U.S. city is first to join international trend

Earlier this year, Chicago sold the right to operate the Chicago Skyway Toll Bridge for the next 99 years for an up-front payment of $1.83 billion. The sale to Chicago-based Skyway Concession Co. is the first privatization of an existing toll road in the United States and is causing many state and local governments to take another look at their toll roads and other infrastructure assets.

The Skyway generated $1.83 billion for Chicago during difficult financial times. After paying off $400 million in Skyway debt, the city devoted $100 million to a human services fund to provide home heating assistance to low-income residents and funding for job training, small business development, and children and senior citizen programs. It then used the bulk of the remaining proceeds to shore up its finances, including paying off city debt and investing $500 million into a long-term reserve fund. Rating agencies responded by boosting the city’s bond rating, with Standard & Poor’s changing the city’s credit rating from A- to AA- and Fitch upgrading it from AA- to AA. With the privatization, the owners of Skyway Concession Co. — Spain-based Cintra Concesiones de Infraestructuras de Transporte and Australia-based Macquarie Infrastructure Groupe — demonstrated that there is a market to invest in American public infrastructure, a market that is already well established in the rest of the world. In countries throughout Europe, and in Asia, South America and Australia, privately owned toll roads are commonplace, with a number of companies owning and operating them.

Indiana, New Jersey, Delaware, New York, California and Virginia are among a number of states now considering privatizing their toll roads. Other states and local governments also are considering privatizing other assets as they search for ways to solve budget shortfalls.

With a well implemented process, the interests of government and its taxpayers can be promoted through privatization. First, the public interest needs to be protected in privatizing an asset. The Skyway agreement, for instance, requires the private operator to keep tolls under certain limits and to comply with detailed operating standards, as well as prevailing wage, minority contracting and other requirements.

Second, the privatization process should be transparent and fair. In the case of the Skyway privatization, the city’s decision was based solely on the highest bid it received. Chicago determined that five teams — out of 10 that submitted qualifications — had the financial and technical capacity to bid on the Skyway. Those teams responded to a legal agreement that would govern the relationship between the winning bidder and the city. All teams then were presented with the same agreement on which they submitted bids.

Finally, the proceeds should be used to create long-term financial security. Under the leadership of Chicago Mayor Richard Daley, the city chose not to squander the money it received in the privatization by spending it on short-term needs. Instead, Chicago is investing the proceeds for the long-term benefit of the city and its taxpayers. With an improved financial outlook and increased bond ratings, the city already is seeing the returns.
— John Schmidt and Joe Seliga, who represented Chicago in the privatization of the Chicago Skyway, are attorneys at Mayer, Brown, Rowe & Maw in Chicago.