Yesterday the City Council met to consider Mayor Rahm Emanuel’s proposed Infrastructure Trust, which allows for another method of funding major infrastructure improvements in the City. For a copy of the ordinance, click on the attachment below:
The ordinance is termed a “Substitute Ordinance” because it is a substitute for the original ordinance, which was introduced six weeks ago. The substitute ordinance, which is the result of weeks of negotiation between members of the City Council and the Mayor, represents a significant improvement over the original proposal. It gives the City Council final authority to approve all city-related projects, adds a City Council representative to the Trust and includes additional protections to ensure accountability and transparency.
In summary, I voted to support the formation of the Infrastructure Trust because it provides an important alternative for funding needed infrastructure improvements in our city at a time when traditional sources for infrastructure funding are becoming less available. As a long-time advocate for good government, I am confident the ordinance contains sufficient safeguards to protect the taxpayers and guard against fraud and corruption.
I want you to understand my reasons for supporting the Infrastructure Trust. Below is a transcript of my remarks, which I delivered yesterday during the City Council debate on the measure. I know it’s lengthy, but a lot has been written about this unique proposal, and my support for it requires a thorough explanation. Please feel free to reply to this e-mail with your questions and comments.
Alderman Joe Moore’s Statement on the Proposed Infrastructure Trust
April 24, 2012
Mr. Mayor and members of the City Council, last February, residents from the 49th Ward and other north side communities gathered to hear CTA officials present the latest the latest updates on the CTA’s proposed Red and Purple Line Modernization Project. The proposal calls for a long-overdue modernization of a train line that is nearly 100 years old.
OUR INFRASTRUCTURE NEEDS
The overhaul cannot come soon enough. Viaducts, retaining walls and embankments are crumbling. Train stations are dank, dingy and inaccessible. Trains slow to a crawl on old and uncertain tracks. Commuters cannot count reliably on the rail system to get them to their jobs and other appointments on time
The proposed overhaul of the Red and Purple Lines would provide modern amenities at the train stations, extend the useful life of the system for the next 60 to 80 years, increase speed and reliability, and address safety and accessibility concerns. Platforms would be widened, travel times decreased and viaducts reconstructed to be safe and secure.
On the south side, the CTA proposes to extend the Red Line from 95th Street to 130th Street. Extending the Red Line would provide a lifeline to residents on the City’s far south side and south suburbs, many of whom are low income without cars and have no convenient access to regions with employment opportunities. A Red Line extension also means increased economic development in and around the new transit stations, bringing jobs and retail amenities to economically deprived sections of the City.
Both proposed CTA developments would create thousands of construction jobs and boost economic growth for the entire region. These are the types of projects that are the hallmark of a great City.
But they are not inexpensive. The CTA estimates the Red and Purple Line Modernization plan will cost upwards of $4 billion. Extending the Red Line to 130th will cost $1.4 billion.
The Red and Purple Line modernization and the Red Line extension aren’t the only initiatives to want for an identifiable funding source. Billions of dollars of unfunded capital needs exist throughout the City. Schools, parks, roads, bridges, water and sewer and other services and facilities require significant and on-going improvement and upgrades.
OUR FINANCIAL CHALLENGES
Where will the money come from? The federal government? The feds once heavily subsidized mass transit, but federal funding has become increasingly inconsistent and unreliable. The State? Illinois is near broke with no money to hand out. The CTA’s own capital budget? The CTA can’t even keep up with its routine capital needs.
Not only are federal and state resources no longer available, but the City of Chicago is itself increasingly unable to provide for its capital needs under traditional bonding methods.
Ordinarily, the City pays for capital projects by issuing General Obligation bonds. In other words, the City borrows money which is paid back over time through our property tax levy. However, it is becoming increasingly difficult for the City to rely on this traditional method of financing.
Why? Because our City is drowning in debt. In the last ten years, the city’s direct debt rose by nearly 100 percent–to $7.3 billion. That’s $2,719 for every man, woman and child living in Chicago. The debt rises to a staggering $13.5 billion when pension and lease obligations, claims and judgments and pollution remediation are factored in.
Debt service accounts for 23% of this year’s City corporate budget. Wall Street rating agencies consider a debt burden high if it falls within the 15 to 20 percent range, according to the Chicago Civic Federation. And just as a credit card company increases the interest on our card when we have a lot of personal debt, the City’s credit rating agencies increase the rates the City must pay to borrow money when it has a high debt burden.
