City spent $3.5M on failed Midway privatization deal
BY FRAN SPIELMAN City Hall Reporter September 24, 2013 10:06PM
Updated: October 26, 2013 6:29AM
Privatizing Midway Airport could have left Chicago with $500 million — even after debt was retired — to shore up city pensions and build infrastructure projects. Instead, it ended up costing Chicago taxpayers $3.5 million.
That’s how much money Mayor Rahm Emanuel spent on a clout-heavy team of advisers, only to pull the plug after one of two bidding teams left the runway.
The $3.5 million in fees bankrolled two levels of expertise: attorneys, financial advisers, technical and airport consultants for the city, and financial advisers only for the Midway Advisory Panel.
The largest chunk — $1.1 million — went to four clout-heavy law firms, most of them frequent passengers on the gravy train of pinstripe patronage tied to city bond deals.
Records provided to the Chicago Sun-Times in response to a Freedom of Information request show the fees were divided between Mayer Brown LLP ($571,393); Cotillas and Associates ($285,721); Pugh, Jones & Johnson ($134,178), and Sanchez Daniels & Hoffman LLP ($118,354).
Mayer Brown partner John Schmidt — former Mayor Richard M. Daley’s first chief of staff and a former Democratic candidate for attorney general — advised Daley on the $2.5 billion Midway deal that collapsed for lack of financing and played a similar lead role on Emanuel’s failed attempt to revive it. Schmidt also advised the city on the 99-year, $1.83 billion deal that privatized the Chicago Skyway.
Another $1.05 million went to technical and airport consultants that prepared a voluminous report on ways the bidding teams could maximize revenues at Midway and streamline operations.
They include perennial airport consultant Ricondo & Associates ($655,461); Avia Solutions ($307,771); Tetra Tech ($85,170), and Connico ($7,777).
Ricondo and Avia “prepared projections of all revenues — aeronautical, commercial and parking — forecast flight operations and airport capacity and certified environmental assessments,” the city said. Their report gave the mayor a “robust, independent assessment” of airport finances that “did not rely solely” on the bidders, officials said.
The city also spent $875,517 on consultants from Deloitte ($466,500); Intralinks ($241,750), and American Appraisal ($167,267). Yet another $113,500 went to financial advisers, all but $3,500 of it to Credit Suisse Securities.
The Midway Advisory Panel racked up $350,000 in fees equally divided between KPMG and Loop Capital.
Jim Reynolds, CEO of Loop Capital Markets, is one of Chicago’s most prominent African-American business leaders. Reynolds is a former Chicago Housing Authority chairman and current member of the Illinois Sports Facilities Authority who is co-chairing Emanuel’s drive to raise $50 million in private sector funds to save at-risk kids.
All of that high-powered advice — and another $10 million spent by the two bidding teams — turned out to be for naught.
Emanuel grounded the Midway deal after the bidding team that included Industry Funds Management of Australia and Manchester Airports Group dropped out. They had crunched the numbers against the mayor’s demand for a 39-year deal with price controls and a sliding scale of city profit-sharing and determined they could not make it work.
The only bidding team left standing — a partnership between Spain’s Ferrovial and Macquarie Group that leased the Skyway — reiterated its intention to forge ahead with a bid “at a level somewhere above $2 billion in present value and $4 billion over 39 years,” sources said.
But Emanuel was not comfortable moving forward with one bidder — not when he had promised a competitive process that guaranteed the best possible deal for taxpayers who got the short end of the stick on the parking meter deal.
On Tuesday, City Hall defended its decision to spend $3.5 million for high-powered advice on a deal that never got off the ground.
“It would have been irresponsible to Chicago taxpayers not to explore the possibility of leasing Midway, even though the mayor ultimately decided he would not after it became apparent that the standards for the project could not be met,” Kelley Quinn, a spokesperson for the city’s Office of Budget and Management, wrote in an email.
“As a result of this endeavor, the city now has a clear set of principles and process that will guide any future public-private partnerships.”
Ald. Pat O’Connor (40th), the mayor’s City Council floor leader, categorically denied that the $3.5 million went to waste. It was built into the city’s 2013 corporate budget in anticipation of a Midway deal, sources said.
“When the stakes are that high, you need to engage smart, informed decision-makers to help you. It’s money that helped protect taxpayers. It was money well spent,” O’Connor said.
“It only underscores the point that the mayor really felt this deal wasn’t a good thing for the city. With that expenditure out there, he was still willing to walk away from it.”
Aviation Committee Chairman Michael Zalewski (23rd), a member of the Midway Advisory Panel whose ward includes Midway, said Emanuel was wise to explore the Midway deal given the “glaring need in the near future” to shore up city pensions and rebuild aging infrastructure.
Civic Federation President Laurence Msall agreed, adding, “We would much rather the city spend $3.5 million to improve its understanding of the value of Midway — even if they didn’t go forward with the project — than risk selling a multibillion dollar asset without knowing its full value and potential value.”