Emanuel close to reviving Midway privatization — with key changes
BY FRAN SPIELMAN City Hall Reporter email@example.com December 1, 2012 9:34AM
Midway Airport. File Photo
Updated: January 3, 2013 6:33AM
Facing a Dec. 31 federal deadline, Mayor Rahm Emanuel has all but decided to test the privatization market for Midway Airport, but do it in a way dramatically different from the 99-year, $2.5 billion deal that collapsed for lack of financing, according to City Hall sources.
Former Mayor Richard M. Daley wanted to turn the landlocked Southwest Side airport over to a private operator for 99 years. Emanuel want a much shorter lease, sources said.
Daley would have allowed Midway Investment and Development Co. LLC to pocket revenues from parking, concessions, and passenger ticket taxes in exchange for the massive up-front fee.
Emanuel wants the city to maintain an ownership interest to protect consumers from a private operator hell-bent on squeezing more revenue out of Midway with more air traffic and concession space and by charging consumers higher prices for food, retail and parking.
Daley rushed his Midway deal through the City Council — so fast that aldermen beefed that it was “jammed down our throats.”
Emanuel would give them more time to consider a Midway deal and only if the market is right.
“The mayor is exploring all options on behalf of taxpayers and has made it clear that he will only consider a request for proposals if certain conditions and criteria are met, including ownership remaining with taxpayers and a travelers’ bill of rights,” the mayor’s office said in a statement Saturday.
“If an RFP is explored, it will only be to determine what value could be earned for taxpayers and would not lock the city into a deal. The mayor has made very clear that he believes the parking meter deal was bad for taxpayers and the city, and has instructed his staff to ensure the Midway RFP mandates significant changes from the meter deal.”
The 2009 collapse of the Midway deal left Chicago taxpayers with a $126 million down payment but no apparent way to shore up underfunded city pensions that threaten to become a financial albatross for future generations of property owners.
Emanuel has promised to make a decision on whether to revive the Midway privatization deal by Dec. 31 after asking the Federal Aviation Administration for a series of extensions.
When Daley left office, he said the 99-year Midway lease was “ready to go” but that he would leave the final decision to his successor.
Determined to avoid the political furor that followed Daley’s decision to privatize Chicago parking meters, Emanuel campaigned on a promise to permanently ground the Midway deal. The mayor emphatically repeated that pledge earlier this year.
But sources said the city’s pension crisis and the recent privatization of Luis Munoz Marin International Airport near San Juan, Puerto Rico, have all but convinced the mayor that it’s time to test the market once again so long as the deal is structured in a way that guarantees greater protection for taxpayers.
Civic Federation President Laurence Msall, who has urged the city to revive the Midway deal, was pleased, but not surprised about the decision to make another test flight with the city in the control tower.
“The [shorter] length of contract and other demands by the city, including maintaining an ownership interest, will likely effect the price the city is able to attract. But any loss should be offset by the benefits to making sure that mistakes of past privatization efforts are not repeated,” Msall said.
“What went wrong with the parking meter privatization was it was not fully vetted. Nor was there enough time for the public— let alone City Council members — to explore what was proposed. It was rushed in as a take-it-or-leave-it in order to balance the city budget. It’s unclear whether maintaining an ownership interest or just limiting the term is the best way to maintain control or guarantee against unexpected financial windfalls. We won’t know that until we see the proposals.”
Daley had planned to use $1.15 billion of the city’s $2.5 billion payday to retire Midway Airport debt.
The deal also included: $225 million for police and fire protection; $126 million for soundproofing and Midway capital projects already underway and $19 million for transaction fees and legal expenses.
State law requires 90 percent of the $1 billion profit to be used to bankroll city infrastructure projects and shore up under-funded city employee pension funds.
That left $100 million to be spent at the city’s discretion.
Msall pointed to a state law that will require the city to make a $700 million contribution just to stabilize under-funded police and fire pension funds.
An expiring cost-sharing agreement on retiree health care represents yet another unfunded, $800 million liability for Chicago taxpayers.
“It’s reasonable for the city to be going out to bid to see what they could get. The city has enormous unmet infrastructure and other needs, including under-funded pensions, that a [Midway] privatization contract could assist in addressing,” he said.
“It will not be a panacea. It will not generate enough revenue in and of itself to solve the infrastructure and debt challenges. But, it could be an important part of a combined pension reform and re-investment in city infrastructure.”
The mayor’s decision to test the market should come as no surprise to Chicago aldermen.
When the City Council’s Finance Committee signed off on Emanuel’s plan to refinance $1.5 billion in Midway Airport debt in early May, Chief Financial Officer Lois Scott gave aldermen a strong sign that the Midway privatization deal may yet be cleared for take-off.
“We don’t want to turn off anything that could potentially produce a benefit for our taxpayers,” she said then.
“We’re evaluating whether Midway makes sense for us to pursue. We’ve been directed to study it. Right now, that is as far as we’ve gone. … It’s not mine to decide. It’s really the decision of City Council and the public as to what the right approach will be.
“We’re gonna give them information if we think there’s anything there.”
More recently, aldermen signed off on a new 15-year Midway use agreement. It would require airlines to make a minimum of $1.1 billion in capital improvements over the next 15 years—with the prospect of sharing $1.5 million in annual airport revenues or $22.5 million over the life of the lease.
The new, 15-year airline use agreement would not preclude a privatization deal. It would simply allow airlines to save money with a portion of that revenue returned to the city for use on capital projects if Midway operations come in under budget, officials said.