New Orleans Public Belt Railroad - City of New Orleans releases RFQ

The City of New Orleans has issued a Request for Quotation to lease the management of the New Orleans Public Belt Railroad in what is being referred to as a public/private endeavor.

Last Wednesday, February 1, 2017, a mandatory pre-bid conference was hosted at City Hall by Ryan Berni, Deputy Mayor of External Affairs for CNO and the mayoral appointee to the NOPB commission.  Also present were representatives from KPMG, the firm hired by the City (independently of the Commission) to conduct the evaluation which led to the RFQ.

The room was packed as this Powerpoint presentation was presented to the prospective lease applicants and discussed by Berni and the KPMG team members:

New Orleans Public Belt Railroad Pre-Bid Conference PPT. 

Anyone attending the meeting was required to list their name and contact information.  That list is here:

New Orleans Public Belt Railroad Pre-Bid Conference attendees 

There was a brief question and answer session following the Powerpoint presentation but Berni informed the group that any questions could be submitted to the City's website where they will be publicly answered in an effort to maintain transparency.

He also stated a "cone of silence" has been issued for the NOPB staff and Commission through the RFQ process.  I have personally tried to contact the KPMG members heading up the evaluation but I got no response via email. I am assuming they are subject to the City's cone of silence as well.

Many of the questions posed surrounded the complicated contracts and labor agreements the NOPB holds with Class 1 railroads, the NOPB union workers and the Port of New Orleans.

In specific, the labor agreement with the Union was brought up more than once. Berni stated that the City was focused on keeping as many local jobs as possible but that doesn't seem likely if a private company takes over the management of NOPB.  The labor agreement seemed to be a point of concern among the prospective buyers, it will almost certainly be on the chopping block if the lease goes through.

Another question which arose was the exact nature of the partnership between the City, the NOPB and the prospective partner.  Berni stated that the City is looking for a partner to lease the "operation and asset management transfer" of the NOPB.  This subsequently brought up the issue of the property tax exemption the NOPB now enjoys as a public entity and how that would affect the new management entity.  Berni replied that "different assets will be attributed differently" in respect to property tax exemption.

Probably the biggest question mark with the RFQ is the nature of the current agreement the NOPB has with the Port of New Orleans.  Right now, because the structure of the NOPB is designed to solely serve the Port (not necessarily generate a profit), the Port has a $1/year lease agreement with the railroad.  If a private entity takes over the NOPB, that agreement will most likely be renegotiated...if the Port even chooses to do business with the new entity.

There was no clear answer from the City on how the Port and other issues would play out but Berni stated later in the meeting the City was looking for the applicants to propose solutions to the management challenges in their quotes.  The unknowns of the Port contract along with the complicated trackage rights issues with Class 1 railroads are going to make any proposal by the private bidders somewhat of a challenge.

One other issue that struck me personally is that there are no safeguards for the existing Port vendors who utilize the NOPB.  Berni did state they expect the prospective bidders to be "focused on local customers as opposed to third party entities" but it's not clear how the City would enforce that intent, especially after the current administration exits the stage.

Page 12 of the Powerpoint presentation highlights some of the select transportation and storage warehouse companies who depend on the NOPB.



The multi-million dollar question is how a private entity taking over the NOPB will disrupt, undercut or even bankrupt these existing local businesses.  There is no non-compete clause or provision for the prospective manager of the railroad mentioned in the RFQ so the private partner could theoretically build their own warehouses and competing business to cannibalize some or all of the existing businesses in this slide.

In previous posts, I documented some of these business owners' objections to the privatization of the NOPB as well as this RFQ that was just issued by the City.

As of now, the City is planning on choosing a preferred bidder on June 23, 2017.

However, the acceptance of a bid does not guarantee the NOPB Board of Commissioners approving the private/public partnership.  They did vote to research the possibility of the lease but they haven't voted on approving a lease as of yet.  That factor wasn't brought up in this pre-bid conference but it will have to occur at some point....the Powerpoint schedule states board approval would take place in the Summer of 2017 after the preferred bidder is chosen by the City.

