BusinessPort in a storm
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Pat Hartig was reading a Detroit newspaper last November when something caught her eye.
An article explaining Mayor Kwame Kilpatrick's plan to transfer operation of the city's half of the Detroit-Windsor Tunnel to the privately owned Ambassador Port Co. made passing reference to a contract between the company and the Detroit/Wayne County Port Authority.
Although it had received some mention previously, no one in the media had ever provided a thorough account of the contract's many details and vast implications.
So Hartig an attorney who is chief of staff at the downriver office of U.S. Rep. John Conyers Jr. and a former mayor of Trenton decided to track the document down.
What she found alarmed her.
"I was surprised that any party to an agreement would give up that much power," she says. "It was a very one-sided agreement."
What didn't surprise her was the person she saw as being the big winner in a lopsided deal: businessman Manuel "Matty" Moroun. The notoriously publicity-shy Moroun is regarded as one of southeast Michigan's most influential power brokers.
A steady source of campaign contributions to politicians of all stripes, Moroun and his family contributed more than $230,000 to U.S. House, Senate and presidential candidates in the past four years. In Detroit, a review by Metro Times of Mayor Kilpatrick's recent campaign filings found no donations from Moroun himself, but family members and executives at companies he owns contributed at least $20,000 to the mayor's 2005 re-election bid. And the mayor's mother, U.S. Rep. Carolyn Cheeks Kilpatrick (D-Mich.), received more than $21,000 from Moroun, his family and employees since 2002.
The source of all that largess is a transportation empire that plays a dominant role in the movement of freight through this region. One of Moroun's companies owns the Ambassador Bridge, which handles a quarter of all the trade flowing between the United States and Canada. He also controls the sprawling truck plaza on the American side of the bridge, and several trucking companies as well. Those interests and others generate revenues in excess of $1 billion a year, according to a 2004 Forbes magazine article.
And now, as a result of that port contract signed last year, another of his companies has been granted a monopoly on the operation of the Detroit area's two largest shipping ports.
Alerted by Hartig, some members of the Detroit City Council are now trying to drastically alter the port contract the city entered into a year ago. Meanwhile, state senators are debating port legislation that critics say would place even more power in Moroun's hands.
Making a deal
The Detroit/Wayne County Port Authority (DWCPA), a quasi-governmental agency overseen by a board of political appointees, regulates operations at the county's two general cargo ports. It also works to develop property along the waterfront, either by enticing businesses to invest there or making the investments itself.
But for most of its nearly 30-year existence, the authority didn't directly own any port facilities. The region is home to less than a dozen smaller, specialized ports and two larger ones dedicated to general cargo. Last year, one of these general cargo ports, the Detroit Marine Terminal, went up for sale. The company owning it never recovered from the decline in business brought about by the two years' worth of federal steel tariffs established in 2003. It defaulted on bond payments it owed to the Detroit Port Development Corp., an agency the city established in 1966 to help create the facility. With that default, the city had a debt-ridden, defunct port on its hands.
John Stoker, chief financial officer for the authority, says the authority saw its chance. The terminal could handle about 700,000 tons of cargo this year primarily aluminum, steel and coke, but also agricultural goods like sugar and grain representing an estimated $7 million in gross revenue. The authority decided it would be a good investment to pay off the bonds and take the terminal for itself before it was put up for sale.
But it didn't have the $2 million needed to make the deal. Stoker says it could have issued bonds to finance the purchase, but the agency balked at the additional $150,000 in fees that entailed. Instead, it decided to find a partner with ready cash. After hearing from at least two other companies, the authority decided to do business with the Ambassador Port Company (APC) an affiliate of Central Transport International, a Warren-based trucking company owned by Moroun.
In return for a $2 million loan, the authority agreed to designate APC as its "master concessionaire" basically, a private investor and developer to help renovate its newly acquired port facility and make it a multi-modal cargo hub using train as well as truck and ship transport. Doing so would require the addition of a rail line at the facility. Other work was also needed. Docks would have to be cleaned up, storage facilities modernized, and equipment brought in. APC, according to the contract, would be responsible for the upgrades.
Detroit City Council approved the deal last May after being told by the authority it was the only way it would get control of the port before it went up for public auction. Soon after, the authority took over the 34-acre site on Clark St. and renamed the terminal the Port of Detroit.
Under terms of the contract which spans 100 years the company gets 2.5 percent of gross receipts while the authority gets another 2.5 percent, minus the payments, interest and fees on the loan it received from Moroun. The remaining money goes to the Nicholson Terminal & Dock Co., the owners of the region's second general cargo port, in Ecorse. According to the deal, Nicholson provides the dockworkers for the two ports, while APC manages both facilities.
