Friday, March 8, 2013

Yenni Unveils "Groundbreaking" SMG Deal; Kenner Yawns

Now, before my friends at the Times-Picayune castigate me for always being predictably critical of Kenner Mayor Mike Yenni and before the Mayor himself has one of his minions read him this post and the Mayor stomps his feet and calls me a “nitpicker”, let’s talk about what I like about the City of Kenner’s proposed new contract with SMG to manage the Pontchartrain Center:

-          The City won’t pay SMG a “management fee”

Ok, so what else do I like about the deal?

-          The City won’t pay SMG a “management fee”

Yes, folks, that’s where it ends.

They say “To know where you are, you need to know where you were”, so let’s take a walk down memory lane.

The Back Story
In April 2011, after persistent criticism from myself and others regarding annual $500,000 – 600,000 subsidies paid to SMG for its “management” of the Pontchartrain Center, Mayor Yenni put out an RFP to seek a “better deal”. The City had a contract with SMG that was set to expire in July 2011.

Unfortunately for the taxpayers of Kenner, the City didn’t advertise the RFP properly and only two companies, including SMG, submitted proposals. After the deadline, contacted 3 national facilities management companies and each said that they were not aware of the City’s RFP.
I’m sure that the Mayor and his Administration were shocked that even 1 other company responded to the RFP. In a meeting that I had with the Mayor (back when he actually spoke to me, instead of just speaking about me), Mayor Yenni asked me what I knew about the other responding company. Mayor Yenni said that the company had some “unorthodox” ideas worked into their proposal.

After my meeting with the Mayor, I did some investigating and met with the man who owned the company that was the other bidder.

Warren Reuther owns Convention Center Management and is a respected hotelier who owns and operates several hotels including some in the French Quarter. Mr. Reuther’s management company also provides facilities management services to convention centers including the convention centers in Natchez and Natchitoches and he was Chairman of the Board for the New Orleans Convention Center.

In a nutshell, Mr. Reuther is local, well-respected and knows what he’s talking about.
Mr. Reuther described his proposal in detail. It called for saving the City of Kenner hundreds of thousands of dollars immediately and called for an initial subsidy of $250,000 for the first year, with that subsidy declining in the following years.

Since the City subsidized SMG annually to the tune of $500,000 – 600,000, this would have meant a savings to the residents of Kenner of over $500,000 in the last two years alone, had the Mayor given Reuther’s company the contract.
I guess by "unorthodox" the Mayor meant "saving the taxpayers of Kenner money".

Mr. Reuther discussed an integrated plan to help market Kenner, rename the Pontchartrain Center, and significantly ramp up the amount of overnight visitors that Kenner received and proposed a $144,000 management fee ($12,000 per month), compared to SMG’s $95,000 management fee, but said that figure was negotiable. He also laid out his strategy for cutting costs to significantly reduce Kenner’s subsidy.

However, it never got to that point.
Instead, Mayor Yenni cut off communication with Mr. Reuther and has continued to pay SMG on a month-to-month basis after their contract expired in 2011.

Now, Back To The Future And The Definition of “Groundbreaking”
Wednesday, Mayor Yenni, after nearly two years of negotiations, announced a new five-year contract with SMG.

According to The Advocate, Mayor Yenni called the agreement “groundbreaking”.
“This is the best deal in the history of Pontchartrain Center,” Yenni said.

And theTimes-Picayune wasn’t left out either.
"This is by far the best Pontchartrain Center contract that I believe the city's ever had," the Mayor told the T-P.

“Groundbreaking”? “The best deal in the city’s history”? Really?
Let’s examine the “groundbreaking” agreement.

The City of Kenner will continue to subsidize SMG for the operation of the Pontchartrain Center. If SMG loses $600,000, as they usually do, the City will reimburse them the $600,000. If they lose $400,000, the City will reimburse SMG $400,000.
In fact, regardless of how much money SMG loses in their operation of the Pontchartrain Center, the residents of Kenner will pony up the difference. The subsidy that the City would pay SMG is open-ended.

 “The city didn’t build the civic center to make money,” Finance Director Duke McConnell told The Advocate.
Excuse me, Mr. McConnell, but it wasn’t built to transfer Millions in taxpayer dollars to SMG either.

