Midway Airport: Valuable Lessons for Future Public-Private Partnerships
By Chrissy Mancini Nichols
Sep 13, 2013
This post first appeared at metroplanning.org
Although Mayor Emanuel decided not to move forward with the privatization of Midway Airport because the deal did not meet his core principle of a competitive bidding process, significant lessons learned leading up to that decision are valuable for the processes of future public-private partnerships.
When Mayor Emanuel began to consider leasing Midway Airport, he immediately decided on four core principles, based on past experiences, that would drive any deal. Instead of a long-term lease, like the 75-year term of the parking meter deal, a Midway Airport lease would be capped at 40 years. Any deal would include profit sharing between the private investors and the City to ensure an ongoing, open partnership and continual benefits to taxpayers from the future success of the airport. The Mayor also required a competitive bidding process, with at least two bidders, and a 30-day review by City Council. All profits would be invested in infrastructure, not used as a one-time budget plug, as with the parking meter deal.
Why Consider Leasing Midway Airport
Federal law mandates that every dollar generated at U.S. airports from airline fees, retail leases, etc., be spent within airport boundaries. The Federal Aviation Administration (FAA) pilot program, which Midway would have been privatized under, waved that requirement. That opportunity prompted the City to explore privatization to find out if it was possible to derive future value generated at Midway Airport to fund infrastructure projects throughout the City.
Furthermore,the precedent exists: It is fairly typical that an airport outside of the U.S. be managed by a private operator, with most of the 450 privately operated airports across the world continually ranking highly in customer satisfaction polls. So while Midway is one of the most efficiently run airports in the U.S., the FAA pilot program allowed the City to see if there was an opportunity to improve service via privatization and squeeze more value.
The Midway Advisory Panel
At the outset, Mayor Emanuel established the Midway Advisory Panel, an independent group comprised of civic, labor, public and private experts, which worked parallel to the City process to ensure any deal protected residents of Chicago and users of Midway. The Metropolitan Planning Council’s (MPC) Peter Skosey chaired the Panel. Members included Alderman Carrie Austin (34th Ward) and Michael Zalewski (23rd Ward); Frank Beal, Metropolis Strategies; James Connolly, Chicago Laborers District Council (and MAP Vice-Chair); Martin Nesbitt, The Vistria Group; andMartin Oberman, Attorney and former Alderman. MPC’s Chrissy Mancini Nichols staffed the Midway Advisory Panel and its independent advisors, KPMG and Loop Capital, added another layer of protection to keep the public’s interest at the forefront.
The Advisory Panel was the first of its kind to be established during a public-private partnership negotiation. It was charged with determining the following:
• The benefit the proposed transaction and its structure will provide for City taxpayers and residents
• The fairness, transparency and competitiveness of the public process that led to the proposed transaction
• An evaluation as to whether the proposed transaction provides fair value for the City’s taxpayers
The Panel also pledged that any agreement would uphold the Mayor’s Traveler’s Bill of Rights, to assure that the private operator upheld and improved the standards of Midway by providing reasonable parking facilities and prices; high safety standards; a clean and efficient terminal; convenient and timely baggage services; reasonably-priced food and beverage choices; sufficient and clean restrooms; curbside services; medical options; and more. Further, the Midway Advisory Panel vetted the lease agreements to ensure protections created by State law (IL Public Act 094-0750) were followed.
How the Midway Advisory Panel Worked
Working alongside City negotiators, the Panel began bi-weekly meetings in January, learning right away that a Midway deal would not resemble anything like the Chicago parking meter lease. Part of the Advisory Panel’s responsibility was to anticipate how a lease would affect the future of Midway Airport and the City to guarantee its crafting was in the best interest of the public. The Midway Advisory Panel was given unprecedented access to City advisors, Credit Suisse and Mayer Brown—firms with the experience and skills to go toe-to-toe with anyone on the other side of the table—who considered the Panel as a sort of Board of Directors, briefing them at every stage of the process, conferring on various use and lease agreements, and incorporating their feedback in negotiations to make a potential deal better for taxpayers and workers.
In the end, the Midway Advisory Panel agreed that Mayor Emanuel made the right decision to terminate lease negotiations. Without a competitive process, it was unclear if the City would get the best deal. As the Mayor has stated, “Sometimes the best deals are the ones you don’t make.”
Public-private partnership deals are highly complex and the private nature of the negotiations makes it impossible for the process to be examined in the public realm. An independent, third party, such as the Midway Advisory Panel, serves as a proxy for the public to make sure its interests are protected. It gives an independent body the authority to review lease documents from a citizen’s perspective to look for inconsistencies between the agreement and taxpayer needs. In its deliberations, City Council would have had the benefit of the Panel’s independent report on the transaction’s parameters, which also would have been available to the public, the first time for such an analysis. Past privatization agreements in Chicago not only lacked sufficient time for review and deliberation, but also an independent evaluation.
The lesson learned is that an independent, third party review of privatization agreements must be enacted for all future public-private partnership considerations. This will ensure the proper safeguards are in place to protect the public’s interest.
Why Public-Private Partnerships
While the demand for new infrastructure, better roads, transit, water and sewer networks, and schools, continues to grow, state motor fuel tax revenues have not kept up with inflation and state and local governments face tightening budgets. Given the scarcity of public funds available to make even the most essential of these infrastructure investments, governments have begun to tap innovative financing tools, such as public-private partnerships to supplement traditional funding sources. These tools can address aging infrastructure problems and constrained budgets, deliver projects sooner, and enable innovation. Further, well-written agreements can create incentives for efficiencies and shift risk to private investors, who can bear responsibility for cost overruns or revenue shortfalls. At the same time it is important that potential investments are chosen based on their ability to generate much-needed economic growth, improve our global competitiveness, and promote community livability and sustainability.
By rethinking how (and where) we invest in our communities and rewarding the public and private sectors for working together to more efficiently and effectively deploy resources, we can regain the Chicago region’s competitive edge, secure good jobs, and shape a new era of sustainable economic prosperity that supports cities’ and regions’ growth plans.
For more information on the Midway privatization exploration, read the report.