Chicago’s infrastructure is in need of a major upgrade, but so are are its dwindling finances. Mayor Rahm Emanuel doesn't want to raise taxes, nor look towards Washington, D.C. or Springfield to cover the costs of repairing and upgrading the city's infrastructure. In order to do so without having to rely solely on public funds, Emanuel proposed the Infrastructure Trust, part of a controversial plan just approved by the Chicago City Council. The trust will leverage investments from private sources for public projects to avoid tax increases that would otherwise be necessary to pay for this type of construction.
In a recent op-ed in the Washington Post, Emanuel claimed that the initiative was the largest coordinated investment in infrastructure in the nation and would put 30,000 people to work.
The Trust is structured as a non-profit, with all Chicago's agencies projects open to review by Trust members. Of those approved, some will be financed with city money, backed by bonds. Those projects that have the potential to generate revenue, however, would be considered for private investment. Examples noted by the Chicago Sun Times include a bus-rapid transit system with higher fares for faster rides, or extending various train lines with distance-based fares. At first, the city plans to fund only one project through the Trust: a $225 million green retrofit of city buildings.
Private involvement in public services may not be new, though the nature of this partnership is. Chicago's Skyway is under a 99-year lease by Australian company Macquarie Infrastructure and Real Assets Inc. Private investment in cities usually involves either privately owned public spaces, or privately managed public services, such as Indianopolis's much touted Building Better Neighborhoods program. The difference in Chicago is that private investment will be responsible for construction and maintance rather than management and administration.
The plan was overwhelmingly approved by the City Council. It already has $1.7 billion in investments, and is attracting interest from more companies including the investment arms of Citibank and JP Morgan. Lois Scott, Chicago's Chief Financial Officer, believes this plan will free the city from "complete and total reliance on Springfield and Washington, D.C." Leaders from other cities such as San Francisco and New York have expressed interest in this kind of investment, though have no plans to set up one of their own anytime soon.
Despite the initial support, the plan still has critics that question both the potential for return on investment, and whether private money money in public infrastructure is really in the public's best interest. Macquarie had to raise tolls significantly in order to make their aforementioned Skyway lease profitable, which did not win them fans among drivers and taxpayers. Cate Long, an analyst for Reuters, notes that Chicago's trust model compares unfavorably with Boston's five-year public plan to upgrade infrastructure using bonds, with the city paying more to borrow from private investors.
Mayor Emanuel argues that "Democrats should champion these kinds of innovative financing tools at a national level," and this is already happening. President Obama proposed an infrastructure bank as early as 2008. Bill Clinton supported it on the talk show circuit as well as in his latest book, and in October 2011, Democrats in the House and Senate had proposed bills to create the bank. The House bill if passed, would have set aside $5 billion per year until 2015 to fund it. The Senate version does the same. Despite the market friendly nature of the bank, these bills remain stalled in both houses of Congress. Though the funding would come from both private and public sources, many Republicans saw the bank as yet another level of bureaucracy, and continued to question if the bank would only contribute to an already high deficit. Testing out this idea at the municipal level may give it new traction on the national level -- if it is sucessful in Chicago, and if other cities decided to adopt similar models.
While Chicago's own previous experience with private involvement in public services might not have been complete sucesses, if the city wants to complete these projects at all, private money may be the only option. The question is whether Chicagoans will eventually foot a needlessly high bill.