CHICAGO (Reuters) - A controversial plan to tap private investment to rebuild Chicago's infrastructure, part of a larger spending plan for $7.2 billion, won approval from the city council in a 41-7 vote on Tuesday.
Mayor Rahm Emanuel pushed the Chicago Infrastructure Trust as a way to pay for projects without the tax increases that would be required if the city pursued traditional financing methods such as the issuance of general obligation bonds.
"Working together, we have a tool here that takes some of that pressure off of the taxpayers," he said ahead of the council's affirmative vote.
Emanuel, who has outlined plans for spending $7.2 billion to rebuild the city's aging subways, sewers and schools, has said the projects would be paid for through the trust and through reforms, efficiencies, cuts in city bureaucracy, and direct user fees.
Each project financed through the trust will have a customized financing structure using taxable or tax-exempt debt, equity investments and other forms of support, according to the mayor's office.
An initial project identified by Emanuel costing up to $225 million would be aimed at reducing energy consumption at municipal facilities, with the energy savings used to pay off private investors.
The mayor in March identified five investors that have agreed to consider projects: Citibank NA, Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc, J.P. Morgan Asset Management Infrastructure Investment Corp, and Ullico.
GREATER OVERSIGHT REJECTED
The council dismissed two attempts by aldermen to amend the mayor's plan to give the council more oversight over the trust, which will operate as a nonprofit organization, and subject it to more public scrutiny. Chicago, the nation's third-largest city, has a reputation for public corruption and for handing out no-bid contracts to friends of the powerful.
Alderman Robert Fioretti, who proposed amendments, noted that interest rates in the U.S. municipal bond market are low. He also raised questions that he said have not been answered such as whether private investors will have a maximum rate of return.
"Beyond the retrofit savings, where are the other revenues coming from?" Fioretti asked. "Who will be on the hook if the returns fall short?"
Emanuel, who postponed the council vote on the plan from last week, said his plan includes 16 changes to address concerns voiced by some aldermen and others over transparency and accountability.
Aldermen who supported the plan said it could be repealed or changed by the council in the future should problems arise and that the city could not depend on the federal or state governments to help pay for infrastructure projects. Some also said the plan could not be compared with Chicago's unpopular lease of its parking meters under former Mayor Richard Daley.
In 2008, a 75-year lease of the parking meter system for a one-time $1.15 billion payment was sharply criticized as parking fees rose, and much of the proceeds were subsequently spent to close a budget deficit, a factor in a downgrade of the city's credit rating in 2010.
Emanuel said the trust differs from the lease deal in that aldermen had a longer time frame to review the plan and the city would continue to own its assets. He also pointed to a consensus in the council that the city's crumbling infrastructure needs fixing, that the city should not raise taxes and that the idea of the trust for addressing infrastructure improvements has merit.
Alderman Joe Moore said selling general obligation bonds was becoming increasingly difficult as the city's direct debt has zoomed higher to $7.3 billion over the last 10 years.
(Reporting By Karen Pierog; Additional reporting by Andrew Stern; Editing by Leslie Adler)