Coming up, I will take a closer look at the Port's relationship with the City and the viability of public/private partnerships the City of New Orleans has executed in the past.

As always, email me with any questions or use the comment section.

New Orleans Public Belt Railroad - Interview with Mayor Mitch Landrieu - Part 1

At the end of August, Mayor Landrieu made good on his offer to allow me an interview with him regarding the fate of the New Orleans Public Belt Railroad.  The interview lasted an hour and I'm going to break it up in to sections on a few, possibly three, posts.

In this first sound byte, I asked the Mayor why he seemed so intent on selling and/or leasing the NOPB when nearly all of the other stakeholders, including the main stakeholder - The Port of New Orleans, were adamantly opposed to changing the status quo of the entity established over a century ago.  He quickly corrected me stating that his intent was not necessarily to sell the NOPB but to get an evaluation of the entity as a City asset:


NOPB - Mayor Landrieu - reasoning behind KPMG evaluation from Jason Berry on Vimeo.

The KPMG evaluation was delivered to the City a couple of weeks ago and in the last Board of Commissioners meeting the Mayor's representative on the Board, Ryan Berni, announced that the evaluation did not recommend a sale.  However, it did recommend either entering a public/private partnership for the lease of the Public Belt to be managed by a private company or maintaining the status quo of the NOPB with the City making improvements to the line in a yet to be determined agreement with the NOPB.

Berni then informed the Board that an RFP will be floated by the City to determine interest in the public/private lease option.

As I've posted previously, the Public Belt was originally designed to be a kind of market regulator for the Port of New Orleans.  It was never designed to be a profit-generating entity.  The Belt is a unique municipal asset among American cities in that it was created as a public entity to control rail costs for merchants looking to do business with the Port of New Orleans.

In that respect, many of the businesses that have invested in New Orleans, such as warehouses located along the NOPB line, built their investments on the premise that the rail lines connecting the Port to the Tier 1 railroads would remain in the public realm.  By privatizing the Public Belt (even as a public/private lease) a private company would immediately look at ways to gain a competitive advantage and subsequently pose a potential threat to the bottom line of not just the ancillary companies serving the Port but the Port itself.

Twisted Tracks

In the nearly 116 years since the NOPB's inception, some very complicated agreements with the Class 1 railroads have sprung up along with murky, undefined trackage rights. The most notable is a Joint Maintenance Agreement for the Huey P. Long Bridge involving The State of Louisiana, the NOPB (City of N.O.) and two private Tier 1 companies: BNSF and Union Pacific.  .

(For reference and the sake of brevity, I will list some of the main issues at the bottom of the thread for those who want to dig through them.)

In the interview, I asked both the Mayor and Ryan Berni if the KPMG evaluation was taking into account these myriad contract agreements and trackage rights issues that have developed over the last century surrounding the Public Belt and if it was even possible to create an accurate evaluation without understanding and unraveling these complications:


NOPB - Complications in trackage rights, etc. from Jason Berry on Vimeo.

I have not yet obtained a copy of the KPMG evaluation but have reached out to representatives from the company for comment.  I am not sure if the evaluation did take in to account any, all or none of the agreements of which I queried Mayor Landrieu and Berni.

In the meeting last week, Port stakeholders voiced their opposition to the public/private lease option and even the release of the RFP, stating it was creating a market disruption for future investment and business in the Port.  Berni dismissed the concern, noting that the NOPB just turned in a record month.

Also in the meeting, a letter was read from an attorney who represents the Tier 1 companies, Carmac M. Blackmon, esq., voicing the national rail carriers opposition to the public/private lease of the NOPB.

The dissent of the Tier 1 companies is disconcerting.  If these companies such as BNSF and Union Pacific decide to play hardball on the trackage rights issues upon the NOPB being leased to a private company, it could lead to a protracted legal battle with the City resulting in the NOPB losing access to portions of the NOPB line.  Worse, it could lead to some or many of the Tier 1 companies deciding to pull out of New Orleans completely, creating a significant disruption in Port business and operations.

