Finance

Chicago Infrastructure Bank Gets Slow Start

More than a year after Mayor Rahm Emanuel announced the creation of the nation's first urban infrastructure bank it has not broken ground on a single venture. The slow start is being attributed to the lack of a working model, which means building policies for how the bank will operate from scratch.
by | July 9, 2013

By Bill Ruthhart

When Mayor Rahm Emanuel announced the Chicago Infrastructure Trust, he billed it as "the breakout strategy for the city of Chicago," a nonprofit agency that's supposed to lure private investment for public projects the city could not afford.

More than a year later, however, the organization has yet to break ground on any ventures. Its first initiative, to make city buildings and schools more energy-efficient, is behind schedule.

One aspect of that initiative has raised questions about the agency's role because it is seeking private financing for construction projects that have already been completed and paid for by Chicago Public Schools. The agency's delay in obtaining that financing has prompted finger-pointing between the trust and CPS, which by now had expected to receive nearly $40 million from the trust that has yet to materialize.

Trust officials say the holdup is tied to the challenge of building an organization that is the first of its kind in the country with few templates to follow for the types of complex investment deals it's pursuing.

"It's not like this is a financing that has been done 100 times before, and you can take a 10-inch-thick piece of paper off a bookshelf somewhere, and just change the names and numbers," said Stephen Beitler, the trust's executive director. "We haven't been deliberately going slow, but we have been following a pace that is step-by-step, and if we learn something new, we try to adjust and figure out what we should do."

In response to questions about delays tied to the trust's energy-efficiency project, dubbed Retrofit Chicago, Emanuel spokesman Tom Alexander said it was important the trust move forward cautiously so it "does things right."

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"The mayor's office continues to provide the trust the support it needs to do its work. The Retrofit Chicago project is moving forward and will be implemented soon, saving tens of millions of dollars of taxpayer money and providing a great example of the potential the trust has to offer," Alexander said in an email. "Throughout the process of implementing the trust, we received feedback that we should be careful and deliberate as we implement the projects, which is exactly what is happening."

Proclaiming that "our needs are bigger than what Washington and Springfield can do anymore," Emanuel created the trust with a mission to secure upfront cash the city didn't have to do public works projects.

But one of the trust's first endeavors seeks just the opposite: money for lighting improvements at 241 public schools that have been completed.

That work is part of a series of energy-efficiency projects that city advisers predicted would be bankrolled by this summer. That hasn't happened, and Beitler said he has no timeline for when those projects might be funded while one of the trust's board members has expressed doubts about whether they will be funded at all.

The slow start has not stopped the hype surrounding Emanuel's push. Former President Bill Clinton regularly lauds the Infrastructure Trust as a trailblazing detour for American cities looking to get around a gridlocked Congress and depleted state treasuries to pay for important construction work.

"Mayor Emanuel has worked tirelessly to make investments in infrastructure, and he put together a very unique coalition here creating America's first urban infrastructure bank," Clinton said last month as he introduced the mayor before a Clinton Global Initiative speech in Chicago. "Instead of waiting -- Rahm's not very good at waiting -- he brought together people from all sectors of the economy in Chicago and started to work."

Slow start

So far, there has been more waiting than results.

With Clinton by his side in a carpenters union hall, Emanuel announced the trust's creation in March 2012. The City Council approved it that April despite some aldermen questioning the need to rush on such an important and complicated issue.

Emanuel installed the trust's board that June. In December, the city's advisers predicted the trust would close on financing for its project by summer. But Beitler, a venture capitalist and early donor to Barack Obama's U.S. Senate campaign, wasn't selected as director until February. On the job five months, he has focused on crafting the trust's policies while rolling out the energy-efficiency projects.

Even as Clinton sat by Emanuel's side for a national cable television interview last month to say the trust had made the mayor a pioneer on infrastructure funding, the nonprofit remained a one-man operation in search of permanent office space.

Beitler is the trust's lone full-time employee, and he has leaned on the pro bono services of Chicago financial, legal and public relations firms to get the organization up and running. In between consulting with potential investors and poring over potential bid documents, Beitler said he has juggled everything from installing computer software to replacing the trust's hacked website.

"I basically have been managing a startup," he said.

The startup's first projects aim to create energy savings in city and school buildings and secure money from private investors by offering them a cut of the savings produced by the projects over several years.

Early estimates have the trust seeking $37.1 million to improve energy efficiency at police and fire stations, libraries and other city buildings; $64 million to convert a water-pumping station from steam power to electricity and $14 million for the CPS lighting work. Combined, the work is projected to save the city and CPS $10.7 million per year on energy bills. Trust officials have not determined over what period of time investors would get a cut of those savings, Beitler said.

While the city building and water pumping station projects are on the drawing board, the low-wattage CPS lighting systems with motion detectors were completed months ago.