Critics of the deal say APC has been given the power of a quasi-government agency with minimal oversight and a monopoly on public port development.
Among the powers given to the company are exclusive rights to manage any properties the authority operates, including all new acquisitions. It's also exempt from property taxes and environmental oversight. In addition, Moroun is allowed to add his own real estate to that of the authority's as "expansions," giving his land the same exemptions.
Hartig isn't the only one who's been voicing concerns. Karen Kavanaugh, public policy director for the Southwest Detroit Business Association, says her group has been studying the contract since the deal first came to City Council's attention. Even without the exemptions the contract allows the APC, she says, it gives Moroun's companies "a lock" on transportation services for the port area.
As president of the Detroit International Bridge Company (DIBC), Dan Stamper signed the agreement as the representative for APC. He says fears about the contract are unfounded. In fact, he says, the deal is a generous one for Detroit, since 40 percent of the authority's 2.5 percent cut of the revenue goes to the city. Without the APC's help, he says, the city wouldn't have gotten any of this.
"Typically people get a contract from the city of Detroit and get paid," he says. "But we put our own money out."
On top of the concerns about the contract, legislation now before the state Senate could extend those powers immensely, giving the authority and APC the ability to expand into whatever business ventures it deems necessary to promote economic growth by joining existing businesses or creating new ones outside its traditional boundaries, the area along the Detroit riverfront from the Ambassador Bridge to the Rouge River.
Introduced in the House by state Rep. Tupac Hunter (D-Detroit) a month after the council approved the contract last May, HB 5029 would empower the port authority to expand into "activities that enhance, foster, aid, provide or promote transportation, economic development, housing, recreation, education, governmental operations, culture or research within the state."
In other words, almost anything, anywhere in the area.
Part of the concern is how much Moroun property could be taken off Detroit's tax rolls. Research done by the Southwest Detroit Business Association indicates seven different companies controlled by Moroun own about 460 parcels of land in Detroit and the downriver communities. Half of that property consists of 91 acres in the neighborhoods surrounding the Ambassador Bridge a quarter of the land there. If these parcels were given the tax-exempt status granted APC in the contract, cash-strapped Detroit would see a further drop in revenue.
"Moroun now gets to do economic development, cultural development, governmental operations," Hartig says. "What else is there to do? I was surprised that the Legislature would be willing to take away the authority of Detroit and Wayne County and give non-elected people so much power."
Among the other provisions in the bill: The City Council and Wayne County Commission would no longer have the power to oversee the authority or approve individual projects. Instead, that oversight would belong solely to the authority's politically appointed board of directors. Hartig and others worry that this gives too much freedom to an agency that possesses eminent domain powers.
Fears that power could be abused take on added weight when viewed in the light of a lawsuit currently in the Michigan Court of Appeals. As Metro Times reported last month ("A Bridge Too Far," March 22), Moroun's Detroit International Bridge Company has already claimed itself a "federal instrument" not bound by local zoning regulations.
The bridge company's Stamper insists the port deal is good for Detroit.
"We're taking all our assets and our shipping capabilities to help bring businesses here that are now doing business in Chicago, Halifax and Toledo," says Stamper. "If we can take 700 miles off the water trip and make it a 200-mile truck or rail trip, we can save money for those people and bring jobs to Detroit."
And that's only part of the potential payoff. Port authorities in Cleveland, New York City and St. Paul, Minn., have used their bonding power to finance big-ticket projects by floating revenue bonds that are repaid with income rents, fees, etc. from the completed project.
That's already happening here as well. To build a parking deck next to the Renaissance Center, the Detroit/Wayne County Port Authority floated $43 million in bonds. The authority owns the building and now charges GM millions in rent and fees annually, the automaker having already paid $125,000 upfront.
Cleveland is a prime example of how much more a port authority can do. Over the past 13 years, the city has used its port authority to invest $700 million into big-ticket projects, some as far from the city waterfront as Akron. These investments include $40 million for the Rock 'n' Roll Hall of Fame in 1993, $140 million for the Cleveland Browns football stadium in 1997 and $90 million for the Cleveland Museum of Art in October 2005. But there is one major difference the Cleveland authority runs its own properties, without the help of an outside business.
Once Hartig finished analyzing the contract and the legislation, she started sounding an alarm. She wrote a memo to Conyers expressing her concerns. At the end of January, she alerted staff members at Detroit City Council, leading to the debate about what if anything the council can do to rein in the APC.
