Chicago City Council Approves Infrastructure Trust

April 26, 2012

On April 24, 2012, the City Council passed an ordinance establishing an Infrastructure Trust for the City of Chicago. Introduced by Mayor Rahm Emanuel, the Trust is an alternative source of funding that will be used to attract private sector funds to rebuild the City’s aging infrastructure. At a time when capital funding from the federal government and State of Illinois is scarce and the City’s debt levels are high, the Trust aims to open investment opportunities from new sources that would otherwise be unable to invest in the City’s infrastructure. These include charitable organizations, foundations, unions and pension funds.

Overview of the Infrastructure Trust Ordinance and Executive Order 

The Trust will be a registered Illinois not-for-profit organization, governed by a Board of Directors consisting of five voting members who are appointed by the Mayor and approved by the City Council. A City Council member will serve as one of the five voting members. In addition, the Mayor will appoint three non-voting members consisting of commissioners, officials or employees of the City or its coordinate units of government[1] who will serve as advisory members.

The Trust will act as an administrative body managing all projects and contracts. Each project will be independently engaged and financed through a grant agreement approved by the City Council or related governmental units. The Trust must act in accordance with the Illinois Open Meetings Act and the Illinois Freedom of Information Act (FOIA), and must comply with City procurement rules including the Minority-Owned and Women-Owned Business Enterprise Procurement Program.[2] The ordinance states that prior approval of the City Council is required for any transaction that uses or anticipates using City funds or assets.[3] The Trust will also be required to submit to the Mayor and City Council annual reports detailing the activities of the prior year including investments, projects financed or supported by the Trust, articles of incorporation and by-laws and the annual financial statements.

On April 24^th, in response to the concerns of several aldermen, Mayor Emanuel issued an executive order regarding the Infrastructure Trust. The Order establishes an independent financial advisor to represent the interests of the public. The advisor will provide written risk and cost and benefit analyses for all transactions to be delivered to the Mayor and City Council ten days prior to any vote on the matter. In addition, the Order mandates the Trust to commission an independent third party to analyze the impact of the Trust overall and the projects it has undertaken on an annual basis.

How the Infrastructure Trust Will Work 

Mayor Emanuel’s administration has proposed using the Infrastructure Trust to fund its RetroFit Chicago project. According to Chief Financial Officer Lois Scott, the administration does not currently have other projects under consideration[4] though the City has a large backlog of identified infrastructure needs. RetroFit Chicago aims to centralize energy efficiency projects across the City and its coordinate units of government. By “tapping into private investment, the Trust will accelerate retrofit projects that would otherwise not have been possible.” [5] According to the City, the project will spend $200-$225 million to reduce energy consumption by 20 percent, reducing energy costs by more than $20 million annually and creating approximately 2,000 construction jobs.[6] The cost savings will be shared with the investors in the project so they can recoup their investment.

Though the City has not yet identified other potential projects, similar infrastructure funds and banks have been used around the world to fund public infrastructure. The PPP Canada Fund “works with provincial, territorial, municipal, First Nations, federal and private partners to support greater adoption of public-private partnerships in infrastructure procurement.” In its third year of operations, PPP Canada received 121 submissions for projects, of which 80 were from municipalities. More than 20 percent of the submissions were in transportation-related projects, 20 percent in water and wastewater and 12 percent in green energy.[7] One such project, the upgrading of the Evan-Thomas Water and Wastewater Treatment Facility is a “Design, Build, Finance, Operate, Maintain” project, where the private company performs the afore mentioned tasks and receives payments from the government in return. Alberta, Canada will maintain ownership of the asset, but will pass on some risks to the private company, lowering the cost of improving the asset. For more information about how P3 financing works, see this presentation from the Civic Federation’s 2012 P3 Conference.

The Legislative Process 

Introduced by the Mayor to the City Council on March 14, 2012, the Infrastructure Trust ordinance was examined by Council members for approximately five weeks before passage. In response to initial concerns, Mayor Emanuel issued a substitute ordinance that strengthened the FOIA compliance language, improved language about financial reporting and added a member of the City Council to the Board of Directors among other edits.

The substitute ordinance was debated in the Finance Committee on April 16, 2012, where CFO Lois Scott responded to questions from aldermen on transparency and the FOIA exemption, oversight by the City Council of City-related projects and coordinate government projects, increases in user fees for City-owned or coordinate government-owned assets and whether there was sufficient time to examine the ordinance. The Finance Committee voted in favor of the ordinance with a vote of 11-7. The seven opponents were Aldermen Dowell, Hairston, Lane, Cochran, Munoz, Waguespack and Reilly. The aldermen most strongly objected to what they considered to be inadequate oversight and transparency measures.

In response to the concerns raised in the Finance Committee, Mayor Emanuel announced that he would issue an executive order establishing an independent financial advisor to represent the public’s interest. In addition, the Order mandates the Trust to commission an independent third party to conduct an annual review of the Trust’s activities.

At the April 24^th City Council meeting, Aldermen Fioretti and Waguespack both offered amendments to Mayor Emanuel’s ordinance. Alderman Waguespack’s substitute ordinance would give the City Council approval authority over all transactions of the Trust including those of coordinate units of government. It also required quarterly reports instead of annual reports and included additional oversight mechanisms and language related to the Trust’s transparency. The amendments were tabled by votes of 39-9 and 40-8, respectively.

The final vote on the Mayor’s Infrastructure Trust ordinance was 41-7 with Aldermen Arena, Fioretti, Foulkes, Hairston, Munoz, Reilly and Waguespack voting against the measure.

[7] See Overview and Milestones of PPP Canada on their website available at http://www.p3canada.ca/ (last visited April 25, 2012).