CHICAGO — First-term Chicago Mayor Rahm Emanuel is banking on billions of infrastructure investment and government operating reforms, with some help on both fronts from the private sector, to help re-invigorate the city’s economy.
That was the message Emanuel — who took office a little over a year ago — sent Monday to the fiscal managers of the country’s local and state governments in his keynote address to the Government Finance Officers Association’s annual conference here.
“Number one, invest in our infrastructure,” he told the crowd of his strategy for energizing Chicago’s economic and physical landscape. He also separately announced his board picks for the Chicago Infrastructure Trust, a new financing tool created earlier this year to leverage private investment in some special projects.
The mayor’s choices represent a mix of financial, legal, political, development and labor backgrounds. They include James Bell, retired executive vice president at Boeing Corp.; Diana Ferguson, former chief financial officer for the Chicago Public Schools and former CFO for Sara Lee Foodservice; David Hoffman, a partner at Sidley Austin LLP who formerly held the post of city inspector general; Alderman John Pope, and Jorge Ramirez, president of the Chicago Federation of Labor.
Emanuel’s infrastructure strategy relies on a mix of traditional financing methods and the new trust to bring the city’s physical shape up to “21st standards,” he said. Earlier this year he put a price tag of $7.3 billion on planned public works projects.
The projects, most previously announced, are planned over the next four years by the city and its sister agencies, including the Chicago Transit Authority and City Colleges of Chicago, and are projected to create 30,000 jobs. The city also hopes to keep its ongoing $8 billion runway expansion of O’Hare International Airport on track although the facility’s major airlines are resisting portions of the plan.
The package also anticipates spending $220 million for energy-efficiency upgrades that would mark the first use of the new infrastructure trust. The energy savings will go to repay private investors.
The mayor said he anticipates using the new trust as a means to parlay funding from private partnerships, union investment and foundations to help complete “transformative” projects and to complement more traditional financing methods like tax-exempt borrowing. “That’s how we have looked at it,” he told the crowd.
Faced with revenue growth that has failed to keep pace with spending demands and a rising pension burden, Chicago is strapped for sources to bolster spending on infrastructure as it has been strained by a sizeable debt burden at 6.4% of market value due to heavy borrowing to finance capital projects, retroactive pay raises and slow debt amortization. Market participants are watching closely to see how the trust will work.
Although some public advocacy groups and City Council members have pushed for more stringent governance and oversight of the trust and its deals, it easily won council approval in April. A group of private banks and investors have committed to consider financing up to $1.7 billion of projects with defined revenue streams.
On operating reforms, Chicago has shifted to open up some services like recycling and tree trimming to competition with the private sector to lower costs.
Emanuel also underscored the significance of education reforms to his economic strategy, shifting how the city’s two-year colleges train future workers to focus on growing sectors like health care, transportation distribution, culinary jobs, and advanced manufacturing.
The mayor touted the city’s move in the 2013 budget to sharply reduce a reliance on one-time revenues to eliminate red ink. Reform government, get your financial house in order, strengthen schools, and invest in physical infrastructure “and you are going to grow your economy,” according to Emanuel.
He stressed the need to tackle pension reform but Chicago has made little headway on that front and was recently slapped with a negative outlook from one rating agency for it. The city is weighed down with $15 billion of unfunded liabilities and faces an estimated $700 million annual hike in payment in 2015 due to state mandated reforms.
Emanuel asked the Illinois General Assembly last month to include a city pension restructuring in a state pension overhaul. Lawmakers did not oblige. The proposed legislation ended up being derailed due to partisan bickering.
The mayor portrayed the pension reform movement as one that should be billed as “retirement security” and stressed the need for a solution to protect both employees and taxpayers. He blamed skyrocketing unfunded liabilities on the decisions of past leaders who promised unaffordable benefits and used unrealistic 8% investment returns.
“It must be done respectfully and collaboratively,” he said of the need for a political and labor partnership.
Emanuel also shared his philosophy on using the fiscal minds in his own administration. He sees the CFO role as instrumental in shaping his fiscal policies, but said it’s just one person who is part of “collaborative group.” Meetings are held weekly that include CFO Lois Scott, budget director Alexandra Holt, comptroller Amer Ahmed and others to discuss key issues.
The trust board appointments will be submitted to the City Council later this month and mark the next step in getting the trust up and running. The board will oversee the trust, work with the city and its sister agencies to decide on potential projects, and manage the structuring of deals.