Chicago Skyway handed over to Cintra-Macquarie after wiring $1830m
By Peter Samuel
Skyway Bridge soars over Calumet River - a shipping channel
Steelplate girder section of the Skyway over Stony Island Avenue
The Skyway is a local icon. Is this where the investors will go if it turns out they paid too much?
The City of Chicago announced it "closed" the concession sale of the Chicago Skyway tollroad this morning after it received $1,830 million by wire transfer. It says a 99-year lease is now in effect giving the Cintra-Macquarie consortium rights to operate the tollway. The investor group operating under the name of their single purpose subsidiary Skyway Concession Company LLC (SCC) took responsibility and control at 2pm central time. At that time staff employed by a toll collecting contractor to SCC, a mix of old city employees and new hires, took over toll collection and other operations. The tolls from 2pm are the property of SCC.
Dana R. Levenson, City of Chicago Chief Financial Officer is quoted in the announcement: "This transaction, which is the first of its kind in the nation, fulfills Mayor (Richard) Daley's continued commitment to pursue innovative financing techniques, and has provided Chicago taxpayers with an unprecedented single, up-front payment of $1.83 billion that we will use to invest in our people and protect Chicago's taxpayers both today and in the future."
John F. Harris, Director, City of Chicago Office of Budget and Management said: "While some people believe we should use every cent of these proceeds right now to address our ongoing financial challenges, Mayor Daley and the City Council together have decided that we should prudently and responsibly use these funds to improve neighborhood quality of life and protect taxpayers over both the short and long term."
The headline to the announcement read: "CITY CLOSES CHICAGO SKYWAY CONCESSION SALE TRANSACTION
Receives Payment For 99-Year Lease That Will Reduce City Debt, Create Reserve Funds, and Invest in People and Neighborhoods, But Long Term Financial Challenges Remain, Says Budget Director"
The City says the transition should be "transparent" to Skyway users. For the duration of the lease, the Chicago Police Department will continue to patrol the tollway, for which the city will be reimbursed by SCC. The city will also continue to provide maintenance and snow removal on the road for a transition period of four months, and will be reimbursed for those costs too.
In Dec 2004, Chicago City Council approved the Mayor Daly's proposed allocation of the $1.83b Skyway proceeds. $875m will be set aside in to establish a $500m long-term reserve fund, and a $375m mid-term annuity the city can use to smooth the effects of economic cycles and stabilize the need for additional revenues. $100m will be invested over the next five years to improve quality of life in the city's neighborhoods for people and businesses. The largest portion of that $100m - $28m - will fund "safety net" programs that will bridge the gap for Chicago's residents most in need, many who have suffered from the effects of a slow national economy and what the City calls inadequate federal and state funding for critical programs. This includes a city program Plan to End Homelessness, home heating assistance programs, assistance for the disabled to make home modifications, affordable housing and homeowner programs, job creation and training through re-entry programs for ex-offenders and a new Small Business Development Fund, and facilities and programs for children and seniors such as after-school programs, Meals-on-Wheels, and senior satellite centers.
The remaining funds will be used to pay off $463m in Skyway debt, $392m in long- and short-term debt, and to pay other existing city obligations, the City says.
"But even with our prudent investment of these Skyway funds, we will still be facing financial challenges moving forward," Harris said. Local revenues are not keeping pace with the increasing cost of government, particularly personnel. The cost of negotiated pay increases and employee health care is growing at a rate much faster than inflation, City officials say.
Mayor Daley announced his move to concession out the Skyway In his budget address in Oct 2003. The city issued a request for qualifications in March 2004, selected five teams to be technically and financially qualified to bid on the Skyway in May 2004, and on Oct 15 2004, Mayor Daley announced that Cintra-Macquarie Consortium had submitted the winning bid of $1.82 million.
"We were pleased with the amount of the bid submitted by Cintra-Macquarie Consortium, as it was within the range of the city's expectations," added Levenson.
Due to an inflation formula in the contract by the time Chicago City Council approved the agreement, the price for the Skyway was $1.83 billion.
