This past March, Chicago Mayor Rahm Emanuel unveiled an initiative he called the Chicago Infrastructure Trust. Ambitious yet vaguely defined, the trust would enable private companies to invest in public infrastructure projects, earning a return while helping the city finance public works that may otherwise be unaffordable to taxpayers.
Such a move would change the city, as subway tracks, water pipes, energy efficiency and other big projects on its wish list could finally come to fruition.
“Our needs are bigger than what Washington or Springfield can do anymore,” Emanuel said at the March unveiling. “Their money is declining. Our needs are growing.”
And though little has materialized since then, municipal and business leaders sense the trust will be groundbreaking not only for the city, but for the nation as a whole. By establishing an entity committed to building infrastructure hand-in-hand with private players, Emanuel has created a model for developing projects that have a return for both residents and investors.
“We want to make sure we do that in a way that’s transparent and really satisfies the best interests of the citizens of this city,” said trust board chairman James Bell, a former Boeing executive, at the group’s inaugural meeting in August. “But we also want to make sure we have a balanced deal that will continue to attract investments from third parties.”
Beyond financing public bridges and water systems, the trust must build another sort of infrastructure: That which supports public-private partnerships.
In turning to collaborate with the private sector, Chicago has emulated policies more popular around the world than elsewhere in the U.S. Canada, Australia and many countries throughout Europe, including the United Kingdom, all have public-private partnerships that help to finance major capital projects.
In Poland, for instance, PPPs (as the partnerships are known) allowed the nation to build its own modern infrastructure after the 1989 Revolution that brought independence from Soviet control. Most famously, the A2 autostrada — a tollway that will cut through central Poland and connect Moscow with Berlin — is coming together largely through the help of PPPs. In addition to national partnerships across the continent, the European Union’s European Investment Bank, established in the 1950s, has lent $81 billion for capital projects in 2011 alone.
Closer to home, Canadian provincial governments and the Canadian federal government itself have created arms similar to Chicago’s trust.
But in the U.S., the concept is still in its infancy stage. Why the idea has yet to gain traction here has much to do with the reliance of local governments on direct assistance from Washington and tax-free public bonds.
“The United States is way behind,” said Peter Swiecicki, a Poland-based attorney who has played a central role in arranging PPPs such as those associated with the tollway in his country. “By embracing these structures further, the funding structure not only changes, but building, designing and operation are more efficient because the private side is taking a risk.”
The need to be transformative is especially important in Chicago, which in recent years has ceded control of public assets such as its parking meters and tollways, only to face allegations that the sales benefitted companies — and former Mayor Richard Daley, who negotiated the deals — more than they benefited the public. Emanuel has argued that his plan will do “the exact opposite.”
“Here we’re trying to finance it and own it,” Emanuel told Bloomberg Businessweek last year. “It is at every level — policy, politics and product — fundamentally an answer to what was wrong with the parking meters, an absolute rejection of that model.”
There are indeed many ways to build a PPP. Experts say that one is never exactly the same as another, since governments have different goals for the amount of risk undertaken, the ownership status of the asset, its management and the relationship between partners. Experts also caution that not every infrastructure project can be effectively undertaken with a PPP approach. A 2011 report from Brookings Institution warned that governments often turn to PPPs for the wrong reasons, either because they want to keep expensive projects outside of the budgeting or legislative process, or because there’s a misconception that private companies can do certain things better than the government.
The most effective PPPs, the report concludes, are those that bundle responsibilities of operations and upkeep with initial investments. Earlier this year, Brookings returned to the topic by suggesting the creation of a federal unit dedicated to these partnerships. The unit, most likely serving as an arm of the Office of Management and Budget, wouldn’t choose specific projects for local governments to take on. Instead, it would provide guidance on investments and contracts to ensure that municipalities aren’t outwitted by private interests.
“We hear over and over again that there is not enough capacity and expertise to get these complicated deals done,” Brookings senior fellow Robert Puentes told Next City in November. “So the idea is that a sophisticated, efficient federal unit could provide that advice and technical assistance on a voluntary basis.”
Slow progress in Chicago shows that such could indeed help matters along — Chicago’s trust has evolved glacially since Emanuel’s announcement. With its executive director not yet hired, the board’s few public meetings have focused on procedural issues, with much conversation dedicated to how the trust can endear itself to Chicagoans wearied by bad deals and fearful of seeing more public assets privatized.
(Those in the business community say taxpayers need not worry. “I don’t think anyone in the private sector sees this as a giveaway,” said Mark Strauss, a senior vice president at American Water, one of the world’s largest publicly traded water utility companies.)
Despite the slow start, plans for the trust’s first projects have begun to materialize. Initially billed as a $200 million project, the trust board hopes to draw $50 million worth of private investment in energy efficiency retrofitting projects involving public school buildings, water management facilities and other city-owned structures. The city hopes investors will be drawn to potential profits from cost savings that the projects would produce. Backers hope to get financing lined up for the project early this year. Trust board members say they are in no hurry and would prefer things be done right, rather than fast.
“The city of Chicago is the first one to approach its infrastructure needs this way,” said Jorge Ramirez, president of the Chicago Federation of Labor and a member of the board’s trust. “There isn’t really a model for this. We expect to be tackling models as they come up and as problems come up. It’s not terribly complicated but it can get complex.”
In a piece last month for the Chicago Reader, journalist Mick Dumke wrote that the trust was just an evolution in the city’s history of privatization. The bottom line, Dumke writes, is that “the plan would privatize the process of choosing and funding public infrastructure projects.” This next year will prove crucial for the trust and its ability to turn back years of skepticism.