I asked the Mayor if he was concerned about the effect the potential sale/lease of the NOPB was having on the Port, I will address that issue in the next post.


Contractual Issues surrounding the New Orleans Public Belt (not a definitive list):

-  The NOPB has twelve agreements with Canadian National Railway that range from trackage rights, customer service and wharfs, intermodal, and interlocker usage and maintenance. Canadian National actually owns a portion of the NOPB mainline that allows the NOPB to use for free.

-  The NOPB has three agreements with CSX Railroad regarding trackage rights, track maintenance, and signal maintenance of the Almonaster Bridge over the Industrial Canal which lies on the CSX mainline.

- BNSF has trackage rights from Avondale, over the Huey P. Long, all the way to Gentilly.

- The Huey P. Long Bridge is under a Joint Maintenance Agreement between BNSF, Union Pacific, the State of Louisiana and the NOPB.  It is unclear how the two Tier 1 rail companies would react to a private company taking over maintenance and full access to the bridge of which they have an ownership interest.

- The City would have to get federal approval from the Surface Transportation Board to lease the NOPB.

- Will the City protect the labor union jobs if the NOPB is leased to a private company?   Currently the NOPB supports about 160 high paying jobs.  How many of these jobs will be eliminated if a private company runs the Belt?

- Local stakeholders have existing agreements and contracts with the NOPB. Will these contracts be honored and if so for how long?

- The lease of the NOPB could greatly affect the New Orleans Gateway, particularly the highly trafficked French Quarter.  As of now, the City has ultimate control over the union workers that operate the NOPB and can control issues surrounding highly trafficked tourism events such as Mardi Gras.  The introduction of a private company could negate much of the control the City exercises over the rail usage and interfere with high volume events.  Especially if the Tier 1 companies choose to exercise their own trackage rights and bypass the NOPB altogether.

- Under current state laws, the NOPB and the City do not share revenue, expenses, or legal liability.  How will these issues be resolved and will it require changes to law on the state level?

-  Currently the NOPB is exempt from property and sales tax.  Would these exemptions be eliminated if a private company runs the Belt and if so how would that affect the cost of business for the Belt and subsequently the Port?

New Orleans Public Belt Railroad - A Mayoral Reminder

On July 7, 2016, at a District C Budget meeting in Algiers, I asked Mayor Mitch Landrieu about his intentions to sell The New Orleans Public Belt Railroad, an asset of the City of New Orleans since the turn of the 20th century.  His full reply is in the preceding post but I want to draw your attention to this particular sound byte:


New Orleans Public Belt Railroad - Mayor Landrieu quote on who appointed the Commission members from Jason Berry on Vimeo.


Transcript:

“Now Public Belt Railroad is an independent board…I make some of the appointments, the Governor makes some…and they forget who appointed them and say they want to do whatever they want to do.”

The quote seems to be contradictory.  If the NOPB Commission is an "independent" board is it their responsibility to serve the interests of the entity itself or to serve at the leisure of the Mayor as he implied at the end of the statement?

Last week Public Belt Railroad Commissioner and President/CEO of New Orleans Center for the Arts, Kyle Wedberg, abruptly resigned his position on the Public Belt Railroad Commission.  I emailed Wedberg today to seek comment on the reason he left the Commission at such a critical juncture but I have received no reply as of yet.  His handpicked replacement could sway the balance of power in a future decision to sell the NOPB.  

Wedberg's commission position was one of three Mayoral appointments allotted to the Mayor on the nine-person entity.

In the June 23rd NOPB Commission meeting, Wedberg was the one who originally made the motion to remove the option for sale from an evaluation being created by the company hired by the Commission to evaluate the Public Belt's worth, KPMG, after hearing the objections of major business interests that rely on the NOPB including The Port of New Orleans representatives.  The motion was subsequently voted on and passed but the Commission representative for the Mayor, Ryan Berni, informed the Commission that the City would move ahead with the valuation for sale even if they had to pay for it out of City coffers.

