peotone expenditure report

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Peotone Expenditure Study

Alderman James RadermacherAlderman Mark Anderson

September 30, 2005

Introduction

At the May 2, 2005 City Council Meeting, Alderman James Radermacher asked for apublic accounting of the $650,000 Peotone expenditure. Mayor Frimark referred thematter to the Finance and Budget Committee. On May 21st 2005, the chair of the Financeand Budget Committee requested that Alderman Radermacher, with the assistance ofAlderman Mark Anderson, compile a report regarding the $650,000 expenditure for thePeotone airport.

Alderman Radermacher and Alderman Anderson were asked to address three issues inthe report: (1) How did city officials come to approve the contract without a clearunderstanding of its provisions? (2) Where did the $650,000 go? (3) Are there remediesavailable that should be pursued?

In the course of preparing this report, an extensive document review was conducted. Thereview consisted of examining city council minutes of both open and closed sessions,contracts, memoranda, letters, newspaper clippings, invoices, and other relevantdocuments. In addition, interviews were conducted with current and former electedofficials and members of city staff.

Following this introduction is a Timeline section detailing events from May 2002through November 2004, the relevant timeframe of the Peotone decision-making process.Thereafter is a Discussion and Analysis section. The report concludes with the threequestions noted, and answers thereto.

One final introductory note: OHare International Airport and the City of Park Ridgehave been neighbors for decades, and many issues and concerns have arisen as a result ofthe citys proximity to the airport. Among those are noise, safety, pollution, traffic andquality of life in general. This report does not concern itself with those matters; its scope

is limited to the circumstances of the $650,000 Peotone expenditure.

Timeline

On April, 11, 2002, Joe Karaganis addressed the City Council to explain the need for theSuburban OHare Commission (SOC) to battle OHare expansion. He focused on noise

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and air pollution with an emphasis on the incidents of cancer rates in the community. Hestated that SOC had hired the firm of Shaw Pitman of Washington D.C. to help fight theissue. He stated that Shaw Pitman was a very good law firm but also very expensive. Mr.Karaganis was asked to estimate costs relative to the issue. He explained that he could notgive hard and fast estimates, but guessed that it would cost $3-$4 million over the next

four years. Alderman MaRous indicated that he felt Elk Grove Village and Bensenvillehas a larger stake and should pay more. Mr. Karaganis advised that Park Ridge had alarge stake as well. Alderman MaRous thought that SOC should be auditing the monies.1

At a May 6, 2002 closed session of the City Council it was announced that MayorWietecha and finance director Diane Lembesis were going to Texas to meet with RossPerot about building a third airport.2 The Mayor wound up attending the meeting withAlderman Bartolone.3 In a phone interview, former Alderman Bartolone stated that theymet with people who had experience in building airports. They did not meet with RossPerot himself.4

May 20, 2002 closed session of the City Council: After meeting in Texas the Mayorstated that each of three towns (Park Ridge, Elk Grove Village, and Bensenville) wouldbe asked to contribute $1,000,000. He went on to say that we may need to put up moneyahead of time, which would total a return for the city in three years. 5

On June 17, 2002, the city council approved a $500,000 payment to the Suburban OHareCommission. Later that week, the city received a bill for the aviation integrity project for$225,000. Mayor Wietecha suggested that the city take the $225,000 from the $500,000allocated to the SOC.6

On July 9, 2002, the Finance and Budget Committee voted in favor of a motionsupporting the above proposal. At that meeting Alderman Tomassi said that at some pointall of us are concerned with where we draw the line regarding the extent of our financialcommitment. He suggested that it might be beneficial to have a public forum to explainthe citys strategy. Alderman Benka agreed and added that citizens have feasibilityquestions and added that the city should make a pamphlet for aldermen that answeredcitizens critical questions.7

