Finance

Dana Levenson

Dana Levenson is the chief financial officer of Chicago. A former banker, Levenson came to city government in 2004 as Chicago was wrapping up its $1.83 billion...
by | December 31, 2006

Dana Levenson is the chief financial officer of Chicago. A former banker, Levenson came to city government in 2004 as Chicago was wrapping up its $1.83 billion sale of the Chicago Skyway toll bridge--the first major asset sale of its kind in the U.S. Since then, he's negotiated a 99-year lease of four city-owned parking garages and is currently working on a deal for Midway Airport. We talked about Chicago's new philosophy about its public assets.

Is it safe to say that there wouldn't be so much talk among states and cities about selling toll roads and other government assets if Chicago had not shown the way with the Skyway?

Yeah, they should send us a gift. We'll take money. But we're pleased that others are using the methodologies we've come up with. We think it's an innovative way to unlock value that people did not realize was there in the first place.

Since the Skyway, Chicago has sold -- or leased, as it were -- four parking garages. Now you're looking at a deal for Midway Airport and I've heard other candidates mentioned, such as recycling centers and marinas. Is all of Chicago for sale?

Cities are lots of different things, but one thing a city is is a portfolio of assets -- these are the physical assets I have. Then the question is: what should I do with those? Maybe I shouldn't do anything with them, and continue operating them. But others -- here's an example. As CFO of Chicago, I'm on the e-mail list for the person in charge of the parking garages in downtown chicago. He puts the numbers together and sends them to me and others. We'd see the numbers go up and the numbers go down.

The question is: Do we care? I care, because I'd like to see more people park there because that means more revenue to the city. On the other hand, I can't tell you that muncipal management practices generally encourage people all up and down the line to say they care about revenues. Cars go in and out, and whether the garages are at full capacity or 60 percent, the extent of the city's involvement, up to the point when we leased the garages, was that we'd run these reports.

Well maybe the private sector understands how to run them better, how to fill them to capacity more often. The way city government runs, we'll never give someone a performance bonus if it gets to 99 percent capacity, and we won't fire the person monitoring the garages if it continues at 70 or 80 percent. If the asset can be run better and more profitably because it's not our strong suit, then why not see what the market can bear? And in this case, the market could bear $563 million, paid to the city up front.

Isn't Chicago losing control over these assets?

Not really. We codify the operating standards as part of the concession agreement upon which potential lessees are bidding. They have to stick to the operating standards. If they don't, then it constitutes default and the asset comes back to the city and we don't have to repay the money.

Isn't there a risk that you'll leave something out? These are 99-year leases you're talking about.

You can't envision everything. But we'd like to think, given the fact that the concession agreement is several hundred pages thick, that it calls for everything under the sun. The Skyway has been out of city hands for two years and it's worked well.

Will there be a headline in 46 years about something the city did not foresee in 2006? Possibly. But we'd like to think, given the team working on these deals, that we have provided for every known contingency possible.

Won't people start to complain when private management starts raising tolls and parking fees? That's what happened in Toronto after they sold a toll road up there.

That was a lesson we learned as part of this. We made it clear when we announced the deal that tolls were going up. Even if we hadn't leased the Skyway we'd be raising tolls because of the way the debt service was structured. Two things we did. We published the rate at which tolls would go up. And keep in mind, there's an alternate route, the Dan Ryan Expressway, that goes almost parallel to the Skyway. So if the Skyway operator raises tolls too much and traffic goes onto the Dan Ryan, then the operator suffers a financial loss.

The whole motivation of a for-profit tollway operator is to have as much throughput as possible and to make driving on the road as good an experience as possible. They had electronic tolls installed within three months of January 23, 2005. I'd dare say it'd take the city of Chicago or any other municipality much longer to do that.

There are certain things in this world that private operators run better than municipalities. They just do. The city will never give up schools, police programs and parks -- things we do well. But what's the incentive to hold on to the things we don't do well, when there's a market now that will pay the city lots of money for them? We're shifting the financial risk to a private operator, while at the same time never losing use of the asset. It's not like the Spanish and the Australians will pick up the road and go away with it.

Is it a seller's market now?

Clearly, because there's a huge amount of cash that has been amassed by the funds out there. Whether it's J.P. Morgan or Goldman Sachs -- Goldman started with a goal of $3 billion, and they're at $6 billion now, raising money from all sorts of different investors. Macquarie has tens of billions. By our estimate, we think there's somewhere around $100 billion in money that has amassed within these funds. Ther's a ton of demand now and very little supply. To me that's a seller's market.

How is the Midway deal going?

Midway is a more complicated asset than the Skyway and the parking garages. There's a lot more moving parts. First of all there's the FAA, which has to approve it. They've been nothing but very encouraging to the city in terms of persuing this. Then there's the airlines. We're not dealing with just one but several. We have to get their consent. They have to buy into what is a new paradigm when it comes to their financial risk operating at airports in the U.S. But they're very interested, and want us to continue talking with them.

We've had extensive discussions with Southwest and the other seven signatory airlines at Midway. It's a more involved situation. Certainly, safety is the number one concern of the city of Chicago. We will not strike a deal that does not serve the safety requirements of the traveling public. But we believe we can strike a deal that provides at least the level of safety that is provided for now.

When do you expect a deal?

Sometime in 2007.

In other public statements, you've sounded like you believe states and cities have an obligation to look at selling their assets. Is that true?

Absolutely. With as much money as is amassing in these funds, I can't imagine anything less intelligent than dismissing it out of hand. If local governments expect that they'll get money for their capital needs from the federal government, they're mistaken. So where else are you going to get it?

Again, it comes down to a matter of how willing should states and municipalities be to unlocking the value that happens to exist in their porftfolios -- even though they may not have looked at their entities as portfolios in the past.

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