After speed cameras, the next big City Hall issue coming down the pike is the Chicago Infrastructure Trust, officially introduced to City Council yesterday:
Emanuel’s aides dismissed the idea the arrangement would lead to the type of privatization deals that have been criticized for selling off city assets, saying the Chicago Infrastructure Trust would focus on new projects. And the mayor insisted the process would be transparent, even though the new entity would be a not-for-profit that would fall outside the state’s transparency laws.
This would be new at the civic level in America, but not at the state level; more states than not have them, with different mixes of public and private investment. Connecticut is considering one; New York State is assembling one, led by the famed investment banker Felix Rohatyn, and its first project might be a new High Line:
A multi-billion dollar plan to build a new Tappan Zee Bridge across the Hudson River just north of New York City is expected to be one of the state’s first and biggest candidates for tapping private investors.
The existing bridge, built in the 1950s, has deteriorated badly, and once it is replaced might be turned into a “greenway” for pedestrians.
It’s likely to be controversial in Chicago, thanks to the city’s less-than-popular history with privatization; we’re often used as a case study of how not to privatize in august publications like Bloomberg Businessweek, Slate, and The Atlantic Cities, which is why Mayor Emanuel is at such pains to separate the CIT from his predecessor’s selling of public assets.
Why the rush to privatize? It’s pretty simple:
Total public spending on transport and water infrastructure has fallen steadily since the 1960s and now stands at 2.4% of GDP. Europe, by contrast, invests 5% of GDP in its infrastructure, while China is racing into the future at 9%. America’s spending as a share of GDP has not come close to European levels for over 50 years.
America’s petrol tax is low by international standards, and has not gone up since 1993 (see chart 3). While the real value of the tax has eroded, the cost of building and maintaining infrastructure has gone up. As a result, the highway trust fund no longer supports even current spending. Congress has repeatedly been forced to top up the trust fund, with $30 billion since 2008.
Of course, raising gas taxes is close to politically impossible, both because it’s a regressive tax and because prices have and will continue to rise as long as demand increases in developing countries (like, you know, China and India, which have a lot of consumption to go). Public-private partnership trusts and infrastructure banks allow the state to multiply government money with private-capital leverage. Absent cuts elsewhere or increased taxes, it’s a politically appealing option. And it’s a fairly old one, at least elsewhere. The United Kingdom ended up with extensive PPPs for reasons that should sound pretty familiar: rising oil prices and fiscal crisis combined with an increasingly conservative government (not just the capital-C Conservatives, but New Labour) squeezed infrastructure spending and increased the appeal of PPPs, much like has occurred in the U.S. over the past few decades.
Since the introduction of strict monetary controls in the 1970s, government resourcing of infrastructure improvements has declined from its post-war peak and the Conservative governments of Margaret Thatcher and John Major (1979-1990/1990-1997) were particularly averse to providing state funding for such projects, preferring instead to rely on the private sector.
The broader political context should sound familiar, too:
Still, the Britain that Tony Blair inherited had the Thatcher imprint all over it. It was an axiom of New Labour not to shake the foundations she had laid. Part of this was calculation. Like all successful electoral machines, New Labour was a construct, a coalition of different forces.
Some of this was also a conversion to a value system. Indeed, Blair’s programme for the 1997 election confirmed all Mrs Thatcher’s free-market reforms of a deregulated, non-planned, largely privatised economy with a flexible labour market, marginalising the trade unions and local authorities, while publicly disowning Left-wing shibboleths such as redistribution.
Initial experiments with privatized road building were reportedly quite popular, coming in on time and under budget. As PPPs have supplanted public investment and operation on a scale barely comprehensible here, however, they’ve come under fire:
PPPs, however, have time and again proven not to work. The past record of London’s tubes, the Channel tunnel, city academies and other schemes has conclusively demonstrated that the private partner is never willing to bear any downside risk. The reason is simple: a government would never let a public service fail, and so all PPPs suffer from severe cases of moral hazard.
The UK has favored the DBFO model (design, build, finance, operate), essentially the approach the Daley administration took to the parking meters, which proved politically disastrous (and is increasingly so across the pond). By contrast, the CIT, as initially presented, is modest. According to Hal Dardick’s report in the Tribune, potential investors are interested in a more narrow role, and the administration in a more narrow model still:
The mayor is calling for an initial city investment of $2.5 million, but the plan would depend largely on outside investors. Some potential trust investors have told the Tribune they may be interested in lease-to-own deals, under which they pay for new assets and the city leases them for years before taking possession.
But Emanuel spokesman Tom Alexander said the proposal “is not about privatization or lease buy-backs or anything like that.”
The CIT’s project avoids a couple of the political pitfalls of PPPs:
In part to allay fears, the city is starting with a project under which the private sector would fund energy efficiency renovations in city-owned buildings. The city would pay back the cost through future savings, with the private companies going unpaid if they don’t materialize.
It’s a backstage privatization: changing the operation of something the public doesn’t have to deal with, unlike parking meters, public transportation, or roads, while addressing the moral hazard that’s proved so problematic in the UK. And the Teamsters are already on board, in stark comparison to labor’s battles with privatization in England. Whether or not City Council will buy in is another matter; one of the touted benefits of infrastructure banks is the depoliticization of infrastructure projects.
The CIT is novel in the context of American cities, and it got a boost from Bill Clinton’s star power. But it’s a very old model, by political years, that’s very much a sign and symptom of the times.
Photograph: Chicago Tribune