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Emanuel’s Chicago Infrastructure Trust Aims to Circumvent a Delayed Funding Process

Chicago Mayor Rahm Emanuel is leading the push for municipal-level infrastructure investment with the implementation of an Infrastructure Trust that will help fund his massive public works agenda in a similar manner as the proposed National Infrastructure Bank. The gist of such an approach is private sector investment without full-scale privatization.

The concept is not new — several states, many foreign nations and the European Union have infrastructure banks, and a National Infrastructure Bank has been under discussion in Washington for years. But Chicago’s would be the first to operate on a municipal level, and it indicates the scale of Emanuel’s ambitions for his city.

With partisan bickering delaying any progress coming out of Washington, Emanuel took the situation head on. Infrastructure Banks are often viewed as a way around endless politics.

An infrastructure bank offers a way around these problems. Private investors’ money multiplies limited public funds; those investors’ bankers help ensure that politicians don’t prioritize the wrong projects; and the projects themselves remain public — thus avoiding the downsides of true privatization.

However, as Bloomberg points out, this economic model works only for new roads and bridges, and does little to help those in need of revamping and modernized.

Chicago’s approach will probably bear some fruit because local governments face many problems of timing. A city government doesn’t have the cash to make building retrofits that will lower its energy bills, but future savings can pay back the loan and then some. A water utility whose rates are set to break even has expensive leaks, but no general-revenue bonding authority to fix them. A highway department wants to extend a toll road, but its capital budget is constrained. These are all problems that finance can solve because investment can unlock future revenue that can be shared with a lender.

Unfortunately, America’s most dire infrastructure problems are not like this. Most of them are like Pennsylvania’s 6,000 structurally deficient bridges. Replacing these won’t create new value, serve new traffic or generate new economic development, so financing has to come from existing income. And that’s a problem not of timing, but of wealth. Even if a replacement bridge can be financed through an infrastructure bank, the debt service on the loan has to be paid back with existing wealth.

The flip-side to the trust funding method is a need for new and rasied tolls on the new bridges and highways, shifting the economic burden from the taxpayer to the direct user.

If we embrace user fees, opportunities abound. If we turn the Interstate Highway System into a toll network, we can eliminate the federal gas tax. If we accept congestion pricing in city centers, we can subsidize mass transit without resorting to raising local sales taxes. Alternatively, if we force transit agencies to charge customers more so that they operate at break-even levels, they will carry fewer riders, but those riders will get better service.

On the surface (not pun intended), it may seem like a tax on citizens using the city’s infrastructure. But if an Infrastructure Trust allows large-scale projects to be green lit, bringing needed jobs with them, it is difficult not to applaud.


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