On July 15, 2002, the City Council granted authorization to sign a memorandum ofunderstanding in regard to the Citys intent to be a sponsor in building a new airport witha contribution not to exceed $50,000. The council voted 13-0 with Alderman Fishmanabsent. During that council meeting Alderman DiPietro questioned if any future moneywas committed, and the Mayor Wietecha confirmed the 3 million dollars was beingshared among all the suburbs participating who share in the profits. He also said we

1 City Council minutes, April 11, 2002.2 City Council minutes, May 6, 2002 (closed session).3 Interview with City Manager Tim Schuenke, July 26, 2005.4 Phone Interview with Former Alderman Frank Bartolone, September 12, 2005.5 City Council minutes, May 20, 2002 (closed session).6 City Council minutes, June 17, 2002.7 Finance Committee minutes, July 9, 2002.

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expect all the money we allocated would be recovered plus dividends in the future.During that same meeting the Mayor stated that the $3 million previously thought neededhad been negotiated down to $2 million and that there would be more than 80 othercommunities participating in this. Alderman DiPietro asked the Mayor to confirm that thecity would anticipate no further contributions to this project. The Mayor answered

correct. A citizen asked the same question with the same response.1

On September 11, 2002, the City of Park Ridge entered into an Intergovernmental Pre-Development Services agreement with Bensenville, Elk Grove Village and LCORHoldings LLC.2This agreement was deemed effective as of July 7, 2002 and supplantedthe original Memorandum of Understanding.3 This agreement was entered into via MayorWietechas signature before it was approved by either the Finance and Budget Committeeor the City Council. 4 Former Mayor Wietecha was asked in a phone interview if herecalled signing the document before either the Finance and Budget Committee or theCouncil as a whole approved the contract. He said that as Mayor so much was happeningand he did not recall the date. He commented that You know how the Council was, and

probably is today. Sometimes necessity requires documents to be signed quicker than theCouncil can act on them. He went on to say that if City Attorney Hill recalls the contractbeing signed on the eleventh, then it was. The contract did not contain any provisionstating that its effectiveness was contingent upon City Council approval. The formerMayor said he did not recall what was in the contract.5

On September 13, 2002, Mayor Ronald Wietecha issued a memo to Council membersasking them to approve the Intergovernmental Agreement for the Development of theThird South Suburban Airport. This was the agreement which had already been signed bythe Mayor. The memo contains the following paragraph:

Also remember, the Agreement provides that at the end of the agreement (or at such timeas we wish to exit the project) we can get back whatever we have invested withreasonable interest or at least the balance on deposit less costs expended by thedeveloper. We can renegotiate the agreement or cancel it to minimize losses.6

On September 24, 2002, the Finance and Budget Committee approved entering into anIntergovernmental Pre-Development Services agreement and approved an expenditurenot to exceed $167,000 pursuant to the agreement, subject to the city attorney obtaining afinal draft of the agreement. There is no further information regarding this matter in theminutes.7

On September 27, 2002, city manager Schuenke distributed to the Finance and Budget

Committee members a revised copy of agreement. He noted that most significant change

1 City Council minutes, July 15, 2002.2 See Intergovernmental Pre-Development Services Agreement (Attachment A).3 Interview with City Attorney Everette M. Hill, Jr., June 6, 2005.4 Interview with City Attorney Everette M. Hill, Jr., July 18, 2005.5 Phone interview with Former Mayor Ronald Wietecha, August 25, 2005.6 See memorandum to City Council Members, September 13, 2002. (Attachment B).7 Finance Committee minutes, September 24, 2002.