TWO UNTENABLE CHOICES
Absent an alternative method for financing infrastructure improvements, we have two choices. We can raise property taxes to cover additional debt service, an untenable alternative during these tough economic times when our existing debt burden is so high.
Or we can adopt an even more untenable alternative and simply fail to invest in new and transformative infrastructure. Adopting this approach is a recipe for economic disaster. Cities that fail to invest in their infrastructure are cities in decline.
The strongest economies in today’s world are fueled by investment in infrastructure. Reuters News Service reported last Sunday that China is set to speed up its spending on roads, railways and utilities to boost economic growth. Reuters quoted the head of China’s investment association as saying that boosting investment is the only choice to bolster growth and that “China has to rely on infrastructure investment to manage economic slowdown.”
The Chinese get it. Investment in infrastructure equals jobs and economic growth.
Fortunately, our Mayor gets it, as well.
A THIRD ALTERNATIVE
His Chicago Infrastructure Trust proposal provides us with a potential alternative option to finance new and transformative infrastructure projects without adding to the City of Chicago’s debt service load and further burdening Chicago’s property taxpayers. Rather than rely primarily on public financing, the Trust will combine city grant money with private sector capital investments to fund major infrastructure projects. Without the existence of the Trust, that private financing would be difficult if not impossible to attain.
Given Chicago’s checkered past, it’s understandable why the public might be skeptical about this novel approach. And I commend my colleagues on the Council for giving voice to those concerns and working with the Mayor to improve his original proposal.
SEPARATING FACT FROM FICTION
But it is also incumbent upon us in this City Council to take the time to separate fact from fiction, conduct our own examination of the ordinance and the relevant laws and not accept as gospel every pronouncement from well-intentioned good government watchdogs and newspaper editorial boards.
Let’s look at the facts.
Fact Number 1: The City Council will retain the right under section 6 of the ordinance to approve any Trust transaction that uses City funds, revenues, assets or properties. That provision is clear and unambiguous. We’re not surrendering a thing.
Some observers, including a few members of this body, have expressed concern that our approval authority does not extend to the City of Chicago’s “sister agencies”–the Chicago Transit Authority, Board of Education, Park District and Chicago Housing Authority. Each agency was created by the Illinois General Assembly as an independent political body with its own board that exercises jurisdiction over its functions.State law simply does not give the City Council any authority over these independent agencies and boards.
As a matter of policy I believe the City Council should exercise approval authority over infrastructure projects involving sister agencies. We are, after all, elected by and accountable to the taxpayers. But the law is the law, and in this case the law is clear and unambiguous. The City Council has no jurisdiction over the independent agencies.
Some of our City Council colleagues have proposed amendments to the proposed Infrastructure Trust Ordinance that would give us final approval authority over the projects of the sister agencies. Others purport to extend the authority of the City of Chicago’s Inspector General over those agencies. My friends, let’s be honest with our constituents and tell them the truth. We can’t do what the law clearly prevents us from doing.
Fact Number 2: The Trust is not about the privatization of city assets. This is not another parking meter deal. In fact, it’s the antithesis of the parking meter deal. The Trust is simply an alternative source of financing that does not require us to sell a city asset or issue more municipal bonds in order to fund infrastructure improvements.
Again, the City Council will have final say on any Trust transaction, so in the unlikely event the Trust proposes a city asset privatization, the Council would have the ability to reject the deal.
Fact Number 3: Municipal bonds do not always provide the best value for taxpayers. Some observers have claimed that any deal put together by the Trust would invariably be more expensive than a municipal bond deal. The Trust allows the City to structure deals to access foundation funding or other types of funding that are not traditionally available. It’s important to note that interest rates are only one of many factors that determine the total cost of a project. Factors, such as cost overruns and extra supplies, which are almost always borne by the government under traditional financing, would be borne by the private sector in projects financed through the Trust.
Once again, the City Council would have the final authority to reject a proposal if it believes a traditional municipal bond financing scheme is more beneficial to the taxpayers.
