Apr 15, 2012
Illinois PIRG is calling on aldermen not to approve Mayor Emanuel’s infrastructure investment trust without more public safeguards, and the Grassroots Collaborative is urging a “no” vote on the proposal.
Leaders of community groups and union members in Grassroots Collaborative will hold a press conference Monday, April 16 at 9:30 a.m. on the 2nd floor of City Hall to call on aldermen to vote against the ordinance establishing the trust.
The council’s finance committee holds at hearing on the ordinance at 10 a.m. Monday.
Emanuel’s new tweaks to the ordinance go just partway to addressing the groups’ concerns. “He’s dealing with the easy stuff,” said Celeste Meiffren of Illinois PIRG.
PIRG has called for far more stringent conflict-of-interest protections than Emanuel has offered: “Members of the board of directors should be free from conflicts of interest and instead should represent Chicagoans as primary stakeholders,” Meiffren writes in a blog post.
She calls for requiring board members to divest from any holdings in companies doing business with the city and in banks investing in the trust, and to agree not to work for them for a period after serving on the board.
As it stands the board looks to be comprised of CEOs and CFOs who will be “controlling taxpayer assets” and “accountable to nobody,” Meiffren said.
She doesn’t think putting an alderman on the board “solves the problem.” She’d like to see watchdog groups represented on a board structured so that business leaders had a purely advisory role.
More bad backroom deals
Beyond that are larger concerns about the purpose of the trust. “The ordinance is so vague that worst-case scenarios are really possible,” said Meiffren.
PIRG says the trust should be specifically committed to getting the best deal for the city and taxpayers rather than investors; and each deal should be subject to an independent evaluation to make sure that happens.
“There’s nothing in the ordinance that would prevent another bad backroom deal from happening,” Meiffren said. “We have a history of bad deals, so we need to go above and beyond to ensure that taxpayers aren’t ripped off again.”
She cites the one project Emanuel has specified for the trust: a $225 million effort to retrofit city buildings for energy efficiency. “Why can’t we do that with municipal bonds, which will get us a much better interest rate?” she asks.
“Instead of just going to private investors every time, we need a mechanism for determining what the best deal is – that evaluates every deal against other options,” she said. “Nothing here does that.”
While the city does have a large debt load, its bond rating remains strong, and it continues to issue bonds: last October Chicago issued over $400 million in general obligation bonds and $330 million in sales tax revenue bonds.
Who will pay?
Grassroots Collaborative is concerned that low- and middle-income communities will be shortchanged by the trust, said Eric Tellez.
“We’ve seen the TIF program focus resources downtown,” he said. “With (infrastructure trust) investors’ goal to make money,” they could also concentrate on downtown and wealthy areas, he said.
And user fees to pay back private investors could hurt moderate-income residents. “It injects a profit-making factor into public assets,” Tellez said.
“It could open the gate to [creating] revenue-generating streams for public services,” he said. “Will we have to pay to go to the park? Will higher fares prevent people from getting to work?”
Such concerns are fed because “we haven’t been given any details,” he said. “The actual proposal doesn’t have a lot of clarity.”
The trust could also “create a union-busting environment” if there’s pressure to cut labor costs in order to pay back investors, he said.
The Illinois Coalition to Protect the Public Commons has also come out against the deal. “It is too big, too vague, too secretive and too unaccountable,” said Lora Chamberlain of Illinois Citizens for Public Banking, a coalition member.
“We don’t put money into a farebox to make some guy rich,” said Charles Paidock of Citizens Taking Action, a group of public transit-dependent residents.
As the Emanuel administration stretches for the most creative and innovative solutions to the city’s financial situation, it’s worth noting that these often entail higher risk. One innovative approach in recent years was the variable-rate bond issued by many municipal entities. The costs of these deals have been much higher than anticipated.
Chamberlain cautions that the trust should offer investors revenue sharing rather than dedicated revenue streams, an approach that has gotten some European countries into deep trouble.
Her group offers a much more conservative approach: a public infrastructure bank. It would leverage a portion of the city’s TIF surplus to fund infrastructure projects, but the rate of return would be kept relatively low and the city would retain control over public assets.
Their model is the Bank of North Dakota, the nation’s only state-owned bank, created during a populist upsurge in 1919. BND holds the state’s deposits, lends to small banks in the state, and sends half its profits back to state coffers. It’s part of the reason North Dakota has no deficit.
On the other hand, there’s lots of money out there looking for public investments right now – especially as big financial firms back off trading under pressure from new regulations.
They’re looking for the safety of public investments and hoping for something approaching the high profit rates they got used to during the boom, said Tellez. “They want to have their cake and eat it too,” he said.