Chicago Infrastructure Trust Embarks on its First Project

14 Dec

“As long as our city rests on a 20th century foundation, we won’t be able to compete in a 21st century economy,” says Chicago Mayor Rahm Emanuel. He made that observation when noting that Chicago is suffering from limited resources to help build and maintain its vast infrastructure network of roads, bridges, transit, schools, and other public facilities. As the Mayor announced last spring, the Chicago Infrastructure Trust is aimed at luring private investment to help fund public infrastructure projects. Now, the trust is launching its first project.

The first test of this new public-private partnership financing model will be to perform energy retrofits at City and Board of Education buildings throughout Chicago. The Trust will be soliciting investors next month to help support the $50 million-plus in improvements. For their investment, financers will reap a share of the revenue generated from energy savings for up to 20 years.

The City is planning on meeting with potential investors including banks, pension funds, labor unions and others to gauge potential interest in the program. Next spring, the City plans on soliciting an RFQ and will seek bids before making a final decision.

As we noted back in March, the Infrastructure Trust has been met with skepticism by the public. The overseer of the trust has sought to assuage fears by noting that the trust is just one vehicle to foster more public-private partnerships. While the Infrastructure Trust is a new way to seek private financing, the model of using private dollars to fund public goods isn’t really that new. Still, critics fear that this shift to private investment burdens taxpayers with increased risk. In addition, many can readily point to the widely decried Chicago parking meter deal as an example of how public-private deal-making can go wrong.

Still, seeking private financing for public projects is a viable option when local leaders are faced with the reality that the public is reluctant to raise taxes, sources of state funding are being slashed, and federal dollars are being doled out from an ever-dwindling pot.

The non-profit Trust, touted as the largest coordinated investment in infrastructure in the nation, would review projects undertaken by all of the City’s agencies. Those projects that generate revenue that can be used to pay back investors would be eligible for private financing. In addition to the energy retrofit projects, the Chicago Sun Times listed some potential projects that might qualify for private financing. They include a bus rapid-transit system that would charge higher fare for faster rides, or the extension of train lines that use distance-based fares.

The Infrastructure Trust can also point to one other key difference to assuage skeptics: this model doesn’t cede management and administration of public goods and services to private companies. Instead, private investors are responsible for project construction and maintenance; City agencies will continue to retain oversight and management duties.

Chicago’s model has the potential for local governments to free themselves from relying on state and federal budgets to get projects built. San Francisco and New York have reportedly considered creating their own private investment model to get projects completed in their cities. Still, it looks like many will be looking to Chicago to see how their experiment turns out. If the Windy City can demonstrate that private investment in public goods doesn’t leave taxpayers holding the bag, this idea just might take root in other U.S. cities.

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