Chicago jumped to the forefront of infrastructure financing last week when its City Council voted overwhelmingly to approve the establishment of the Chicago Infrastructure Trust (CIT), a quasi-governmental entity designed to leverage private investment from a consortium of banks to allow Chicago to undertake up to $7 billion in infrastructure projects. Projects already slated for CIT funding include $200 million in energy-efficient projects at certain city facilities.
By using CIT to finance projects with defined revenue streams—without relying on federal and state grants and tax-exempt bonds—the city will conserve its strained GO and revenue-backed bonding capacity for other projects.
Private investment in public infrastructure projects is a common way to bridge funding gaps internationally, but the model is relatively untested domestically. Proponents contend that public-private partnerships, or P3s, alleviate the pressure on taxpayers and the federal and state governments, but critics worry that the model allows private investors to benefit at the expense of the public good.
Although Chicago’s City Council ultimately approved the CIT by a vote of 41-7, the plan sparked a good deal of controversy. Opponents of the plan expressed two main concerns: the city’s risk and whether there would be enough oversight and monitoring of the CIT’s actions.
The ordinance establishing the CIT clearly states that the city’s full faith and credit cannot be pledged behind a financing under the CIT. Some aldermen, however, believe that the city might have to step in to rescue a foundering project in order to avoid damaging its perception in the municipal market.
CIT’s financial independence from the city is illustrated by its ability to act on projects without City Council’s approval. Projects funded by the CIT and the city together will be reviewed by the Chicago inspector general, but projects funded solely by CIT that do not involve city assets, land, or grant funds (the majority of the projects) do not require approval by City Council.
Cities nationwide are struggling to balance cuts in federal and state-level funding with the critical need to improve and expand infrastructure. These cities will be watching Chicago now to see if the CIT can provide a viable solution to their fiscal challenges.