Daley's Art of The Lease
CHICAGO -- Eighteen years ago, Richard M. Daley went into the family business, which is the business of being mayor of this city. Back then, he hardly could have imagined that he would become an accomplished practitioner of today's new wrinkle in public finance, here and elsewhere. He says his father, who died in 1976, would approve, but one wonders.
Richard J. Daley, who was mayor from 1955 until his death, was a builder. He thought of urban success the way many mayors then did and still do, as the improvement and enlargement of the city's physical assets -- bridges, roads, public housing, etc. Today, some mayors and governors are discovering the wisdom of, in effect, cashing in municipal or state assets.
That is why two years ago Chicago became the first city to sell a toll road. Actually, it has leased the road for 99 years, which is much the same as selling it. The 7.8-mile, six-lane Skyway goes from the Indiana Toll Road (which the state of Indiana last year leased for 75 years to a Spanish-Australian group for $3.85 billion) to Chicago's Dan Ryan Expressway. Skyway was built in the 1950s to move workers and material to and from the steelworks on the South Side. Most of the steelmaking has gone elsewhere, but Skyway was still a sufficiently attractive investment to have drawn $1.83 billion from the same consortium that leased the Indiana Toll Road.
Now, 99 years is a long time. Ninety-nine years ago the Cubs won the World Series; things change. But that is for the consortium to worry about. Meanwhile, the city has fewer immediate worries because of the one-time infusion of $1.83 billion. The money has financed a $500 million long-term reserve and a midterm reserve that has (note the carefully crafted noncommitment) "mitigated the need to raise taxes over the next eight years." "Mitigated," indeed.
Some of the $1.83 billion has been used for city services, and some has been used to retire city debt -- which has caused the three major credit rating agencies to upgrade the city's rating to its highest level since 1978. This makes it cheaper for Chicago to borrow money, thereby increasing the value to the city of the lease arrangement.
The city has also leased, again for 99 years, four underground parking garages for $563 million -- $61,342 for each of the 9,178 parking spaces. What probably will be next? Midway Airport, which is used by 11 airlines and almost 18 million passengers a year.
Daley believes that census figures are evidence of what will happen if he wins his wager on forgoing some future revenue streams in order to put money to work immediately. Chicago, like many other cities, lost population in the 1950s. And the 1960s, 1970s and 1980s. But in the 1990s it gained at least 112,290 residents, a 4 percent increase. (Daley believes the census undercounts African Americans and Latinos, who together are a majority of Chicagoans.)
By selling future revenue streams, Daley believes, the city can ignite a virtuous cycle: Buying improvements "as quickly as possible" in education and infrastructure can lure people back to the city, thereby improving the city's tax base and cultural vibrancy, which enables further improvements that attract still more residents.
Unfortunately, Daley's theory -- that it can be better to get a sum X immediately, rather than getting over many years a sum Y that is substantially larger than X -- assumes something that cannot be assumed. It assumes that governments will prudently husband sudden surges of revenue from the lease or sale of assets. Still, his theory has adherents downstate, in Springfield.
The state government is hoping to lease the state lottery for at least $10 billion. The purchaser would get most of the lottery's revenue and profits for up to 75 years. Last year, the lottery made $630 million on revenue of $2 billion.
Daley stresses that the assets sold are not "core competencies" of the city government, such as public safety and education. Actually, what competencies are really "core" is debatable. Leasing -- privatizing -- some cities' school systems probably would make the systems more competent. Perhaps the moral of Chicago's story is that what government can shed, it should shed.
This lesson was illustrated exactly 50 years ago by Murray Kempton, the finest practitioner of the columnist's craft, when he heard the great defense attorney Edward Bennett Williams deliver his successful closing argument for Jimmy Hoffa's acquittal. Kempton's conclusion: "To watch Williams and then to watch a Department of Justice lawyer contending with him is to understand the essential superiority of free enterprise to government ownership."