CHICAGO – Billed as the first-of-its-kind financing vehicle for municipal infrastructure, Chicago Mayor Rahm Emanuel unveiled a new trust program on Thursday that will tap private investment to help fund projects.
The city has identified $200 million worth of energy efficiency projects at city facilities and schools to be funded through the Chicago Infrastructure Trust with anticipated savings of $20 million to the city’s annual $170 million bill for energy consumption.
Officials have grander plans to eventually tap the trust on a broader scale for projects tied to transportation, education and utility assets owned by the city and its sister governments, including the Chicago Transit Authority and Chicago Board of Education. The city released letters from a handful of private investment and financing firms that have agreed to consider financing more $1 billion worth of projects.
“Nothing is more crucial to our long-term competitiveness and job creation than infrastructure,” Emanuel said at a news conference. “The Chicago Infrastructure Trust will bring additional resources to stimulate public and private investment in our infrastructure, create thousands of jobs for Chicagoans, and ensure that our residents have a world-class quality of life.”
Emanuel was joined at the new conference by former President Bill Clinton, whose foundation works on energy efficiency initiatives with large cities globally although he is not a participant in the new trust. They said similar financing vehicles were in use by cities in other countries, but Chicago’s initiative marked a first in this country.
Faced with dwindling state and federal resources and strapped for bonding capacity to meet its infrastructure needs without raising taxes, city officials said the program offers an alternative to the traditional model of financing public works.
City officials said the trust would serve as a financing method for projects with defined revenue streams such as energy savings or through the imposition of special fees or surcharges. A revenue stream is needed to both repay investors and offer some return. The city’s chief financial officer Lois Scott is the administration’s lead on the program.
The city has non-binding agreements from Citibank NA, Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., JP Morgan Asset Management Infrastructure Group, and Ullico to consider investing in projects through various financing structures. Ullico is a privately held union-sponsored insurance and investment company.
Combined, the firms have indicated an initial investment capacity totaling more than $1 billion. The city would use the trust to develop specialized and economical financing structures to fund specific or pooled projects. The structuring options include the use of private equity from the firms, vendor financing, and traditional tax-exempt and taxable borrowing, along with other methods that leverage specific revenue streams or a pool of revenue sources.
“The door to a new era of modernization, recapitalization and rehabilitation of Chicago’s valuable public capital investments has been opened today,” said long-time Chicago-based Citi public finance banker Ray Kljajic.
An ordinance creating the trust is expected to be submitted to the City Council this month and the trust would be subject to council oversight.