Sound “groundbreaking” so far? Nah, I don't think so either.
Ok, you've been waiting long enough. Here’s the “groundbreaking” part of the “best deal in the history of the Pontchartrain Center” according to Mayor Yenni:

If SMG somehow manages to lose less than $350,000, SMG will receive 100% of the savings as a “Management Fee”. Currently, the City pays SMG $95,000 on top of covering all of SMG’s expenses as a “Management Fee”.
And, in the unlikely event that SMG actually breaks even on the Pontchartrain Center and the City is not required to pay any subsidy, SMG will receive a $177,500 bonus (which means, even if the Pontchartrain Center doesn’t lose any money, the City will be out $177,500 anyway – what kind of deal is that?).

It should be noted that SMG has NEVER lost less than $350,000 annually while managing the Pontchartrain Center. It also needs to be noted that, since there is no real accounting of SMG’s expenses, they can simply increase their payroll, add some dollar amount to an expense line, or use some other accounting trick to make up the lost $95,000.
In fact, SMG bills the City about $100,000 for insurance on the Pontchartrain Center even though SMG is self-insured and similar insurance goes for about $45,000. Clearly, SMG knows how to work the system.

To its credit, and probably due to the insistence of Mayor Yenni's political consultant Greg Buisson (who, I'm told participated in at least some of the briefings between the Mayor and the Council), SMG will contribute $100,000 to fund a new marketing program with the Jefferson Convention and Visitor's Bureau. If you read, you already know that the Mayor gave the JCVB Kenner's share of the hotel/motel tax after he cancelled the Kenner Convention and Visitor's Bureau. And, shokingly, the JCVB's advertising is controlled by Buisson, so even more money in the Mayor's political consultant's pocket.

Another interesting point of the contract is Mayor Yenni's continued insistence on mandating which caterer SMG uses. Why wouldn't the Mayor trust the company that he has hand-picked to choose the caterer? You already know the answer to that one: the caterer is the Mayor's friend.

Unfortunately, that's how it works in Kenner. Everything revolves around the Mayor's friends, not the people he represents or getting the best possible deal for the City.

The "Groundbreaking" Recap
So, it doesn’t matter what SMG bills the City, the City is obligated to pay. The only thing that SMG “loses” is a $95,000 “Management Fee”, while the City (and the taxpayers of Kenner) can continue to lose hundreds of thousands of dollars each year.

Does SMG pay for building upgrades? No. In fact, the City just spent almost $1.5 Million on new seating for the Pontchartrain Center.
Wouldn’t you like to be in business where you have an exclusive contract to book events at a multi-million dollar building that you didn’t pay for, don’t need to maintain or pay to upgrade, have the City pay all of your expenses no matter how much money you lost AND pay you a fee on top of that?

Hey, sign me up.
And, what happens if SMG loses $500,000 or more next year? Are they penalized? Is the contract shortened?

Of course not. All SMG loses is a $95,000 “Management Fee”.
Sounds pretty “groundbreaking” to me.

Why wouldn’t the Mayor want to protect the taxpayers of Kenner and put a cap on the amount that would be used to subsidize SMG? Why wouldn’t the Mayor include penalties if SMG performed poorly, if this truly is a “performance-based” contract as the Mayor alleges? Why would the Mayor continue to use Kenner as his own private piggy-bank to help his political consultant and then have the gall to hold a press conference rubbing Kenner's nose in it? And, why would the Mayor insist on requiring that SMG sign an exclusive contract with a catering company rather than trust the company that he was paying to bid-out the contract themselves?
Could there be more to the story?

In Kenner, there always is.

Kathleen Turner – Not The Actress, The Mayor’s Friend
Kathleen Turner is SMG’s General Manager at the Pontchartrain Center. She also was on Mayor Yenni’s Transition Team, the committee that raised money for Inauguration Ceremony (held at the Pontchartrain Center, of course), and is a Director of Kenner City Events, the group that promotes the Mayor’s Prayer Breakfast.

If you don’t know about Kenner City Events, click here.
Shouldn’t it raise ethical questions when someone so ingrained in the Mayor’s affairs is also running a building that continues to be subsidized by hundreds of thousands of taxpayer dollars each year? It is also surprising that it took the Mayor almost 2 years of negotiating with his friend Ms. Turner and her bosses, to come up with this “groundbreaking agreement”.

Only in Kenna Brah.
But, hey, what do I know? I’m just a frequent critic of the Mayor who likes to nitpick about $500,000 subsidies to Multi-National Companies.