of its facilities and receive an annual payment of $1 million and a portion of annual revenues.
The district’s operations have been on the mend with its books returning to the black in 2012 following a decade of losses. The port was formed in 1951 by the General Assembly to promote and manage the shipment of cargoes and commerce through Chicago ports and to promote the development of facilities to support port use.
The district in 2003 issued $15 million of variable rate revenue refunding bonds to refinance other loans that financed a clubhouse at a district owned golf course. The bonds mature in 2033. In 2001, the district issued $8.5 million of port revenue bonds so that a private-sector entity could acquire and construct a bulk storage facility on land leased by the district.
The stalled lease marks the second setback over the last month in Emanuel’s push to tap lure private investment to benefit the city. He halted efforts to privatize Midway International Airport last month after the bidding field was narrowed down to one. Also, the Chicago Infrastructure Trust Emanuel established after his 2011 election to attract private investors as an alternative financing vehicle for some infrastructure projects has been slow to undertake its first financing.
“Mayor Emanuel believes the port is a valuable asset and with strategic investment it can drive economic growth in our City. 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,” mayoral spokesman Tom Alexander said in a statement.
A state audit published over the summer found “pervasive” management problems and troubling fiscal operations at the district in a review that covered 2010 and 2011. The current leadership sought the audit and it covers a period that mostly predates reforms implemented since 2012. The review, however, does suggest the changes to date don’t solve all the district’s woes and that privatization plans don’t eclipse the need for vigilant oversight.
Challenges facing the district include repayment of a $15 million state loan from 1980 and escalating payment provisions on a $15 million variable-rate bond sale from 2003.