Last week the City made good on that promise and contracted KPMG independently of the Commission to complete the valuation for sale of the Public Belt.  The estimated cost to complete it was valued at about $50,000.

According to an off-the-record source, French based New Orleans RTA contractor Veolia Transportation has expressed interest in purchasing NOPB if the option for sale is eventually passed.

A source also suggested that the Mayor may be replacing Wedberg's commission position with long-time Landrieu cofnidante, Emily Sneed Arata.  Arata has worked in some capacity with Mayor Landrieu since his tenure as Lt. Governor, including serving as Deputy Mayor of Communications under his first Mayoral term.  Sneed left her stint with the City in January of 2016 to take a job with Ochsner Health Systems.

I contacted Arata to confirm or deny her appointment but have yet to receive a reply.

I confirmed through NOPB officials that the Mayor can fill Wedberg's vacated position on the Commission at his own discretion if his candidate is approved by City Council.

The appointment could prove to be the deciding factor on whether or not the Public Belt is offered up for sale.

If you are new to AZ, I would suggest you take some time to go back and read my reporting on Mayor Landrieu's efforts to seize full control of the Wisner Trust back in 2013, there are striking similarities in the story of that partially-owned city asset and what's unfolding now with NOPB:

Starting here:

American Zombie: The Wisner Fund - Battle for the Bayou - Part I

American Zombie: The Wisner Fund - Battle for the Bayou - Part 2

Unfortunately Blogger does not have the greatest ability for searching past posts in a chronological fashion but if you have further interest in the story you can read more simply by typing in "Wisner" in the search field window:

http://www.theamericanzombie.com/search?q=wisner 

Or you can simply ask me in the Comments section.

New Orleans Public Belt Railroad - Destination Unknown

Right around the turn of the 20th century, at the height of the Gilded Age, when the rise of railroads were creating monopolies and wealth the likes of which this country had never seen...New Orleans found itself in a dilemma.  

The City’s greatest asset, The Port of New Orleans, was completely dependent upon rail service to carry goods back and forth across the country.

The ownership of rail services in the city limits had fractured to the point where freight merchants were being charged multiple times to get their goods to and from the Port.  The railroad lines in the City were gouging the merchants and city officials recognized this could endanger the business viability of the Port.  

In an effort to address the problem, The City of New Orleans Municipal Affairs Committee conceived the idea of a city-owned belt railroad system to bypass the fractious local lines, thereby ensuring price regulation and preventing gouging by multiple “gatekeepers”.  

On August 7, 1900, City of New Orleans Ordinance 2683 was enacted under Mayor Paul Capdevielle, creating the “New Orleans Public Belt Railroad” to be publicly funded and built by 1915.  The organizational structure stated that NOPB would be governed by a Board of Commissioners comprising sixteen “tax paying citizens”.

Established in 1900, the New Orleans Public Belt Railroad currently maintains
25 miles of main track and 97 miles of yard track

Construction began in 1905 and by 1908 the NOPB was up and running with one locomotive.  By 1921 the Louisiana legislature set forth a master plan for the NOPB that was eventually enacted into law by 1976.  

In 1916, the state legislature also passed a constitutional amendment that granted the City, through the Public Belt, the right to build a bridge providing rail passage across the Mississippi River.  After many starts and stops due to lack of funding during the Great Depression, the Huey P. Long bridge was fully funded in 1932 by an agreement between the City/NOPB, the State of Louisiana and a private investor, the Southern Pacific Railroad.  The first train crossed the bridge in 1935.

The NOPB ran smoothly over the past century...with multiple expansions that coincided with the general growth of industry in the Port.  

Going off the rails

In 2010, FOX 8 investigative reporter Lee Zurik uncovered rampant self-dealing within the NOPB Governance centering around then General Manager, Jim Bridger.  

Bridger was using the NOPB and its assets, luxury rail cars, as his own personal slush fund to wine and dine his friends, even taking expensive vacations on the NOPB dime.  Bridger eventually pleaded guilty to violating state ethics laws and was forced to pay out close to $20,000 in fines and restitution.  