The Cintra-Macquarie Consortium must comply with detailed operating standards to assure safety in operations and high engineering standards during the term of the lease, as well as work within specified toll rate caps, the City says.
"The city crafted the Lease Agreement to ensure for Skyway customers the operator continues to maintain and upkeep the structural quality of the asset, particularly after the recently-completed $300m capital investment program on the tollway," said Tariq G. Malhance, City of Chicago Comptroller.
"Tolls for passenger autos on the Skyway are limited under the agreement to no more than $2.50 until 2008, $3.00 until 2011, $3.50 until 2013, $4.00 until 2015, $4.50 until 2017, and $5.00 starting in 2017, unless inflation is higher during that period, with later adjustments equal to the greater of 2% per year, the increase in inflation, or the per capita GDP increase. Limits on commercial vehicles are comparable to passenger autos except that the agreement includes a congestion pricing provision, which permits a further 40% increase in daytime commercial tolls if the operator has a program in place for granting a reduction equal to that amount for commercial vehicles between the hours of 8 p.m. and 4 a.m," the announcement said.
In Dec 2004, Skyway Concession Company announced that tolls for passenger autos would increase to $2.50 on Feb 2, 2005.
Cintra-Macquarie Consortium is composed of Cintra Concessiones de Infraestructuras de Transporte, S.A. (Cintra) and Macquarie Infrastructure Group. Cintra is one of the world's largest private-sector developers of transportation infrastructure and is a publicly listed company on the Spanish stock exchanges. Macquarie Infrastructure Group is publicly listed on the Australian Stock Exchange and is one of the world's largest private developers and operators of toll roads. Cintra and Macquarie Infrastructure Group report experience in operating and maintaining more than 30 toll roads with an aggregate length of over 1,600km (over 1,000 miles), including the Highway 407ETR in Toronto; several in Sydney, Australia; and others in Spain, Chile, Portugal and Ireland.
Toll revenues are about $45m annually at present on the Chicago Skyway which is a 6-lane, 12.5km (7.8mi) long facility that provides the most convenient route from northern Indiana to downtown Chicago. It runs northwest from the end of the Indiana Toll Road to the Dan Ryan Expressway (I-90/94), a few miles south of the Loop. The Skyway is an entirely elevated structure bridging over a dense grid of local streets, railroads and canals on the old southside of Chicago, much on structure, and the rest on embankment. It has the interstate designation I-90. The road serves commuters from northwest Indiana and southwest Michigan with jobs in Chicago, Chicago residents traveling to recreation Michigan and eastern states. It carries a portion of the heavy Ohio Turnpike/Indiana Toll Road truck traffic that moves freight between points in Chicago and the cities out east.
The concessionaire expects to make major savings in costs. They will modernize toll collection by implementing an I-PASS/E-ZPass trnasponder tolling system. Meanwhile toll collectors are being recruited with pay in the range $10 to $12/hour versus $20/hour more typical of state and city toll facilities. Until transponder tolling the SCC expects to maintain a similar staff to the Cityy on the Skyway - about 70 toll collectors. Maintenance, snow clearing and policing will continue to be done by the city and the SCC billed at cost.
The City's deal on the Skyway has aroused considerable interest elsewhere in the US. Governors in Indiana and New Jersey are having studies done on possible privatization of their state owned toll facilities.
Overseas Italy privatized its largest state toll business Autostrade a couple of years ago. 407ETR in Toronto Canada was privatized after being constructed by the province of Ontario. French tollroads mostly owned by state agencies, municipalities and civil service pensions funds are offering less than controlling shares to investors. The present Japanese government is committed to privatization of its national government owned toll facilities which are the largest toll revenue generators in in the world.
Most new toll facilities under construction around the world are being built by investors under government administered concessions. This includes new tollroads in Spain, Portugal, Greece, Ireland, Britain, Poland, Hungary, Czech Republic, Russia, Australia, India, Pakistan, China, Malaysia, Indonesia, Chile, Brazil, Mexico, Peru, Colombia, Argentina, Israel, and Jamaica, and apologies to those we left out. TOLLROADSnews 2005-01-24