The Chicago City Council should approve the Chicago Infrastructure Bank Ordinance during Wednesday's City Council meeting.
It is a sensible and innovative proposal that will allow the city to tap into private sector investment on a large scale to fund new infrastructure projects that will be critical to the long term viability of commerce in the city.
It will not be perfect. In a city known for corruption, mismanagement and racketeering; you can be sure that there will be some problems once the trust is operational. Unfortunately, the corruption tax is built into all ordinances in Chicago. We have to hold individuals responsible rather than try to police corruption by holding up every proposal that carries a risk of misappropriation.
Mayor Emanuel and his staff have done an awful job of explaining this legislation. Alderman and citizens alike are still confused about elements of it.
In an effort to rectify the Mayor's poor communications strategy, below is a list of the major elements contained within the infrastructure ordinance:
- The Chicago Infrastructure Trust (CIT) will be made up of 5 voting board members, each serving a 3 year term. One of those voting board members must be a sitting Chicago Alderman. The other four voting members will be appointed by the Mayor and only the Mayor has the authority to remove a board member. The Mayor will also appoint the chairman of the board from among the 5 voting members.
- The CIT will have 3 non-voting members appointed by the mayor who must either be employed by the city or be otherwise in service to the city at the time of their appointment. There is no express term limit for them.
- The CIT will also have 3 non-voting members appointed by the 5 voting members. Their term will be limited to 2 years.
- Between the day the ordinance passes and December 31st, 2012, the city will pay up to, but not exceeding, $200,000 to set up the trust. The current city CFO, Comptroller and the city Department of Finance will set up and operate the trust until an Executive Director is named.
- The city will commit up to $2.5 million in grant funding to the trust under the following conditions: a) the Trust will establish criteria for all investments and develop the financing structures for projects submitted by either the city or its sister agencies like the CTA or CPS. b) The CIT has no power to borrow in the city's name in the bond market. c) All CIT investors must complete financial disclosure forms that will be posted online. d) CIT is responsible for preparing and auditing its financial statements using generally accepted accounting principles. e) the Trust must abide by the city's procurement rules, the Illinois Open Meetings Act, the Illinois Freedom of Information Act and must cooperate with the city to provide documents requested by the public. f) CIT must prepare an annual report for the Mayor and City Council by April 1st of each year beginning in 2013. This does not specify that it will be made public.
- The City Council must approve any CIT transaction that involves city revenues, funds, assets or property. The council will retain its right to vote on infrastructure projects that affect city funds, zoning changes, land acquisition or any other area of governance the council and its committees currently oversee.
- While this ordinance supersedes other ordinances, its does not take precedence over the ordinance that spells out requirements for the sale/lease of city assets.
I know that was a little dense but here is the bottom line: the CIT will combine city grant money with private sector capital investments to fund only the biggest and most transformational infrastructure projects that also make money. This will guarantee repayment of the debts by the city.
Thus, this trust is not going to fund small scale pot hole filling or side street gutter repairs. Regular city bonds or taxes will have to cover those.
However, let's say the city wanted to completely renovate O'Hare airport to make it not only accessible to more commercial flights, but to double its freight capacity. In addition, a new access road to the airport and freight rail line were going to be included in the project. That kind of project might be wonderful for the economic condition of the city, but it requires enormous amounts of up front loans.
Let's say the city agrees to raise certain fees at the airport to generate new revenue. Such increases could be in the amount of money it costs to lease hangars, terminals and concession spaces. They could also raise parking fees for both cars and aircraft. If the renovation included energy efficiency technology, the savings on the utility bills could also be considered a new source of money for investors.
So now we have a major project with a guaranteed revenue stream. This is where the CIT comes in.
Assuming the city council committees and the full council approve the O'Hare plan, the CIT would now be asked to step in to provide the financing and oversee the implementation of the project using its funds. Presumably, the CIT would have raised considerable private sector investments that it can now put to work on this project. The CIT will pay a reasonably high interest rate in exchange for the opportunity to either use the private money directly or at least leverage that money to acquire more private capital. This private money would be paid back using the new revenue stream generated by the project whether that is from energy savings or additional fees that were included in the City Council plan.
If not for the CIT, such a major project could not be completed given the municipal bond market and Chicago's high public debt burden. Yet, the project would be an economic winner for the city, generating new money to pay down debts and hundreds of new job for Chicagoans.
The city already plans to use the CIT to retrofit city building to lower utility costs. Other projects that the CIT could fund may include:
- Airport renovations
- New CTA trains lines or rapid transit bus systems
- New Park facilities where user fees are paid
- Chicago Public School structural and classroom improvements
- Major water and sewer line additions or replacements
- Major roadway improvements to major streets, overpasses or Lake Shore Drive
- New utilization of fiber optic wires throughout the city for internet usage
- Creating a new city-wide WiFi network
- Replacing the fleet of city vehicles
- Building an tech based academic/research facility to lure cutting edge technology innovators to Chicago
There are a number of other projects that a CIT could fund that will allow Chicago to remain economically competitive with other cities around the United States and the world.
As with any ordinance, there are risks in this proposal and no guarantee of success. However, in my mind there is a huge upside potential for all city residents that far outweighs the relatively minor (and often paranoid driven) concerns raised over the past couple weeks.