It was a serious black eye for the Public Belt which had just spent a lot of money in 2007, under Bridger’s tenure, renovating their Tchoupitoulas Street Headquarters while the rest of the City was still picking up the pieces from the Federal Flood of 2005.  

More than one corrupt head rolled in New Orleans government in the wake of Hurricane Katrina and while Bridger’s wasn’t the most high profile Post-K scandal, it left a stain on the NOPB as a public institution.

Immediately after the scandal unfolded, recently elected Mayor Mitch Landrieu was quick to condemn Bridger and eventually called for the resignation of all fifteen commissioners.

That happened in short order and within a month Landrieu had reinvented the Commission with only nine Commissioners instead of the required sixteen as mandated in CNO Ordinance 2683 from 1900.  The Mayor then had a bill pushed through the 2011 state legislative session, retroactively ratifying his decision to decrease the commissioners from sixteen to nine.

In the very first meeting after his overhaul of the Commission, with his new handpicked commissioners in place, Landrieu began suggesting the Public Belt’s corporate governance was “outdated” and that the entity should be sold, leased or at the very least managed by a private entity. 

Alluding to the Bridger scandal, the Mayor told the Times-Picayune, “We need to convince the people of New Orleans that this asset is being used for their benefit.”

The Public Belt's Mission

Truth be told, the majority of New Orleanians have no idea what the Public Belt does, much less whether or not it serves the public interest.  While it is a publicly owned entity, it was not designed to “serve the public”. 

It was designed to serve The Port of New Orleans, solely.  

It was not created to be a profit-driven market-responsive enity.  To the contrary, it was designed to be a publicly-owned market regulator that ensures the future success of the City’s main cash cow, the Port.

In that capacity, the Public Belt has become a market "bubble" that private companies who rely on it have built their businesses around, assuming it would stay static.

Landrieu puts the wheels in motion

Last Fall, at the behest of the Mayor, the NOPB Commission issued an RFP (Request for Proposal) to conduct an assessment of the entity along with a valuation for possible sale. 

National accounting firm, KPMG, which has a New Orleans office, won the bid and is expected to complete its official survey by late August/early September.  While the official report is still a work in progress, this is a Powerpoint Presentation detailing a financial analysis of the NOPB delivered to the Commission this year by KPMG:

KPMG PPT Presentation 2016

The initial estimate places the valuation of the NOPB somewhere between $61 million to $196 million.

Committee hits the brakes  

Last month, June 23rd, the NOPB Commission held a public meeting to discuss the ongoing KPMG assessment and potential sale, or lease, of the entity. Numerous stakeholders who rely on the Public Belt showed up at the meeting and voiced their opposition to the potential sale or lease, hence privatization, of the entity. 

One of those voicing their concern was David Kearney, President of The Kearney Companies, a warehouse and logistics operation company on the Public Belt line and the second largest customer of the NOPB in respect to volume and revenue.  Kearney is worried about the effect the mere speculation of a potential sale is having on future business development along the Public Belt, by his company and others.

Jack Jensen, President of the largest customer of the NOPB, TCI Companies, a plastics packaging provider, not only voiced his opposition to the potential sale but called for a halt to the KPMG assessment. 

Jack Jensen, President, TCI Companies from Jason Berry on Vimeo.

David Schulingkamp, President Pro Tempore of the NOPB Board of Commissioners, asked Jensen exactly how the ongoing assessment and speculation of sale was disrupting TCI and other stakeholder's businesses.

Jack Jensen, President, TCI Companies - 2 from Jason Berry on Vimeo.

The main concern seems to be the market disruption that privatizing, or even partially privatizing, the NOPB would create.  As Jensen noted, it could give rise to a possible monopoly in the services industry surrounding the Port.  A future private owner of the NOPB could build their own warehouses along the line and undercut existing businesses like Kearney’s and Jensen’s, giving it an unfair advantage in the market.

