The Chicago Infrastructure Holds First Meeting

CHICAGO — The Chicago Infrastructure Trust formally set up shop Thursday as Mayor Rahm Emanuel's board appointees took their seats and began discussing how the new nonprofit will serve as an alternative financing vehicle to leverage private investment for special projects.

In one of its first orders of business, the board will search for an executive director. The board said at first meeting Thursday it may also use a financial adviser on a pro bono basis or from the city's pre-approved list before searching for its' own independent adviser.

Mayer Brown LLP partner David Narefsky, who assisted the city in crafting the trust ordinance, is providing legal advice on a pro bono basis.

The board's initial funding comes from a $2 million grant from the city.

The board includes chairman James Bell, a retired Boeing Corp. executive; Diana Ferguson, former chief financial officer for the Chicago Public Schools; David Hoffman, a partner at Sidley Austin LLP and former city inspector general; Alderman John Pope, and labor leader Jorge Ramirez.

In deciding policies and in its review of financing plans, Bell said, "Our intent is to be completely transparent and independent."

The City Council approved creation of the trust in April. The administration has billed it as an innovative alternative to traditional municipal financing that will parlay private investment and jump-start projects that create jobs. The administration contends it's needed to offset dwindling state and federal funds.

It won't replace traditional borrowing as Chicago would use the trust for what has been labeled as ambitious and transformative projects that offer a defined revenue stream, such as savings or user fees.

It would allow the city to preserve its strained bonding capacity for routine projects and maintenance and help raise financing for projects without handing over operation of assets to private investors. That is now a toxic notion in Chicago due to lingering resentment over the unpopular $1.15 billion parking-meter system lease to private investors in 2009.

The board laid the groundwork for the future review of its first projects, dubbed Retrofit Chicago, to seek $200 million in financing for energy upgrades to facilities owned by the city and its sister agencies. The savings estimated at $20 million annually would go to repay private investors.

Chicago chief financial officer Lois Scott laid out for the board the city's goals in its use of the trust and why in some cases it's expected to serve the city better than traditional bond financing.

The city wants to raise capital through investors and others that are not accessible under traditional government borrowing methods, such as pension funds, union-friendly investors, community reinvestment act funds, and equity and infrastructure investors. "We want to tap into that much much broader investor market," Scott said.

Chicago has nonbinding agreements from Citibank NA, Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., JPMorgan Asset Management Infrastructure Group and Ullico to eye investing up to $1.7 billion.

The city would aim in its use of the trust to transfer project risks off taxpayer rolls and on to investors. It anticipates crafting a financing with a diversified debt structure that includes equity contributions, possibly grants, and senior and junior debt.

Scott also shed some additional light on the timing of the $200 million in energy projects slated for financing through the trust. The city expects to divide the various projects into four tranches, with plans to bring the first group totaling $25 million to $50 million to the board as soon as October. Those projects would focus on city fleet management facilities and schools.

A second tranche of $100 million would finance water management projects involving the conversion of steam to electric power at pumping stations. A third tranche of $25 million to $50 million for mostly city and school projects would mark the third phase, and a fourth phase involving other city and sister agency projects would be determined over the next 18 to 24 months, Scott said.

"It is still very much under development and very fluid," she cautioned. The city anticipates it would craft a general financing package for projects and then bring it to the board for input and review.

Scott said the city had considered traditional borrowing for the energy projects, but decided the trust would be efficient because of the ability to pool projects among the city and sister agencies to come up with a larger stream of revenue to attract investors. She acknowledged that in some cases traditional bond financing might prove on the surface more inexpensive, but the city also assigns a value to transferring risk off taxpayer rolls and to expanding its universe of investors.

As the trust begins its work, market participants have offered mixed reviews ranging from hopeful to skeptical over its broader use by other local governments. That's due to the difficulties in identifying and leveraging viable revenue streams to secure private investors and the current allure of the muni market's attractive interest-rate environment.

Bell repeatedly stressed the board's commitment to transparency in reviewing projects, a nod to the debate during the council's review of the trust ordinance. Some aldermen and public interest groups pushed for greater council oversight of the trust's business and more stringent rules regarding enforcement of ethics and other laws to protect taxpayers.

Hoffman was the most vocal in questioning Scott on the projects and how the value of an alternative financing would be assessed, and in discussions with Bell over transparency, independence and conflicts of interest. He believes the city's current inspector general should be able to review the trust. The energy projects remain the only ones currently in the city's crosshairs for trust financing.

Pope also stressed that the trust would focus on capital projects with a specific revenue stream to repay private investors.

"You've got to be sure that exists," he said.

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