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brings the total combined obligation of the three communities to $600,000. Also, thismemo has a reference to an inquiry made as to the citys equity position in any workproduct produced as a result of this agreement. He informed the committee that theywould have an answer to that by the time the matter is brought up on October 7th. Thereis no mention of this inquiry in the minutes.1

On October 7, 2002, the City Council approved entering into an Intergovernmental Pre-Development Services agreement regarding the South Suburban Airport, and approved anamount not to exceed $200,000. The council voted 13-0 with Alderman Tinaglia absent.The Mayor also addressed and stated his confidence and safety regarding this investment.These funds were given to Elk Grove Village to join in an agreement with Park Ridge,Elk Grove Village and Bensenville.2 The agreement held that the funding would be usedto determine the feasibility of a south suburban airport. The entity charged withproducing this document was LCOR Holdings.3 This contract arguably supersedes theprevious memorandum of understanding, thus creating a possible hindrance to our abilityto seek remedies thereunder.4 This joint agreement also fails to define any internal control

involving Park Ridge to approve any expenses or payments.

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The Village of Elk GroveVillage acts as the sole entity responsible for approving individual expenses. The City ofPark Ridge was to be given verbal reports on expenditures during closed door meetingsof officials from the three suburbs.6

On October 22, 2002, the Finance and Budget Committee was asked to approve anadditional $400,000. Mayor Weitecha and Mr. Joseph Karaganis were in attendance atthis meeting. It was brought to the attention of the committee that the city had budgeted$250,000 for airport related expenses for the year. Approving the additional $400,000would have the city spending $825,000 more than what was budgeted. Alderman Benkaexpressed his displeasure that the committee originally approved an expenditure of up to$167,000 for LCOR services, but that this amount was changed later to $200,000 basedon additional information but without committee discussion. Alderman Tomassi asked ifwe could afford the additional contribution. Diane Lembesis indicated that the city hadcome in with a $1,000,000 deficit the previous year and was expecting something similarfor the current year. She went on to state that we do not have enough money to doeverything we want to do.

Mayor Wietecha said this was the number one issue in the community. He asked therhetorical question what good is it to make infrastructure improvements, if the airplanesare flying over us? He went on to say that our rainy day is here; we either have to fightor let them do this to us. Also that since 1985 Park Ridge has fought airport expansion.No one could guarantee successful litigation. If a third airport is built, there is no need toexpand OHare. We need to fight the north runway. Bensenville has been a good ally toPark Ridge as they oppose the building of a north runway. We need to spend the funds in

1 See memorandum to Finance Committee, September 27, 2002. (Attachment C).2 City Council Minutes, October 7, 2002.3 See Intergovernmental Pre-Development Services Agreement (Attachment A).4 Interview with City Attorney Everette M. Hill, Jr., June 6, 2005.5 See Intergovernmental Pre-Development Services Agreement (Attachment A).6 Phone interview with Former City Treasurer Carl Brauweiler, July 26, 2005.

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self defense. The Mayor also noted that both gubernatorial candidates (Blagojevich andRyan) say they support the building of a third airport.

Mr. Karaganis reminded the committee that Bensenville, Elk Grove Village and ParkRidge each agreed to spend $1,000,000 apiece on this project. He went on to describe the

principal parties involved in the project. He then said that the $650,000 payment will getus to the stage where we can determine if the project is viable or not. He estimated thatthe feasibility study will be completed by June 2003. Mr. Karaganis went on to state thatwe have two objectives: (1) Use the third airport to block the construction of a northrunway and (2) recoup our investment or make a profit. He also added that if Park Ridgedoes not contribute its $650,000 share, the deal will fall apart. The committeeunanimously approved an additional $400,000 payment to determine the feasibility of asouth suburban airport.1

On November 4, 2002, the City Council approved another $400,000, expanding the totalfunding to $650,000 to fund a south suburban airport feasibility study. The vote was 13-0

with Alderman Friel absent. In that meeting Mayor Wietecha stated that the totalcontribution to the fund will be returned to us with interest, or at least in the form ofanother agreement where we can share in profits to be made on the third airport.2

During subsequent closed door meetings, involving officials from the three communities,Park Ridge Treasurer Brauweiler suggested drafting a note, convertible note or someformal document reflecting the citys equity interest. Recently former TreasurerBrauweiler recalled that an informal agreement to reimburse the communities from cashflow of airport operations was discussed. Nothing was ever put in writing.3

