A&M - Port Savior or Just Another Self Serving Insider?

When Texas A&M Chancellor Mike McKinney takes the stage at the Ortiz Center, the Corpus Christi Business community will be waiting with baited breath in anticipation of the great things that A&M will supposedly bring. That position is being questioned however by those who wonder if A&M will put its own ambitions over the future of the area. To some folks there is an inherent conflict of interest when it seeks to be seller, broker and buyer of the Port’s new Naval Station Ingleside property. McKinney will speak on Thursday at a Corpus Christi Chamber of Commerce luncheon event.

That obvious conflict of interest was questioned by Commissioner Ken Berry at a recent committee meeting at which Berry was in the audience. The committee which is reviewing proposals has so far succeeded in shutting down negotiations with at least one group who wanted to buy the base lock, stock and barrel, will decide on a recommendation at a meeting on Friday at 3:00 PM. The Naval Station property valued by most at over $300 million is being sought by three companies in addition to the bid by A&M to be the master developer, broker and possible buyer. A&M is operating under a memorandum of understanding and has no current contract with the Port to be the master developer.

The commissioners on the Ingleside committee are Port Chairman Mike Carrell, Judy Hawley and Richard Bourchard. Bourchard recently made the news by surprising his former allies who supported his appointment by abandoning them and voting for Carrell for Port Chairman, he wound up as Vice Chairman. The proposed deal with A&M is certainly one of the sweetest deals around for the University system. The university would get $350,000 annually just for being the master developer through the end of 2013. On top of that according to the Caller-Times article A&M would get very high commissions for actual work and big ones even if it does nothing.

The proposed commissions if A&M secures the master developer position according to the Caller article are:
Leases-
Ten percent for ten years of any lease of piers and wharfs
Twenty-five percent for ten years of any other lease
Sale- Ten percent of sale after expenses.
No percentage if A&M is the buyer
According to industry sources most deals of this size reportedly only pay a point or two in commission making these fees appear unreasonably high. Even more eye opening is what A&M gets even if they don’t do anything to gain the sale or lease.
Leases no A&M involvement:
Five percent for ten years on the lease of a pier or wharf
No information provided on other leases

What that means if is the Port Commissioners pick Texas A&M to be the master developer, they would evaluate bids of companies competing with them for the sale and lease of piers, wharfs and other property. In addition, if one of the companies that is currently bidding on the property ultimately wins the right to buy or lease the property A&M would collect millions even though they had nothing to do with the sale. If the base sold for its estimated worth of $300 million A&M would collect $15 million for doing nothing.

Carrell, Hawley and Bourchard seem to be promoting A&M’s interest directly. When Commissioner Ken Berry tried to bring up one of the purchase proposals and he was denied the opportunity by Carrell because it wasn’t on the agenda. While that may be true, Carrell, Hawley and Bourchard are said to have told port staff to discontinue preliminary negotiations with one company as that was to be handled by A&M.

Companies reportedly interested include The Wind Alliance a group of fourteen universities, six wind companies and ten other organizations who are only expected to need a small part of the site. Two other major players who are interested in buying the whole property also are reported to have bids on the table or had negotiations shut off by Carrell’s committee, one in excess of $300 million.

Other questions about the A&M deal include a report that their former suggestion about transferring their maritime research division isn’t going to happen and whether A&M has committed any money to development or would assume any of the $500,000 dollar a month maintenance cost to keep the facility mothballed until it is rented. The Port has set aside $6 million in the next year for that purpose. The port is expected to incur a $14 million dollar deficit this year because the General Land Office has sued to prevent the sale of land to Ocean House Limited on the Rincon Channel it claims as its own. That sale was counted on along with fee increases to balance its budget.

Port Management Questioned on Track Record
The Port has been the center of controversy time after time in the last few years. In 2007 a newly elected council found out the previous council had made an early appointment of Mike Carrell who was sworn in at a secret ceremony at then Port Chairman, Ruben Bonilla’s office. Bonilla and allies Carrell and Hawley have been questioned by Berry before for pursuing money losing deals including $34 million on a cold storage facility, tens of millions on La Quinta which still has not generated any private interest and the Joe Fulton Corridor that has so far failed to attract any new industries.

In 2006 Bonilla, Carrell and Hawley also were involved in attempting to get a bill through the legislature to exempt them from state ethics requirements and allowing the port to lease and sell land without regard to market rates or disclosure of relationships. Representatives Solomon Ortiz Jr. and Able Herrero killed that attempt to circumvent the conflict of interest statutes.

Most recently former Citgo plant manager Robert Kostelnik was appointed by the City to take Bonilla’s spot who was term limited out. The choice boiled down to American Bank President Al Jones and Kostelnik who was a last minute pick by the Port industries. The port industries were particularly perturbed about the port practice of raising wharfage fees each year to cover their budget shortfall. The addition of new security fees to cover the costs of operating two new patrol vessels both the Coast Guard and the industries say are unnecessary added to the high stakes game of appointment. Additional complaints were made when the Port gave huge raises and bonuses to Port Director John Larue and other port employees.

Kostelnik who has been deposed by Port Attorney Tony Canales at the order of Judge Sandra Watts of the 117th District Court, is said to have two conflicting affidavits which were referred to the District Attorney’s office recently for possible perjury prosecution on February 9, 2010. On February 10, District Attorney Carlos Valdez announced he would be accepting the appointment to head the City’s legal department. The job would pay $135,000 a year and he would be able to draw 80% of his $136,000 county retirement as well. The Caller-Times reported the Kostelnik investigation was no “in limbo.”

Mayor Joe Adame was also deposed about his role in the vote and his offer to give up his interest in a lease with the Port for $125,000 in the days before the appointment. Others have questioned why District Five Councilman Larry Elizondo, who is Citgo’s Public Affairs Liaison, voted instead of recusing himself to avoid a clear conflict between his role as a Port industry leader and a district council representative.

Someone obviously got his signals crossed as Jones sat in the audience the day of the appointment, something not usually done unless you’re sure of the outcome. City Hall insiders had the vote at four votes for Kostelnik, four for Jones and Nelda Martinez would vote for architect and former Fed Board Member Elizabeth Chu Richter on the first round, than Jones on the second round. It never got that far with Elizondo, joined by Adame, Priscilla Leal, Brent Chesney and Kevin Kieshnick giving the spot to Kostelnik. Obviously Jones was surprised by the final vote, leaving numerous questions in the minds of those involved about what happened and hence leading to the Port’s inquiry through Canales.

Most recently Solomon Ortiz Jr. has called for tightening ethics and disclosure rules and electing Port Commissioners to attempt to create a more transparent process, improve fiscal control and governance. (see related Editorial: The Port Time for Change)

Watch for an update on this story after McKinney’s Ortiz Center speech sponsored by the Chamber of Commerce on plans for NSI.