“WHO YA GONNA TRUST; ME OR YOUR OWN EYES?”

4/18/12

Today, Mayor Emanuel offered an uncharacteristically, and only very mildly, recalcitrant City Council a few concessions on the Infrastructure Trust that he wanted to have completely rammed down their ultimately never unwilling throats at today’s Council meeting. The concessions include a “detailed mission statement” on each project that the Trust will finance. Given that every “mission statement” yours truly has ever seen, or, indeed, that the corporate or non-profit universe has ever conceived, is a namby-pamby, cutesy-pie, nebulous, vestigial, meaningless piece of dyspeptic pabulum, the existence of such a statement for every project the Trust will finance provides no comfort but serves only to prove that our Mayor comes from the quarters of our society (generally overeducated yuppie types of very limited experience at the strata of the business world that actually does the work for which said yuppie types take credit) that actually think such statements equate with achieving anything. But I digress.

I have so far avoided writing about the Chicago Infrastructure Trust because I have been able to obtain nary a clue as to what this piece of financial Rube Goldbergism is or how it works; I, and everyone else, as far as I can tell, have yet to see even a mildly detailed explanation of its structure or the particulars of its functions. Having had over 30 years of experience in the financial markets, and even having had some experience with (I think) similar funding mechanisms, I am guessing that the Trust will be set up something like a bank, with the private investors putting up some equity, the Trust leveraging that equity, and then conveying the proceeds to the city in one form or the other. (See below.) Or perhaps there will be no leveraging involved; the Trust will simply put up a lot of equity capital and then convey that money to the city and other public entities, but it’s hard to see how much money can be made for the private players under such a scheme. But I am only educatedly (if that is a word, and I don’t think it is) guessing here; I simply don’t know because details are scarce. I suspect details are scare because the people charged with designing the Trust, including the Mayor, don’t completely, or even approximately, understand it, the people designing the Trust don’t want anyone to know the details, or both.

Even with only speculation as to the particulars of the Trust, one can come up with one overriding question, which arises from the concerns raised in the last paragraph regarding conveyance of the funds from the Trust: Why is the Trust necessary? If the Trust is going to lend money to the city and have the loans serviced through either user fees or savings made possible by the investments financed with the trust, why wouldn’t the city and other public entities just go out and borrow the money in the municipal bond market without the middleman of the Trust? Perhaps the Trust is designed to own the assets or infrastructure improvements and lease them to the city. But surely the financial wunderkinds around the Mayor, and Mayor Emanuel himself, with his vast experience in investment banking, know that leasing, depending on how it is structured, is really the same thing as borrowing and is, again, depending on how it is structured, recognized as such by generally accepted accounting principles. And the Trust’s leasing the assets to the city would look an awful lot like the parking meter/Chicago Skyway/downtown parking garage fiascos of the Daley Administration, but that is another can of worms. It looks like Alderman Jason Ervin had it just about right when he stated at this week’s Finance Committee hearing that “It acts, looks, and walks like debt.” To that comment, the only reply he got from city CFO Lois Scott was the typically cryptic “You’re right. It would be, in many ways, like debt.” So why do we need the Trust?

One could answer that the city’s credit rating is so bad that it needs the trust, that presumably will be backed by its participants and thus will be endowed with their credit rating, to borrow the money to lend to the city. But then the Trust is taking some pretty big risks, risks the market is unwilling to take, for which the Trust will certainly expect to be compensated. Or maybe the Trust won’t expect to be compensated and will effectively lose money, or at least forgo potential profits, in this “public/private partnership” of the type of which Mayor Emanuel is so fond, in which he strong arms or cajoles the “private sector” to do the public sector’s bidding and the “private sector” participants go along because they are intimidated by the Mayor and terrified at the prospect of losing their places at the public trough.

While no one is sure of the particulars of the Chicago Infrastructure Trust, one can be sure that it will be yet another manifestation of Rahm Emanuel’s brand of crony capitalism or state directed capitalism in which the nominal private sector does the bidding of the public sector in response to the carrots and sticks that public sector can dole out to the trained seals of the “private sector” that do its bidding.

One suspects that the whole nation will, sooner or later, be the beneficiary, or, more likely, the victim, of Mr. Emanuel’s vision of an all knowing public sector and a completely obeisant “private sector.”