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Rhyan Kronzer/MEDILL

“Nothing is more crucial to our long-term competitiveness and job creation than infrastructure,” Mayor Emanuel said.

Chicago seeks private money for public projects

by Rhyan Kronzer
Feb 19, 2013

Infamous city infrastructure leases

Chicago Skyway:leased in 2005 for 99 years for $1.83 billion.


Parking garages: leased in 2006 for 99 years for $563 million.


Parking meters: leased in 2008 for 75 years for $1.16 billion.

Last April, Mayor Rahm Emanuel wanted a new process for funding public projects so he created the nonprofit Chicago Infrastructure Trust. Less than a year later, the trust is seeking possible investors to fund improvements in the city’s infrastructure.

The trust plans to work with private investors to fund improvements in energy efficiency from Chicago public school buildings to police stations. The trust distributed an initial document to a wide array of banks, financial firms and union pension funds to garner early interest in investing.

The “request for qualifications” document calls on potential financial partners to lay out the terms and conditions they would require to finance public projects. Responses are due March 6.

According to the mayor’s office, financial firms such as Citibank, J.P. Morgan, Ullico Investment Co. and Macquarie Infrastructure and Real Assets Inc. have already expressed interest in funding future projects through the trust.

Macquarie is already well known at City Hall as the winner of a 99-year lease on the Chicago Skyway.

“We look forward to working with the city to continue to enhance its infrastructure, its environment and create local jobs,” said James Hooke, CEO of Macquarie during the trust’s formation last year.

The topic of privatization in Chicago is a prickly issue. After the city similarly leased its parking meters in 2008, parking rates have soared. Mayor Emanuel is now battling Chicago Parking Meters LLC over $61 million in lost revenue related to street repairs and disability placards.

Despite lingering frustrations over the parking meter deal, Emanuel is moving forward with privatizing other Chicago public works through the trust, one of the first of its kind in the U.S.

The first project to be tackled by the trust is Retrofit Chicago, a program aimed at increasing energy efficiency.

Investors will pay for initial renovations of city facilities. Cost savings from the upgrades will then be transferred to investors as repayment and interest over a set period of time. No infrastructure will be leased.

However, Chicago’s past contracts have left Chicago residents and civic organizations leery of privatization plans that lack proper oversight and transparency.

“Some of the people running this show are the ones that got us into trouble in the first place,” said Tom Tresser, co-founder of the Civic Lab, a Chicago watchdog non-profit dedicated to civic engagement.

Andy Shaw, president and CEO of the Better Government Association, is another critic. He wrote a letter to aldermen last April asking them to vote no on the ordinance creating the infrastructure trust.

Shaw questioned the transparency of the trust pointing out that it is not within the jurisdiction of the city’s inspector general.

“This is not to denigrate the mayor’s plan but to improve it by adding enough transparency, accountability and oversight measures to avoid another fiasco like the privatization of the parking meters. Let’s go slow and get this one right,” Shaw said.

The Civic Federation has joined the chorus. The nonprofit says the city’s track record of handling of privatization projects such as the $1.16 billion parking meter deal is troubling.

“The process was rushed and did not allow aldermen sufficient time for review and the bulk of the proceeds were used as operating revenues to balance successive budgets,” said Sarah Wetmore, Civic Federation Vice President and Research Director.

Scott Falk, a Kirkland & Ellis attorney working with the city, points out that any deals done by the trust will be reviewed by an independent body and must be approved by the city council, providing a greater level of transparency than in previous deals.

James Bell, chairman of the trust, also is promising a high level of public scrutiny: “Our goal is to help accelerate the improvement of the city’s infrastructure by accessing alternative sources of financing while protecting the interests of Chicago taxpayers,” he said in a press release.

To answer another concern of Shaw’s, the ordinance creating the trust states that meetings, documents and records will be available to the public in accordance with the Illinois Open Meetings Act and the Illinois Freedom of Information Act.

But Tresser and others remain skeptical, pointing out that previous deals also required city council approval. “Frankly, I don’t think the aldermen have the resources to question these deals,” Tresser said in an interview.

The trust will be one of the first of its kind in the U.S. but it is similar to infrastructure funds that exist globally including Canada’s P3C Fund.

Although public-private partnerships are new to the United States, nearly 3,000 projects of this kind were planned globally between 1985 and 2010, according to University of Manitoba economist Professor John Loxley.

Loxley has researched the policy of public-private partnerships in Canada comparing the expectations for the deals with the end result. His conclusion: the outcomes usually fall short of expectations.

“When public infrastructure is directly financed by the private sector, rather than indirectly through financing government debt, the result is still an increase in the amount owed by the government, whether or not this is on the books,” Loxley said in s recent paper.

One of the most crucial items to evaluate is risk, Loxley said.

“Since private borrowing is always more expensive than public, public-private partnerships can only be justified if they come in cheaper in other respects. They only do this if they shift construction and user demand risk off the public sector and on to the private sector. There is no real and convincing evidence that they do this.”

The trust is moving slowly so far-- a few meetings have been held focusing on procedure and a CEO was named this month.

But once it gets rolling with its first round of renovations, Retrofit Chicago aims to decrease energy use by 20 percent annually in participating facilities.

The first stage of the retrofit will cost approximately $100 million and will include improvements to facilities owned by Chicago Public Schools, the Department of Water Management and the Department of Fleet and Facility Management, which includes police, fire, library facilities, cultural centers and City Hall.

Energy efficiency projects include lighting upgrades, building weatherization, sensor technology installation, and heating and cooling improvements.

Improvements to 242 school facilities ranging from elementary to high schools will cost approximately $14 million. The realized savings, which are estimated to be $3 million annually, will be paid to investors over nearly a five-year period.

The Department of Water Management project is expected to produce nearly $4.5 million in savings each year.

Improvement projects for 104 police, fire, library cultural center facilities and City Hall will cost roughly $37.1 million and produce estimated savings of $3.3 million a year. That will be paid out during an 11-year period.

That’s all on paper, of course. “The risk is whether or not they accomplish these savings,” said Peter Matuszak, a senior policy analyst with the Civic Federation.