On July 21, 2003, the City of Park Ridge City Council voted against paying annual duesto the Suburban OHare Commission.4The vote was 7-6 with Alderman MaRousrecusing himself. Former Mayor Wietecha has since stated I dont believe Park Ridge isentitled to its money back, they withdrew prematurely. 5 The mayor of Elk GroveVillage, Craig Johnson, has stated that the funds in the joint venture have been spent anddo not have to be paid back to Park Ridge under the terms of the 2002 agreement.6

Former Treasurer Brauweiler observes that this event threw everything into an uproar.7

January 19, 2004 closed session of the City Council: After a period of attempting to opendiscussions with the other parties regarding the citys position, City Attorney Hill said itwas becoming clear to him that if we hope to see the money it will come through sometype of litigation. The city would need to be at the table when the matters are discussed.Currently we are being ignored and put off. It was discussed that the citys strategy inlooking at litigation is not to file suit for $650,000, but our demand would be that we be

1 Finance Committee minutes, October 22, 2002.2 City Council Minutes, November 4, 2002.3 Phone interview with Former City Treasurer Carl Brauweiler, July 26, 2005.4 City Council minutes, July 21, 2003.5 Schneider, Andrew. Peotone Airport: Park Ridges $650K Question. The Bugle; February 17, 2005.6 Schneider, Andrew. Peotone Airport: Park Ridges $650K Question. The Bugle; February 17, 2005.7 Phone interview with Former City Treasurer Carl Brauweiler, July 26, 2005.

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at the table when the South Suburban Airport Coalition meets and that we be the recipientof any reports and information as to how they are planning to proceed.1

April 19, 2004 closed session of the City Council: The City Council grants consensus toissue a letter of demand to Elk Grove Village, Bensenville, LCOR and Congressman

Jesse Jackson, with a copy to Joe Karaganis, to attempt to obtain our money.2

July 19, 2004 closed session of the City Council: City Attorney Hill reviews the citysoptions. 1: Do nothing, 2: Litigate to get the $650,000 with a potential cost of $75,000-$250,000 with less than a 50% chance of victory, 3: Attempt to work out a deal.3

September 22, 2004 closed session of the City Council: The council discusses thepossibility of a press conference if the City continues to be ignored.4

October 4, 2004 closed session of the City Council: Mayor MaRous informs the Councilthat he has met with Congressman Jesse Jackson. Jackson said he was not interested in

SOC problems. The mayor also met with Joe Karaganis and City Attorney Hill. Therewas discussion about meeting with Bensenville and Elk Grove, but that the control wasnow with the south suburbs.5

October 18, 2004 closed session of the City Council: Mayor MaRous informed theCouncil that Joe Karaganis has conveyed that the money was overspent by Elk GroveVillage and Bensenville. Mr. Karaganis had suggested that the shortfall be split threeways between the three suburbs; City Attorney Hill answered no and comments that thereis nothing in writing for agreement between the three communities.6

Former Treasurer Brauweiler recalls that Elk Grove Village and Bensenville claim thatthey have since contributed additional funds and that they insist that Park Ridge equalthose amounts to participate on equal footing with them.7

November 1, 2004 closed session of the City Council: Mayor MaRous advises thecouncil that he plans on visiting Congressman Jesse Jackson to discuss a role for ParkRidge; however, Bensenville and Elk Grove Village request that Park Ridge stay out ofthe discussions.8

Discussion and Analysis1 City Council minutes, January 19, 2004 (closed Session).2 City Council minutes, April 19, 2004 (closed Session).3 City Council minutes, July 19, 2004 (closed Session).4 City Council minutes, September 22, 2004 (closed Session).5 City Council minutes, October 4, 2004 (closed Session).6 City Council minutes, October 18, 2004 (closed Session).7 Phone interview with Former City Treasurer Carl Brauweiler, July 26, 2005.8 City Council minutes, November 1, 2004 (closed Session).

