Rosenthal: Chicago port recovery would help residents stomach privatization efforts

With a low bar set for privatization success for the Illinois International Port District, Chicagoans may become less gun-shy about other potential deals

Perhaps the only benefit of the lack of funds to maintain the long-neglected Illinois International Port District is the weathered sign on its grain elevators that should have been painted over long ago but obviously hasn't.

A welcome to visitors of the Southeast Side facility, which bled cash for years unsupervised, it is still branded with the names of its errant shepherds from an earlier era: Illinois Gov. Rod Blagojevich, Chicago Mayor Richard M. Daley and Port District Chairman William J. Braasch. Think of it as a bounced check on the wall behind the convenience store cashier.

With the recent release of a damning review of port district operations from the state's auditor and the announcement of a plan to privatize management of the ports, the sign is a flaking but vivid reminder of what happens when attention isn't paid. Attention, after all, is cheap. Debts and financial obligations are another matter.

Mayor Rahm Emanuel's budget analysts say Chicago has to close a projected $339 million budget deficit next year. Left unaddressed and without pension system changes, the warning is the city's shortfall will swell to $1 billion in 2015. So there will be a push for cuts, reforms, better cash management. With the shock waves of Detroit's bankruptcy still echoing, there also will be mounting pressure to sell or lease public assets to private interests, or partner with them on management and operation.

"A lot of these kinds of policies emerge out of crises," said Clifford Winston, a senior fellow at the Brookings Institution whose research is focused on government performance and microeconomic policy. "When your city's gone bust, you realize you can't finance transit companies that run deficits, ports that run deficits, and that you have to sell this stuff off. … You need some kind of shock if you want to overcome parochial interest and start thinking outside of the box,"

If the port privatization deal with a Colorado outfit sailed below your radar — or would it be sonar? — the offers to privatize Midway Airport now being entertained surely won't. After that, who knows? Could the CTA or Metra really be worse off with anyone else in charge?

Privatization makes a good deal of sense sometimes. No, really, it does.

This admittedly is a tough sell in a city where drivers will continue to be reminded what happens when a privatization deal is botched every time they look to park their cars for the next 70 years. Think about it: Teens just now getting learner's permits will be muttering under their breath when they're in their 80s about how that deal sold out the city and its citizens.

"When initiatives get done badly, it gives privatization a bad name," Winston said. "It's like with California, with its electricity generation deregulation: It was done so badly that it set back the movement for electricity deregulation for decades. It was a good policy. It's just the way they did it was so screwed up. That's the kind of thing you have to avoid."

Chicago's awful parking meter deal exemplifies what happens when these deals are little more than a desperate grab for quick cash and there's zero leverage. But equitable arrangements are hard to negotiate under the best of conditions. Like breaking into one's retirement account, it's a mentality that almost always proves costly in the long run.

But apostles of privatization such as Winston maintain it is possible to free up cash and perhaps even generate new revenue in ways that serve everyone better. A private operator has incentive to more aggressively make changes and increase efficiency not necessarily shared by a public agency calcified by political allegiances and other factors.

"There's no incentive and there's no competition driving it," Winston said. "Look at the players involved with the government and you're surrounded by status-quo bias … whereas a private company will say: 'This will increase our profit. This will make us more efficient. Let's do it.'"

Chicago's port fiasco, as documented by the Illinois auditor general, sets the bar so low for improvement under private management by the Broe Group that it's likely an easy win for privatization proponents. There was little accountability and even less paperwork.

The audit, which focused on 2010 and 2011, found few written policies and procedures, and those that did exist were overdue for re-examination. Dockage and wharfage rates, for example, had gone unchanged since April 1983, the month Harold Washington succeeded Jane Byrne as Chicago's mayor.

The district also couldn't be bothered to update its comprehensive development plan since Ronald Reagan's first term in the White House. Its economic development committee, marketing committee and legislation committee never met in years reviewed. Financial data provided to board members for review at meetings reportedly did not include the district's payroll information, electronic fund transfers or bank statements. Board-appointed consultants were paid more than $1.4 million over the two-year stretch, yet the district couldn't provide signed contracts or agreements detailing the rate of pay or what it got for its money.

Meanwhile, the district was unable to come up with a copy of its 2010 audited financial statement to Illinois' Capital Development Board, a requisite for a loan agreement with the state of Illinois. And speaking of a state loan requirement the district hasn't met: It turned out the district had yet to make a payment on a 1980 loan of nearly $15 million.

We'll save for another time a discussion of the district's golf courses and the two golf pros who were provided take-home vehicles. Suffice it to say the report is worth a read, far more interesting than the port district board's meeting minutes.

"Putting it under private operations, bringing in a partner with deep pockets, will allow the port to realize its potential, which it would not be able to do on its own, given the financial position that it's in," said Michael Forde, who took over as board chairman after the period detailed in the audit.

Forde returned a call on behalf of Kathleen Dart, the board secretary, whom I had sought to contact if only because she had a familiar Chicago name.

"Chicago's a funny place," Winston said. "It is able to do some things collectively very well. But it has a long history involving a variety of powerful interests and quote 'ways' of doing things that make a move from a current grossly inefficient system to a highly efficient private system very difficult. The elephant in the room is Chicago culture, and that's going to have to change. That changes with experience and, as long as they're doing this stuff, hopefully we'll get some positive results after the mistakes that were made."

Attention this time will be paid. The bills better be, too.

Twitter @phil_rosenthal

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