When the now-embattled Chicago Mayor Rahm Emanuel announced, shortly after his 2011 election, his plan to create an infrastructure trust, the idea sounded pretty good — at first. When the details came out — that the trust would be a private, opaque financing platform separate enough from government to not be beholden to public inquiry or FOIA requests — many privatization-weary Chicagoans braced for the worst. And why not? It turns out that so many Wall Street style “innovations” in real estate and infrastructure finance (the Chicago-style TIF comes to mind) do less to address civic need than they do to provide unaccountable disbursements to developers of already-desirable city land.
At the time, Bill Clinton characterized the idea as an “infrastructure bank”. But banks have one typical advantage that the Chicago Infrastructure Trust doesn’t: capital to allocate. As it turns out, far from a bank, the Trust is little more than a lightly-staffed financial innovation laboratory headed by a private equity guy. This is the lesson in a recent Crain’s Chicago Business piece, confusingly titled “Emanuel’s Infrastructure Trust Looks To Help Commercial Landlords“. I say the piece is confusingly titled because it appears the “help” landlords can look forward to consists mainly of a tax hike:
Yet Mr. Beitler manages to keep expectations high by touting a $1.5 billion pipeline of potential deals, including a voluntary property tax assessment of commercial properties to pay for energy-related improvements. The trust is evaluating a dozen proposals totaling about $1 billion from 15 firms for the Property Assessed Clean Energy program, although not all those Pace bids will be accepted, he adds.
The trust’s slow progress is the result of several factors, including the novelty of a middleman trying to bring together City Hall and investment firms. Despite its hype, the trust is a small venture, financed with an estimated $1.5 million in city funds over its first two years (see the PDF). And the deals are difficult to do, with Mr. Beitler discarding more than a dozen proposals.
While the cash-strapped city’s need for “transformative” improvements in transportation and other infrastructure has not gone away, the trust has suffered from overly ambitious predictions.
“When the trust was set up there were certainly some high expectations set up for it,” says Peter Skosey, an expert on infrastructure finance and executive vice president of the Chicago-based Metropolitan Planning Council, where the trust’s board holds its meetings. “Many of those expectations weren’t warranted.”
So it’s an infrastructure trust, if you consider swimming pools infrastructure. It’s an aid to commercial landlords – if those landlords aren’t paying enough taxes. It’s a bank – but it has no money to lend. And it’s somehow a boon to the public – as long as the private equity deals are complicated enough and profitable for a very few.