Chicago road to revenue relief


CHICAGO - Selling the Brooklyn Bridge is an old joke. But here in the Heartland, what amounts to the sale of the Chicago Skyway is a $1.83 billion reality.

The Chicago City Council recently approved a proposal by Mayor Richard M. Daley to lease the 7.8-mile toll road to a Spanish-Australian consortium for the next 99 years.

When the deal closes early next year, it will bring the cash-poor city an immediate infusion of nearly $2 billion. And the private operator, the Cintra-Macquarie Consortium, will gain the right for the next century to collect tolls on a road it believes has potential for ridership growth.

"It looks like a huge winner for the taxpayers of Chicago," said Laurence Msall, president of the city's Civic Federation, a nonpartisan government research agency.

The Chicago deal is believed to be the first in which a government authority has turned over the maintenance and operations of a publicly built toll highway to a private entity.

Chicago officials and outside observers do not expect it to be the last. The concept has taken deep root in Europe, and the Skyway consortium already operates a toll road in Toronto.

John F. Harris, director of Chicago's Office of Budget and Management, said the city is confident that it has covered all its bases in negotiating its agreement. The deal allows the consortium to raise tolls within limits and preserves the city's right to enforce its traffic laws.

"We think it will serve as a master blueprint for other cities or other governmental agencies that want to pursue this innovative financing," he said.

For now, Maryland Transportation Secretary Robert L. Flanagan says the Ehrlich administration does not foresee selling or leasing any of its toll facilities, which include the Bay Bridge. But others believe the idea is worth exploring for Maryland's tolled section of Interstate 95 and future highway projects.

The Skyway, opened in 1958 during the administration of Mayor Richard J. Daley, father of the current mayor, serves as a conduit for traffic from the East into downtown Chicago. Its toll has risen over the years from 25 cents to $2.

Only those who find beauty in urban grit and heavy industry would call it a scenic drive. The elevated highway runs from the Indiana line to where it meets the Dan Ryan Expressway on the city's South Side.

It passes through, or over, hardscrabble neighborhoods and the much-abused Calumet River, whose banks are lined with coal piles and smokestacks. Its most distinguishing feature might be the tiny and venerable McDonald's sandwiched between its lanes.

Peter Samuel, editor of the trade journal Tollroad News, said that because so many of the Skyway's users are commuters from Indiana, it has a limited local constituency who might object. Illinois residents use it mostly for recreational travel to Indiana's casinos, dunes and other attractions, he said: "People don't give a damn about what tolls they pay for that thing."

For many years, the Skyway was a financial millstone around the city's neck, but in recent years it has earned about $40 million annually.

Daley, saddled with dwindling cash reserves and a less-than-stellar A1 bond rating from Moody's, announced late last year that the city would seek bids to operate the Skyway. Dana R. Levenson, the city's chief financial officer, said it was a logical idea.

"Running a toll road is not considered one of our core competencies," he said. "It is not something that we as a city do well."

Levenson said the city winnowed down an original list of 10 applicants - all with foreign ties - to five. The city then conducted a bidding process in which Cintra-Macquarie emerged as the winner.

Ted Damutz, vice president of Moody's Investor Service, called the deal "a beneficial event" for the city. "It's much more money than most people expected," he said. The money will help the city reduce its debt and pay for programs.

Damutz said Moody's has not raised its bond rating yet but said the city's plan to set up a half-billion-dollar "perpetual reserve" fund would be viewed favorably.

City officials also are planning to use the proceeds to pay off hundreds of millions in short- and long-term debt, including the $470 million they owe Skyway bondholders. About $100 million will be used for current amenities, such as after-school programs, senior centers and heating aid for poor families.

"We think it's important that the taxpayer sees a tangible result," Levenson said.

Baltimore operates no toll facilities. Maryland, which does, is sitting on a sterling Triple A bond rating and does not face the debt pressure Chicago is dealing with.

Flanagan said he sees few similarities between Chicago's experience with the Skyway and Maryland's with its toll facilities, which include the three Baltimore Harbor crossings and I-95 northeast of Baltimore.

"The General Assembly has set up the Maryland Transportation Authority for the express purpose of operating a toll facility, so these are part of our core mission," he said.

But Samuel said that in the wake of the authority's recent problems on the Bay Bridge, where botched concrete work led to lane closings and miles-long backups, privatization of toll facilities should not be out of the question.

"The Maryland Transportation Authority is looking pretty dysfunctional at the moment because of that fiasco," he said.

Samuel said Maryland could look to the private sector to operate some of the toll facilities it plans to build in the future. In particular, he said, privatization could be a better way to finance the proposed Inter-County Connector than the state's planned reliance on bonds backed by future federal payments.

Flanagan said the state is open to considering public-private partnerships in the transportation arena but doesn't believe they will be a factor in building the ICC, which would connect I-95 with Interstate 270 in Montgomery County.

"We're still evaluating all options, but the preliminary reports I've gotten indicate that the ICC model would not be a candidate for private ownership," he said.

One danger of any sale or long-term lease of toll facilities is that the huge up-front payment could be spent unwisely on current expenses.

In Chicago, Daley faces the challenge of keeping the City Council from using the Skyway proceeds to close a $220 million hole in the city's operating budget.

The mayor's aides expressed confidence that the money from the Skyway deal would be used well. "We're very proud of this transaction," Levenson said. "We believe that this is cutting-edge."

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