"This is something that needs to be looked at," Council President Ken Cockrel says. "We don't want to see some Frankenstein's monster created here."
Curtis Hertel, chief executive officer for the authority, was not pleased. In a letter to Conyers, he complained that Hartig did not contact his office directly before taking her criticisms public. The authority's lawyers followed up with a written response to Hartig, debating her interpretation of the contract's provisions.
APC would need board approval before bringing in outside properties, the lawyers said. And if the company wanted to use its private funds to make a business expansion in conjunction with the contract, that would also be subject to the board's approval.
But, as the contract states, the authority cannot withhold approval of any "reasonable" request made by the APC.
The problem, Hartig says, is the contract's definition of "reasonable" is relatively loose. As defined in its "Oversight and Cooperation" section, she says, "it's anything that doesn't break the law or cost the authority too much money."
Stamper says that definition is "typical language in any contract."
Councilmember Kwame Kenyatta is leading the drive by some council members to change the port contract. Kenyatta wasn't a member when the body approved the deal in May, but says it needs to be reviewed.
"My concern is that council entered into an agreement with one intent to save the Marine Terminal. The full scope of the master concession agreement, and how it would create a whole port area, was not what council was considering."
After Hartig talked to Detroit council members, some other members started agreeing with Kenyatta, saying the contract gave Moroun too much power. They asked their research and development division to study the deal. In mid-March, division director Dave Whitaker presented them with three reports that harshly criticized the powers granted the APC.
"The more you look at it, the more you see," Whitaker told the Metro Times. The tax exemptions, the ability to conduct business outside of its own territory and its condemnation powers are a few of the problems, he says.
One of Whitaker's major concerns is that the concessionaire agreement allows APC to develop areas away from the port. If the company chose to do so using the advantages given it, he says, this could stifle competition in whatever area it chooses to enter.
Whitaker's report also analyzed how the pending legislation would empower the APC, warning of the potential blurring of private and governmental powers.
"House Bill 5029 would provide the same broad powers to local port authorities as the state authority," Whitaker reported, referring to a proposed Michigan port agency now being discussed in the state Senate. "[It would] allow them to enter virtually any arena of development. These concerns are made all the greater when a review of the agreement suggests the powers and purview of the DWCPA have been or could be, in one way or another, ascribed to the Ambassador Port Company."
That legislation is still in play. But as far as the contract goes, trying to change it now will be difficult if not impossible.
Stoker says the contract is a done deal, cemented by an "assignment agreement" by which the council approved transferring the Marine Terminal property to the authority last May.
"Their resolution recognized the master concession agreement," he says. "Everything got swept up with the assignment agreement."
Stamper agrees, saying the only reason council members are now voicing complaints about the contract is because of pressure applied by Hartig, Kavanaugh and community groups such as Mexicantown Development Corporation, groups that have quarreled with the DIBC over land issues in the past.
"We went to the City Council and answered all their questions, and they passed this resolution," he says. "These groups have been complaining for years that we ought to do a partnership with the city and ought to have oversight from the public authority. Well, we did it, and they're still throwing stones."
But Kenyatta insists things aren't that simple. He says council's lawyers are looking into whether the powers given to Moroun in the contract exceed those given in the assignment agreement. If that's the case, he says, the contract "should be made null and void."
He also says council was not told that at least two other companies had been interested in partnering with the authority, leading them to believe the APC was the only one willing to do so.
But even if Kenyatta is right and there are legal grounds for overturning the contract, any changes could be a long time coming. Hartig points out that, with his deep pockets, Moroun could seek an injunction keeping terms of the contract in place through years, if not decades, of legal wrangling.
According to Stoker, chief financial officer for the authority, Kilpatrick appointee Anthony Adams, the city's deputy mayor, "was on the front lines" of port contract negotiations with Stamper and Moroun's lawyers.
If that's correct, then Adams is now trying to distance himself from that role. When asked directly by Metro Times about his part in formulating the port contract, the deputy mayor refused to answer, directing questions to Kilpatrick's press people.
Regardless of who hammered it out, Stoker says the contract with the APC is a good deal for Detroit. Since the city which is running a deficit some say tops $250 million doesn't have the money to develop the port, it made sense to court private investors who do. Moroun's business is a natural fit, he says.
"They have a presence there and they expressed an interest," Stoker says.
He believes that many criticisms of the contract stem from "political vendettas" some lawmakers have against Moroun.
Councilwoman Shelia Cockrel agrees with Stoker, saying any improvement of the ports is better than letting them lie fallow and having cargo shipments slip away to Port Huron.