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As of the writing of this report the following facts appear to be true:

Of the original funds contributed by Park Ridge, Elk Grove Village andBensenville only $813,525.60 of the $1,950,000 remained two years ago, when

Park Ridge last reviewed the records. It would appear that amount and more hassince been spent.

No feasibility study has ever been provided to the City of Park Ridge.

There is a disagreement between Park Ridge on the one hand, and Elk GroveVillage and Bensenville on the other, as to whether or not the City of Park Ridgeis entitled to a return of the feasibility study funds, or to be included in the thirdairport planning process.

In the course of the interviews several other points were discussed. City Attorney Hillrecalls that he had questioned the appropriateness of Mayor Wietecha referring to theexpenditure as an investment. He is not clear as to the dates, but recalls advising City

Manager Schuenke and Mayor Wietecha that the intergovernmental agreement wasnothing more than a contract to produce a feasibility study. Notwithstanding the CityAttorneys advice, the Mayor went on to call the expenditure an investment in opencouncil session.1 City Manager Schuenke confirmed this series of events.2

In a phone interview with former Mayor Wietecha, he was questioned about his intentionwhen using the word investment. He insisted that the words he used were words ofart. He had no specific recollection of using the term and therefore had no opinion. Inthe same interview he concurred with City Attorney Hills view that the contract onlycalled for production of a feasibility study. He also maintained that the wording of thecontract was the responsibility of the City Attorney.3

City Treasurer Brauweiler and Finance Chair Bartolone also referred to the $650,000 asan investment. In an interview Brauweiler explained his use of the term as ageneralized description. This was an investment in our environment and quality of life.He did not use it as a definition of an asset in an accounting sense.4 Former AldermanBartolone stated that Any investment holds an amount of risk. With an investment thereis hope for a return. You may lose all or some of your money. That is why investmentsinclude disclosures. He also added that he did what he believed was in the best interestsof Park Ridge. He believed that OHare expansion was unfeasible. You cant fit tenpounds of potatoes in a five pound sack. He added: This was to maintain thepreservation of health, safety and welfare. Its easy to Monday morning quarterback. 5

Former Mayor Wietecha believes that the expectation under the agreement was never toget our money back. The City of Park Ridge needed to stay in the Suburban OHareCommission. He stated that there will be another airport and that for Park Ridge to

1 Interview with City Attorney Everette M. Hill, Jr., July 18, 2005.2 Interview with City Manager Tim Schuenke, July 26, 2005.3 Phone interview with Former Mayor Ronald Wietecha, August 25, 2005.4 Phone interview with Former City Treasurer Carl Brauweiler, July 26, 2005.5 Phone Interview with Former Alderman Frank Bartolone, September 12, 2005.

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participate we would need to make overtures to Bensenville and Elk Grove Village. Hebelieves that any monetary reimbursement will be at the discretion of those two suburbs.Our withdrawal from SOC caused a huge rift between Park Ridge and the othercommunities. The only option for an eventual monetary remedy is to reconcile with ElkGrove Village and Bensenville. He went on to state My sole intentions were to fulfill the

development of the third airport. I wanted to stop the development of a northern runway.I felt so bad for the people living in the area of Belle Plaine and Talcott. They are right atthe landing pad. 1

It appears that certain of Park Ridges elected leaders were intent on advocating thePeotone expenditure as being in the best interest of Park Ridge. Apparently, suchadvocacy crossed the line from setting forth the actual benefits of involvement in thePeotone project (i.e. increasing the likelihood that a third airport would be built andtherefore relieve air traffic in the vicinity of OHare) to misleading members of the CityCouncil, and the public, as to the financial risks and rewards attendant to the venture. Theoutlay was not an investment in the fiscal sense, even though it was repeatedly

described as such. Would the expenditure have been approved even without itscharacterization as an investment? Perhaps it would have been. But, the fact thatcharacterization was made requires that the status of the investment be determined, andthat the City ultimately make a decision as to the disposition of such investment.

