Rahm Emanuel just appointed the members of the forthcoming Chicago Infrastructure Trust, the still somewhat mysterious public-private entity that will begin by retrofitting city buildings. Ben Joravsky has a skeptical rundown of its members. The reasons to be skeptical are, I think, fairly obvious: why use private financing, which is likely to be more expensive than the bond market, when municipal bond rates remain low? Why pursue more privatization when the city was so badly burned by the parking-meter deal?
Chicago Tonight took up these questions, and while the panelists didn’t answer them, it’s a good introduction to them, at least, and an attempt at some devils’-advocate answers, no matter where your devil resides. UIC’s Michael Pagano in particular made an interesting point:
“I think it might be a better vehicle [than bonding] because under the previous arrangement—what most municipalities engage in by borrowing is that they’re borrowing money for the construction of an asset, in other words for its cost. They don’t borrow money, and they don’t pay attention, to the revenue stream, to the returns on that investment. What the trust holds out, I think, is the responsibility of the owners, that is, the private capital that’s in with the public capital in the trust, to demand that there’s a return on that investment year after year…. What they’re going to demand—I would hope—is that the asset be maintained properly for its life. What’s happened with infrastructure in America so far is that we worry about the construction costs, we worry about the ribbon-cutting ceremonies, but we don’t worry about maintaining the asset until its useful life is expired. Under this arrangement, I think it’s possible that the investors will hold the city accountable for returning a revenue stream, which means pricing the asset adequately.”
This, of course, was the problem with parking meters—after years of not pricing them adequately, they were leased off in one massive deal. It was pitched as locking in future revenues, but you could just as easily view it as catching up to past revenues that the city was unable to collect because a lack of political will priced them too low. (That’s certainly how they were spent, anyway.) Viewed from that angle, the Infrastructure Trust is a hair-of-the-dog solution: a little more privatization to cure the hangover from the prior binge.