Here comes another city privatization deal forged behind closed doors

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Rahm Emanuel doesnt need a business degree--or a bidding process--to know when hes cut a good deal.
  • Sun-Times Media
  • Rahm Emanuel doesn't need a business degree—or a bidding process—to know when he's cut a good deal.
This is one of three posts to win a Peter Lisagor Award for Blog, Individual Blog Post, Affiliated.

One hundred and fifty-five million bucks is a lot of money. Or maybe it isn’t.

It’s more than most of us have to spend on holiday gifts this year. But is it the right price for letting a private company put up dozens of billboards on public land around the city for at least 20 years?

I don’t have any idea. You probably don’t either. And the people getting ready to authorize the deal certainly don’t have a clue.

That would be the aldermen in the Chicago City Council, whose budget and zoning committees are scheduled to weigh in on the billboard agreement Monday morning.

“Is it a good deal at $155 million? I don’t know,” says Joe Moreno, alderman of the First Ward. “Could we get $300 million? I don’t know. We’ve never leveraged these assets before.”

The mayor and his aides officially call it a “municipal marketing initiative.” If you cut through the jargon, though, it’s the latest privatization deal out of City Hall, this one involving the long-term rental of public space to advertisers.

The mayor’s office gets testy at any mention of the parking meter deal, and it’s true that this contract is different in many ways, starting with the fact that no one has to reach into their pocket on a daily basis to feed cash into a billboard. Who doesn't like the idea of the city collecting money from somebody besides taxpayers?

On the other hand, what’s on the table is another deal to share a public revenue stream with a private entity—and the terms of the contract were, once again, put together behind closed doors.

The mayor’s office says it couldn’t put the deal out for public bid the way it does with, say, construction contracts. “The city was not purchasing a known and easily-comparable product that multiple companies could provide,” spokeswoman Kathleen Strand wrote me in an e-mail. Instead, the city created a new process that was “open and competitive.”

“Horseshit,” says Moreno.

Here’s what we do know: not much.

Last November the city issued a request for qualifications from private-sector firms interested in pitching “municipal marketing” ideas. Five raised the possibility of the city making money off advertising revenues from new digital billboards along expressways.

The Emanuel administration won’t say which firms.

Rather than setting up a bidding process, the city held separate conversations with the five entities. A group of mayoral appointees decided that two of them were better than the others.

The Emanuel administration won’t say what the criteria were.

Those two firms then had to come back to the city with specific billboard proposals.

The Emanuel administration won’t share the proposals themselves.

Yet out of that came a 250-page contract with a hastily assembled parternership called Interstate-JCDeCaux, LLC. One of the partners, JCDeCaux, is well-known around City Hall, having cut a 20-year, $308 million deal with former Mayor Daley to build and advertise on bus shelters.

The billboard agreement appears to guarantee the city $155 million over the next two decades. At the same time, it includes a complex revenue-sharing structure that it claims could bring the city’s total take to $276 million.

But there are a lot of buts. For example, the guaranteed payout for 2013 is $15 million, but it’s never that high in any other year. In addition, the city gets half of all ad revenues for the first $25 million collected in any year—but it only gets 30 percent of anything above $30 million.

Additional millions are at stake in the first few years based on formulas like this:

“The Contractor shall from time to time pay to the City an initial license fee applicable to such site in an amount equal to the product of (A) a fraction, the numerator of which is the Category Coefficient (as defined in Exhibit 2) assigned to the value of the applicable sign face, as set forth on Exhibit IC, and the denominator of which is one hundred eighty two (182), times (B) Twenty-Five Million and No/100 Dollars . . . ”

Right.

Mayor Emanuel dismissed concerns about the closed-door process a couple of weeks ago, saying he was confident the city was getting a good deal. “I didn’t need to go to Harvard Business School to know.”

Yet surely the administration—having learned the lessons of the meter deal—has conducted some sort of formal, independent analysis of the value of the billboard space. Or maybe not.

A couple of weeks ago I submitted a FOIA request to the city’s finance department, asking for what specific proposals were made, who made them, who evaluated them, and what, if any, outside studies were performed to ensure taxpayers are getting their money’s worth.

Two days ago the city told me they can’t give me any of those materials. They cited a loophole in the state FOIA that lets officials keep contracting records out of the public eye before the deals are finalized.

So here’s where we are: the mayor assures us this is a good deal for the public, based on the work of a group of handpicked insiders. But the public can’t see the work they did until after the deal has been finalized, by which time it will be too late for the public to decide whether it was really a good deal in the first place.

Now it’s all in the hands of the aldermen, who are under pressure to sign off quickly, since the 2013 budget counts on proceeds from the deal.

Is it possible the story turns out different this time?

UPDATE: City officials say the criteria for deciding the finalists for the billboard contract included "value to taxpayers," the "quality" of the guarantee to make payments, "maintaining the city's visual integrity," and outdoor advertising experience. But it's not clear to me what exactly these phrases mean, or how they were applied—was there a formal scoring or evaluation process, or were the ideas reviewed in a more casual conversation? Nor has anyone told me whether any independent experts took a look. I'll let you know if I find out.

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