"I think enhancing [the authority's] economic powers are in the long-term interest of the city," she says. "There's greater value in that than in any knee-jerk Matty Moroun-bashing."
Both Stoker and Councilwoman Cockrel say they see no need to amend the authority's contract with the APC. Cockrel also says the danger some see in Hunter's proposed expansion of the authority's power is overblown.
State Rep. John Garfield (R-Rochester) disagrees. He cast the lone vote against the bill in the state House. He says long years of following port development deals caused him to give this bill extra scrutiny.
He's concerned about a provision removing the authority's budget from oversight by the Michigan Department of Transportation. He also questions the wisdom of handing over development responsibilities to an outside contractor, saying that's "the city's job."
"If they [APC] want to expand the port authority and they want to wipe out whole neighborhoods, they can just say, 'Well, they were blighted.' Who decides what's blight? And the taxpayers foot the bill."
John Mogk, professor of urban planning and property law at Wayne State University, says the powers the bill grants the authority are necessary to bring the ports back into play. He says that exemptions from the Freedom of Information and Open Meetings acts during business negotiations another concern of Hartig's could be a legitimate tool necessary for the authority to attract entrepreneurs to participate in deals.
There is, however, one area that seems to deserve particularly close attention. As Mogk points out, under a 2004 state Supreme Court ruling, local governments can seize condemned property for public development, but not transfer property from one private-sector owner to another. Because of its contract with the authority, APC's projects would be considered public development.
"But it would be hoped that checks would be in place to ensure ethical behavior," he says, adding any such action by the authority would normally be subject to review and approval by both the Detroit City Council and the Wayne County Board of Commissioners.
Hartig and Whitaker both point out Hunter's legislation would transfer that oversight to the port authority's board of directors, a five-member body consisting of political appointees, with the Detroit mayor and Wayne County Commission each naming two members and the state's governor selecting one.
But there are already doubts regarding the board's interest in reining in APC's activities.
That's because the first thing the board labeled an "expansion property" was the Detroit-Windsor Tunnel. As reported by the Detroit Free Press last October, the mayor, as part of his "Port of Opportunity" proposal, wanted to transfer the lease of the city-owned American side of the Detroit-Windsor Tunnel to the port authority when the lease expires in 2020. Had this deal gone through, it would have given Moroun's company control over the tunnel and the bridge. The city and the authority were in the process of finalizing the deal when the article came out. Faced with public uproar, Kilpatrick withdrew the proposal, which is now being renegotiated.
Representatives of the mayor's office say the proposal is still under review.
Hunter, who received about $2,000 in campaign contributions from the Moroun family and bridge company president Dan Stamper during his 2004 re-election campaign, says he wasn't aware of the authority's agreement with the APC when he first drafted the bill.
"The intent of this bill is not to give the Detroit International Bridge Company a new tool," Hunter says of his proposed legislation. "What I'm trying to do is putting a tool in the city and county's tool kits that could work for the long range. If the city of Detroit wanted to use the authority as a tool to, say, expand Cobo Hall, this legislation would allow for that" through the authority's ability to float bonds. He also says increased eminent domain powers would prove useful in dealing with local slumlords who might impede development.
He admits, however, that the powers granted in the bill could be abused by the APC through its ties with the port authority. He says oversight measures will be added in the state Senate as discussions continue.
"Those things will flush themselves out," he says.
State Rep. Steve Tobocman (D-Detroit), one of the sponsors on the House bill, says that while he doesn't agree with many of the criticisms made against the pending legislation, he asked Hunter to create an amendment to the bill barring the Ambassador Port Company from running the international tunnel.
But the legislation could need more fine tuning than that if it's going to make it through the upper house. State Sen. Ray Basham (D-Taylor), a member of the Senate Transportation Committee, says he's worried about the potential for abuse and is leading a bipartisan effort to defeat the bill as it now stands.
Kavanaugh, for her part, says she's less concerned about what the legislation could do than what the contract does.
"We're still a country that believes competition is a good thing," she says. "But this agreement prohibits competition. And no one has made a case why this is a good idea for the city."
Dan Stamper, not surprisingly, disagrees.
"People are leaving Detroit and taking jobs from Detroit, and we're building jobs in this area," he says. "The only problem now is you have these few community groups complaining. Instead of supporting job creation in the city, they're complaining. So ask yourself who's being disingenuous?"
Ben Lefebvre is a staff writer for the Metro Times. Send comments to email@example.com, or call 313-202-8015.