A Buyer?

One potential buyer who has made his interest known is New Orleans businessman Thomas Coleman, former CEO of International Matex Tank Terminals, a liquid storage facility established by his father, James Coleman, Sr. in 1939.  The company was sold by Thomas two years ago for $1 billion dollars in cash.  Coleman also happens to be the father-in-law of John Georges, who owns The Advocate. 

Ryan Berni, The Mayor's representative on the NOPB, suggested another possible buyer: The Port of New Orleans itself.  However, at the NOPB June meeting the rumor was put to rest by Michael W. Kearney, Vice-President of the the Board of Commissioners for the Port of New Orleans and former President of the aforementioned Kearny Companies.

Michael Kearney, Vice-President, Board of Commissioners, Port of New Orleans from Jason Berry on Vimeo.

More self dealing?

Shortly after the Commission heard public comment - which was overwhelmingly, in fact totally, opposed to the sale or lease of the NOPB - the commissioners had an intense discussion on whether or not they should move forward with the KPMG study.  

In that conversation, David Schulingkamp, President Pro Tempore of the Commission, noted that KPMG had a vested interest in the sale of the NOPB and stood to potentially make up to $6 million if the Commission decided to sell.  He stated that he had asked KPMG to waive the possibility of receiving the $6 million if the NOPB sale occurred but a KPMG company representative declined that request.  

Commissioner Ruthie Frierson also replied to Bonura stating "To me, it is a conflict."

Not for sale

Taking into account the concern among the private stakeholders in the room, Commissioner Kyle Wedberg then made a motion to go ahead and move forward with the KPMG evaluation but demanded the finished product within sixty days of the meeting date (June 23, 2016) in order to allay the uncertainty the stakeholders are facing with future business decisions they claim are dependent upon the status quo of the NOPB...business dealings ranging in the 100's of millions of dollars.

More importantly, Wedberg moved to completely strike the motion for sale from the evaluation. 

Ryan Berni then stated that the City would move forward with the full evaluation, including the option for sale, in spite of any decision the Commission made to have it removed.  I asked him about this after the meeting and he said the Mayor had “an obligation to the public” to assess the property’s value and consider a sale, irrespective of the Commission’s decision to exclude that option.

To date the NOPB has spent $267,000 on the KPMG study.  To move forward with the assessment another $50,000 is required. Ryan Berni told the Commission that the City is prepared to foot that bill independently of the NOPB Commission if necessary. 

The motion to eliminate the option for sale from the assessment was subsequently approved by a vote of the Commission.

OK....maybe it is for sale?

Mayor Landrieu seems intent on moving forward with the valuation for sale of the NOPB in spite of the Commission's decision. 

On Thursday, July 7th, I attended a City Budget Meeting for District C at the Alice Harte Charter School on the West Bank.  I asked the Mayor about his original impetus to sell the Public Belt and, now that the Commission had voted to strike the option to sell, would he honor the Commission's decision.  This was his response. 

Mayor Mitch Landrieu on Public Belt Railroad from Jason Berry on Vimeo.

I’m going to stop here. It’s interesting the Mayor threw out Warren Buffet’s name.  I’m not sure if he’s suggesting Buffett is interested in purchasing the NOPB or if he was simply using him as an example of a private railroad investor.  

Much more to come, including what a NOPB sale might look like and if it's even feasible...stay tuned.

Correction:  In the original post I said Commissioner Ruthie Frierson noted that KPMG stood to potentially make up to $6 million on the sale of the Public Belt.  It was actually David Schulingkamp who pointed that out after a question was posed to the Commission by Chris Bonura, Director of Business Development for the Port of New Orleans.  Frierson was the first person to respond to Bonura's question and stated it appeared to be a conflict, Schulingkamp then brought up that KPMG stood to make $6 million from the potential sale.  I have corrected this in the post and I here is the actual conversation (note: the audio is very low and difficult to hear which is why I did not include it in the original story).


Committee discussion on KPMG from Jason Berry on Vimeo.