ETHICS, ACCOUNTABILITY AND TRANSPARENCY
Finally, much of the opposition to the Trust Ordinance has centered on the issues of ethics, accountability and transparency. I commend my colleagues for raising those issues in a forceful and resolute manner and I commend the Mayor for responding to those concerns with a substitute ordinance, which clarified that theEthics Ordinance, the Freedom of Information Act and the Open Meetings Act apply to the Trust Ordinance.
I also applaud the Mayor for his Executive Order, which will bring more transparency and accountability to the process. The Executive Order provides for a 15-day waiting period for Trust activities on City-related transactions and an independent financial analyst who will evaluate each transaction for risk and cost and compare it to alternative financing arrangements.
For a copy of the Mayor’s Executive Order, click on the attachment below:
Given that the Trust doesn’t fit the mold of a traditional City department or agency, it is not surprising that questions would arise regarding the applicability to the Trust of laws governing ethics and transparency. I commend Alderman Scott Waguespack for asking the Inspector General to weigh in with his thoughts and suggestions.
As the Inspector General himself indicated in a letter to Alderman Waguespack, “most aspects of the [Trust], as currently proposed and generally understood, would fall within [the Inspector General’s] jurisdiction.” However, he expressed the hope that the City Council would be able to clarify this and other matters before acting on the proposed legislation.
For a copy of the Inspector General’s letter, click on the attachment below:
Based on that suggestion, I asked City of Chicago Corporation Counsel Steve Patton for a legal opinion regarding the following items:
(1) the applicability of the City’s Ethics Ordinance to the Trust and its activities;
(2) the jurisdiction of the Inspector General over the Trust and its activities; and
(3) the applicability of FOIA and the Open Meetings Act to the Trust and its activities.
For a copy of the Corporation Counsel’s legal opinion, click on the attachment below:
As the letter indicates, the Corporation Counsel responded with a resounding “yes” to all three inquiries. Yes, the City Ethics Ordinance applies, yes, the Inspector General maintains oversight over City-related projects; and, yes, the Freedom of Information Act and Open Meetings Act apply. The Corporation Counsel’s legal opinion should prove beneficial if jurisdictional issues arise in the future.
As the Opinion Letter correctly indicates, the City Council cannot by legislative fiat extend the Inspector General’s jurisdiction to matters involving sister agencies, as they are separate legal entities. I understand and share the Inspector General’s frustration with his inability to share leads or cooperate on administrative investigations with other inspectors general. But that legal impediment already exists; it’s not newly imposed by the Trust ordinance. And there is nothing we in the City Council can do within the bounds of the law to give the Inspector General the expanded power he seeks.
That does not mean he has no power to investigate the Trust. In fact, the law is crystal clear that the Inspector General will have the power to investigate anything having to do with City funds and assets. To ensure that this is part of the legislative record allow me to quote from the City Law Department’s unambiguous legal opinion:
“We believe these provisions provide the Inspector General jurisdiction over Trust-financed projects involving the City. . . . If there is evidence of misconduct in a City program that involves financing by the Trust, the Inspector General will have jurisdiction over that program. If the Trust enters into a contract with the City that causes it to be a ‘contractor’ providing ‘goods or services to the city pursuant to a contract,’ the Inspector General will have jurisdiction over the Trust.”
I began my remarks talking about the critical needs on the CTA’s Red Line. The economic health and vitality of my Ward depends on the health on the vibrancy of the Red Line. The residents of my community need the Red Line to get to their jobs and to access stores to purchase the necessities of life. It’s the lifeblood of my community. It’s the lifeblood for the entire North and South side and, indeed, the entire City.
We also need the jobs that new construction will create, which is why the Chicago Federation of Laborunambiguously supports the creation of this trust–not only with their words, but with a commitment to invest millions of dollars into the Trust. They understand investment in infrastructure means jobs for their members.
For a copy of the letter of support from the Chicago Federation of Labor, click on the attachment below:
I have no idea if this Infrastructure Trust will be able to cover some or all the $5.4 billion it will take to rehabilitate and extend the Red Line. But I do know this. In these days of dwindling federal and non-existing state and City resources , it’s probably the only game in town.
I applaud the Mayor and his Administration for their commitment to rebuilding our City’s critical infrastructure and their innovative approach to coming up with the dollars to make it happen.
As with any new and untried approach, there are risks and no guarantee of success. But the only thing worse than trying this new approach, is to do nothing at all.
For these reasons I will vote for this ordinance.