The purpose of this document is to see what lessons can be gleaned from the eventssurrounding the expenditure, to reveal the status of the investment, and to suggest theappropriate disposition of the matter. This the authors have attempted to accomplish byanswering below the three questions first noted in this report.

Three questions and three answers1. How did the City of Park Ridge come to approve a contract without a clearunderstanding of its provisions?

It is clear that the proposed effects of the expansion of OHare Airport are of deepinterest to residents of Park Ridge. Increased air and noise pollution along with growth intraffic congestion have led to strong and legitimate concerns. There is no evidence in anyof the documents reviewed or interviews conducted that any of the city staff or anyelected officials acted in a manner that would improperly benefit them at the expense ofthe taxpayers. The concerns arising from being a neighbor to OHare Airport were acted

upon in the belief of what was best for the community.

That being said, the sincere concerns about the OHare expansion project did not justifythe tactics utilized to achieve the desired outcome. Even the most righteous cause must beadvocated, and allowed to rise or fall, on its own merits.

1 Phone interview with Former Mayor Ronald Wietecha, August 25, 2005.

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The Mayor of Park Ridge spent an overwhelming amount of his time on this issue. Everycouncil meeting had some discussion regarding the issue. In many meetings it took up themajority of time. City commitments to spending on OHare were often unclear and attimes changed without Council approval. Objections over spending that were raised bycity officials were ignored or rebuffed. The contract in question was presented to City

Council without sufficient time for review. Indeed, it was signed by the Mayor before thefull Council saw it. The City Attorneys advice in describing the points of the contractwas also ignored.

One might conclude that certain members of Park Ridge City government had becomeemotionally immersed in the issue of OHare expansion. A sense of impending doom hadbeen blanketed over every attempt to have a logical discussion of facts. As a result, thecontract calling for the $650,000 expenditure was approved by Alderman who were notwell-informed of its provisions.

The leaders of the City of Park Ridge have an obligation to facilitate open, honest and

thorough discussion and debate of matters before the City Council. The Aldermen havethe right to trust and rely on the leaders judgment, but also an obligation to insure thatdecisions being made are made only with the benefit of adequate information anddeliberation. We must not allow these tenets to be discarded in the name even of the mosthonorable causes. Unfortunately, that is what happened in the case of the Peotoneinvestment.2. Where has the money gone?

On November 10, 2003 City Attorney Everette M. Hill, Jr. issued a memorandum to CityManager Schuenke regarding third airport expenditures.1 On October 24, 2003 the CityAttorney accompanied Alderman John Benka to the Elk Grove Finance Department toexamine their records with respect to the expenditure of $650,000. The accountingdocumented expenditures of $1,136,474.40 of the original $1,950,000 (3 x $650,000).This left a balance of $813,525.60 on that date. One third of that amount is $271,175.20.2

It has since been represented to the city that the balance has since been spent by ElkGrove Village and Bensenville.3 Consultants, contractors and attorneys have received thefunds, presumably for services rendered.

3. Are there remedies available that should be pursued?

The city council must decide whether to pursue recovery through litigation. The authorsof this report have been charged with making a recommendation on that score. After

1 See memorandum to Tim Schuenke, November 10, 2003 (Attachment D).2 See document titled Third Airport SSA, Disbursements (Attachment E).3 See October 18, 2004 closed session minutes.

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reading the available documents, conducting interviews and receiving advice from ourCity Attorney, the authors have come to the conclusion that it would not be fiscally wiseor prudent for the City of Park Ridge engage in litigation regarding this matter. Theremote chance of victory combined with the expense of litigation make for a compellingcase against pursing legal action. The matter should be closed and we should move on.

Assuming concurrence of the Council with the foregoing recommendation, the authorsbelieve that this report should be released to the public as quickly as possible. Thecitizens of Park Ridge are entitled to closure on this issue.

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