Midway Airport is arguably one of the city of Chicago's better-run operations, offering relatively affordable flights out of a facility that's clean, efficient, and profitable to the tune of about $100 million a year. So why would the city be in such a hurry to pawn it off, railroading the $2.5 billion transaction through the City Council with little scrutiny or debate?
According to officials, the deal's been in the works for two years; the city reviewed its plans with the Federal Aviation Administration and got the Illinois General Assembly to pass enabling legislation in 2006. But Mayor Daley didn't officially unveil the proposed 99-year lease of the facility until September 30. Less than a week later, on October 6 and 7, the council staged two shows of debate before approving the deal with a 49-0 vote on October 8. No independent analysis was offered in support of it, and nothing but the broadest outline was offered regarding what the city might do with the proceeds. There were no public hearings—the city didn't even post the proposal on its Web site so residents could examine the fine print.
I'd be outraged if I could muster even a little surprise. After all, it took the City Council less than a week to commit $500 million in public tax dollars to the Olympics in the event that private funding falls short—as seems inevitable, particularly in the current economic climate.
Mayor Daley maintains that the Midway deal is "very good news for the city," providing "more than $1 billion in net proceeds that can be used during this difficult economy to make the infrastructure investments needed to move Chicago forward, as well as protect our Chicago taxpayers," according to a press release.
But as 39th Ward alderman Thomas Allen pointed out at last Monday's council hearing, the city probably could have gotten a better deal had it waited out the national financial crisis. "All the talking heads are saying, 'Watch out, don't sell, hold on, things are going to get better,'" said Allen. "We are the guardians of the people's assets. I'm concerned that we're not getting what we could get. What's the urgency?"
According to the Paul Volpe, the city's chief financial officer and Mayor Daley's point man on the deal, the city had to rush the deal through the council and on to the FAA for approval before President Bush leaves office because a new administration could throw a wrench in the works. "The urgency we have is the federal approval process requires a minimum of 60 days," said Volpe. "The time is now if we're going to move this forward."
It looks like a sweet deal for the leaseholders, Midway Investment and Development Company LLC, a consortium that includes Citi Infrastructure Investors, YVR Airport Services Ltd., and John Hancock Life Insurance Company. The airport pretty much pays for itself, and federal grants and the Passenger Facility Charge, a tax on passengers, cover capital improvements. According to the city, 19 million passengers pass through Midway each year. In 2007 there were 304,000 flights, but the airport is capable of handling up to 360,000. So there's room for growth, and with it the potential for increased profits on parking and concessions.
To sweeten it even more, the Daley administration is exempting the leaseholders from paying taxes on the property, even though most concessionaires throughout the city have to pay them. The city's also agreed to provide Midway free police and fire service; about $225 million would be set aside from the sale to cover the first 20-odd years or so.
On top of that, the airport offers investors a depreciable asset that they can use as a tax deduction as the airport's terminal, runways, flight tower, and so on deteriorate with time and wear.
And what do we, the humble taxpayers of Chicago, get out of this besides the likelihood of higher prices at Midway? Out of the $2.5 billion Midway Investment is offering, about $1.1 billion would go to pay off existing airport debt, $225 million would go toward the aforementioned police and fire service, and $19 million would go to the lawyers and bond merchants who helped the city negotiate the deal (lawyers for Mayer Brown, where the mayor's brother William Daley used to work, will get up to $540 an hour if it goes through). That leaves about $1 billion. By state law, 90 percent—or $900 million—has to go toward infrastructure repairs or paying off the city's pension deficit. The other $100 million is discretionary income, which the mayor and the City Council are free to spend as they like.
Far be it from me to sneer at $100 million. But in the grand scheme of things it's chump change, and everyone in City Hall knows it. It would cover only a fraction of the city's $469 million operating deficit (that's up from the $420 million previously estimated). Besides, as Alderman Allen points out, by the time 99 years have lapsed the public will have paid more than $1 billion in police and fire service for the property tax-exempt leaseholders. In the long run the deal is likely to cost taxpayers more than it nets.
Volpe said the city couldn't exact property taxes, cut back the years of the lease, or demand a portion of the airport's profits without forcing the leaseholders to lower their price. And the point was to bring in the greatest lump sum.
But the city's most pressing need isn't a billion dollars for unspecified projects. It needs money for the very real everyday operating costs of police, firefighters, garbage removal, etc. The deal provides nothing for those operations, and it won't allow the city to cut property taxes either. It is at best, to use one of Volpe's favorite phrases, "revenue neutral."
As for the $1 billion in potential infrastructure money, the aldermen were like bumblebees at the council hearings, pestering Volpe with questions about how he and the mayor planned to spend it. And Volpe was the proverbial butterfly, dancing around their questions and demands without making any commitments. The mayor, he said, might want to use the money to pay off some of the city's $9 billion in unfunded pension obligations. Or he might use it for some as yet undetermined capital projects like streets, sidewalks, lights, police stations, or schools.
Allen—who's sounding more and more like an independent even as he continues to vote with the mayor—joined up with First Ward alderman Manny Flores to demand that the administration guarantee that the $1 billion be equally spent throughout the city's 50 wards. Without such a guarantee, "we give away our leverage to get capital projects in our wards," said Allen. "We'd get crumbs."
Volpe assured Allen and Flores that when the time comes the mayor will solicit the council's ideas on how that money should be spent.
Yeah, right. Roll over today, roll over tomorrow. The mayor's going to make the calls, and when he does, he'll ask the aldermen to rubber-stamp his decision. And they'll oblige as always.
In the meantime, the $1 billion will flow into the mayor's piggy bank, joining the $1 billion or so in tax increment financing money he's already got there. My hunch is that it's all earmarked for the Olympics, should we be unlucky enough to get the games.
Mayor Daley comes out of the deal smelling like a rose. He gets boosterish headlines from the mainstream dailies about a billion-dollar boon. He gets to dole out $19 million worth of pinstripe patronage. And he gets funding that doesn't seem to come from the taxpayers to pay for the Olympics.
Of course, as Allen noted, once you grant this sort of lease on an asset—like the downtown parking garages, the Skyway, or Midway—it's off the table for the next century. If the city gets into an even bigger crisis somewhere down the road, the mayor and aldermen, whoever they may be, will have lost a potential life preserver.
But that won't be Mayor Daley's problem. Let the next guy devise his own schemes.v