Sometimes if you want something done right, you’ve got to do it yourself.
During his time as White House chief of staff, Rahm Emanuel was unable to push through President Obama’s proposal to establish a National Infrastructure Bank. The NIB would be a merit-driven approach for advancing a range of infrastructure projects that have the highest return on investment and support economic growth. However, prickly issues around congressional jurisdiction, project selection, capitalization levels, and financing mechanisms were left unresolved, and the NIB remains as it has been for decades: the next greatest idea.
So it’s important that now Mayor Emanuel announced the creation of the Chicago Infrastructure Trust (CIT) as the initial policy strategy designed to support the region’s bold new plan for economic growth and job creation. That plan, developed by World Business Chicago (with advice from Brookings, McKinsey and others) focuses on the region’s core economic strengths in areas such as advanced manufacturing, exports, and innovation, as well as putting workers back on the job through energy retrofit projects. Like similar plans and ambitions, the new Chicago plan cites infrastructure as a key economic driver and describes infrastructure-related challenges such as deterioration and lack of reach into low-income neighborhoods as barriers to economic growth.
The CIT hits on most of the important elements of past infrastructure bank proposals. It’s a market-oriented institution that attracts private capital interested in steady returns and makes investment decisions based on merit and evidence rather than politics. Like California’s I-Bank it cuts across different types of infrastructure such as transportation and telecommunications, and like Connecticut’s Green Bank it emphasizes the generation, transmission, and adoption of alternative energy. The CIT also embraces advanced technologies to support next generation place-making by wiring low-income neighborhoods with broadband and developing high-tech research campuses.
The CIT will be capitalized through direct investments from private financing organizations. Those investments will go to supporting specific projects through customized financing (some combination of debt and equity) for specific projects. The initiative will be kicked off with a $200 million effort to reduce energy consumption in municipal buildings, lighting projects, and other energy efficiency projects. The idea is to provide a home for private investors looking for low-risk investments while supporting economy-boosting projects the city wants. Citibank, JP Morgan, Macquarie and others have already expressed interest that could reach $1 billion or more in total investment capacity. So while the energy retrofit project comes first, other projects like bus rapid transit or water could follow next. Stay tuned.
Chicago’s plan is noteworthy because it is the first-of-its-kind established on the local level and it should profoundly inform the new thinking and ideas coming from the states. Virginia recently established a Transportation Infrastructure Bank (TIB) that acts as a revolving loan fund, capitalized with money appropriated from the legislature. Alaska is considering an infrastructure fund that would be treated like an endowment and expected to earn a 6 percent rate of return. A $25 billion fund is taking shape in New York state with details still to come.
The bottom line is that, in the absence of progress in Washington, cities like Chicago are showing the way forward. They are stepping up to devise new ways to conceive and finance a range of infrastructure projects as the physical means to an economy-shaping end, rather than end in itself.