CHICAGO — Honing in on infrastructure investment to revitalize Chicago’s landscape and economy, Mayor Rahm Emanuel put a price tag of $7.3 billion on public works projects planned over the next four years and pressed airlines to support a fourth new runway at O’Hare International Airport.
Emanuel laid out the “Building a New Chicago” program for the city and its sister agencies in a speech Thursday at a union headquarters. Most of the projects have previously been announced.
Emanuel pointed to the need to keep an $8 billion runway expansion plan at O’Hare on track and called on airlines “to begin planning with us today, so we can add a fourth and final runway” to reduce delays by 80% and increase capacity by 300,000 passengers by 2015.
Last year, American Airlines and United Airlines, which together account for about 80% of flights, sued the city to halt an impending bond issue for projects the airlines had not yet signed off on as part of the ongoing O’Hare Modernization Program. The city had wrapped up financing for the first OMP phase totaling $3.3 billion and wanted to embark on financing another $3.36 billion.
With the help of federal authorities and funds, the city and airlines agreed to a compromise to finance $1.17 billion worth of projects. The parties agreed to return to the table and reach agreement on remaining projects by March 2013.
Chicago wanted to complete the OMP by 2014. That date has been pushed back to at least 2016. Plans for a new $2 billion terminal remain on hold.
The airlines offered lukewarm responses. “We will continue to work with the city on demand-driven projects,” a United spokeswoman said.
American, which is currently reorganizing under federal Chapter 11 bankruptcy, said it is focused on its restructuring. “We are very willing to listen to the city and engage in conversation, but our immediate focus is on coming out of restructuring a strong and vigorous competitor in the Chicago market,” the airline said.
Emanuel bills the $7.3 billion in spending as a means not only to revitalize the city, but also to produce more than 30,000 jobs. Planned investments include $1.4 billion for water system improvements, $1.1 billion for the Chicago Transit Authority, which has announced a massive rebuilding of one of its rail lines, and $1.5 billion for city transportation projects.
The figure also includes a previously announced $479 million capital program for the City Colleges of Chicago, $1.4 billion in airport projects, $660 million for school buildings, $308 million in Public Building Commission projects, and $220 million for energy-efficiency upgrades that are to be funded through the proposed Chicago Infrastructure Trust.
“By neglecting our infrastructure for nearly four decades, we have allowed Chicago’s foundations to decay and our strengths to decline,” Emanuel said.
The speech was vague on funding details, though plans that include a mix of borrowing, state and federal aid, private investment, and user fees such as water rate increases for some projects have previously been announced.
“Some of the investments will be funded through reforms, some through efficiencies, some through cuts in our central offices, some through direct-user fees, and some from our infrastructure trust. But all of it is secured. … None of these funds will come from raising taxes,” he said.
Emanuel’s infrastructure plans come as the city is grappling with growing pension liabilities of about $15 billion and rising personnel costs that are squeezing its budget. Some sister agencies are struggling, too. Chicago Public Schools announced this week a deficit of $600 million to $700 million in its next budget, and it has been strained by the rising costs of repaying $5.7 billion of debt issued to rebuild schools.
While Emanuel said the city has neglected infrastructure, it also faces rising debt-service costs to cover borrowing the mayor’s predecessor, Richard Daley, undertook to make downtown and neighborhood improvements and rebuild police and fire stations and libraries. Debt paid primarily by taxpayers totals $10.6 billion. The cost to service the debt has risen to $1.2 billion for all debts, up from $535 million in 2001.
The speech comes ahead of an impending vote by the City Council on the infrastructure bank proposal recently unveiled by Emanuel. The city has agreements with a handful of private investment and financing firms to consider financing more than $1 billion of projects. It has said the trust would be an alternative method of paying for projects with defined revenue streams, such as energy savings or through the imposition of special fees or surcharges.
Alderman Edward Burke, the chairman of the Finance Committee, said Emanuel’s Thursday speech “pulls it all together pretty dramatically.” He said more information from the administration was needed on the infrastructure trust before commenting on its viability as a financing method.
One investor analyst who follows the city’s credit endorsed Emmanuel’s attempt at boldness, but also cautioned that grand plans need a reality check. “You want to be bold and show that you have a long-term vision as a leader,” said Richard Ciccarone, chief research officer at McDonnell Investment Management LLC. “But the city is walking a tightrope because it has big liabilities like its pension obligations that are a drain on the available resources.”
The city has seen its average age of infrastructure rise to 12.5 years in 2010 from 8.7 years in 2004. “It is a sharp increase and there’s no doubt that investment is needed for Chicago to keep its world leadership position,” Ciccarone said.