CPS spokesman David Miranda said the district expects to recoup its lighting investment in six years through electricity savings. Beitler said it's worthwhile for the trust to seek private money for that work, even though it is finished.

"It is not relevant to the trust whether the project is contemplated, in process or completed," Beitler said. "What is relevant is that by combining these projects into a larger financing instrument, we can get a better interest rate and terms for the city overall."

Trust board member David Hoffman, a former city inspector general, said he was "somewhat dubious" about the wisdom of seeking investors to pay for completed projects, saying it was "very different from getting private funding to help you do something you otherwise couldn't do."

Trust chairman James Bell, a retired Boeing executive, did not return calls seeking comment. Neither did two other board members, Ald. John Pope, 10th, and Chicago Federation of Labor President Jorge Ramirez. Trust member Diana Ferguson could not be reached.

To pay for the lighting projects, CPS was counting on money from the trust.

All told, the school district planned to spend $39.9 million from the trust on the lighting work and projects allowing CPS to more closely monitor energy use and improve buildings so they run at optimal efficiency, Miranda said.

With no trust money, Miranda said, the cash-strapped district went ahead and paid for the new lights through borrowing and dropped the other projects.

"I can't speak to whether we're hopeful" the trust money will come through, Miranda said. "People are working on it. We'd prefer to have the money, especially with the financial crisis we are dealing with."

CPS faces an estimated $1 billion deficit, and Miranda said the district couldn't have foreseen it wouldn't have the trust money.

"It was established there was this partnership with the CIT and CPS. No one really thought there would be a reason to think this money wouldn't be there," Miranda said. "There was no reason to ever doubt that."

But a top CPS official offered a different view at a December meeting of the trust board. Hoffman, a former federal prosecutor, asked CPS Chief Operating Officer Pat Taylor if the district budget relied on money from the trust. "No," Taylor answered, according to a meeting transcript.

Asked to explain the discrepancy, Miranda had no comment. Hoffman said he is "concerned that we don't appear to be getting straight answers" from CPS.

When the funding might come through remains uncertain. Beitler pointed out that city advisers' prediction the trust would finalize an energy efficiency deal by summer came before he was hired.

"Hopefully, it will be well before the end of the year," Beitler said, "But in terms of a specific timeline, I don't have one."

What the future holds

Hoffman said he has mixed feelings about the trust's progress.

"On the one hand, I'm anxious to get things rolling and see if we can make some projects work, but on the other hand, I think it is very important to get it right," he said. "There is no clear model we can follow or copy from around the country, so a significant amount of this is being made up from scratch."

A mayoral aide said there are plenty of city initiatives where the directive out of Emanuel's fifth-floor office is, "Get it done now." But the aide said the mayor has allowed for the trust's projects to develop "organically."

But another source familiar with the trust's work said Emanuel and his top lieutenants also did not grasp how complex putting together the first project would be, and thus, thought private investment would have been secured sooner than what was realistic. Complicating matters, the source said, was that the Emanuel administration often has been uncertain and changed course on what the terms of an investment deal should look like, contributing to delays in releasing a bid proposal.

The trust's challenge in developing its first proposal not only is to conduct studies that project energy savings for each building, but also to determine how to package the projects to fund as many as possible while generating the highest return and most interest from investors, Beitler said.

Robert Puentes, director of the Brookings Institution's Metropolitan Infrastructure Initiative, said Emanuel has constructed a "very capable team" with experience in the public sector and private investment that has sent a "very strong signal" that the city is serious about striking deals.

"The CIT is on many radar screens even though they have not reached their full potential yet," Puentes said. "There is an enormous appetite for new models, and the CIT carries with it a lot of promise that it may be able to crack the code."

The trust's deliberate pace to solve that Rubik's Cube contrasts with how quickly Emanuel pressed the City Council to create the nonprofit, said Amisha Patel, executive director of the Grassroots Collaborative, a coalition of community groups.

"We were concerned about oversight of the trust, but Mayor Emanuel's response was that we didn't have time, that Chicago was crumbling and the city had to move quickly. Now, we find out they haven't done any projects," Patel said. "What was the rush? Anytime we question why he is doing something, the response is, 'There is no time for questions; we've got to act.' This shows that urgency doesn't connect with action."

Patel said she is unconvinced that it is good policy to allow investment firms to profit off public infrastructure, raising a familiar refrain of concerns about the city's much-maligned, 75-year lease of parking meters to a private firm that was approved under Emanuel's predecessor.

Hoffman understands those concerns well. As inspector general, he investigated the parking meter deal.

Assuring the public that the trust's projects are transparent and worthwhile will be key, Hoffman said. Whether that's possible, he said, won't be apparent until the trust issues and receives bids from investors.

"We'll have to see what people come back with, and then we'll have to assess whether that deal is in the public interest, and maybe the answer is it's not. I don't think it's a given," he said. "I don't know if this is the wave of the future. Time will tell."

(c)2013 Chicago Tribune

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