THE PRIVATE SECTOR’S ROLE IN “MODERN” CHICAGO: SHUT UP AND PAY

2/20/13

Today’s (i.e., Wednesday’s, 2/20/13, page 2),Chicago Sun-Times reports

Mayor Rahm Emanuel is challenging a business community that bankrolled Millennium Park, the NATO summit, and Chicago’s failed Olympics bid to raise $50 million over five years for a higher moral purpose:  saving the lives of thousands of at risk kids.

“Emanuel is putting his formidable fund-raising skills to work to raise money for early intervention programs for younger kids….

This shake down of local businesses is only the latest illustration of the attitude of the mayor of Chicago, both this one and the last one, toward the “private sector” or the “business community.”   These mayors speak in hallowed tones when they utter the words “private sector,” but to them the “private sector” is only an appendage of the public sector, there to do the bidding of the politicians and to pick up the checks for the never ending self-aggrandizement these politicasters call “careers in public service.” One can almost understand Mayor Daley’s and Mayor Emanuel’s utter failure to understand the true role of the private sector in a free market political system; neither of these gentlemen had ever worked a legitimate job in the private sector prior to becoming mayor.  Selling one’s influence and calling it investment banking, by the way, is not a legitimate job.  Or perhaps their belief that the private sector exists only to do the bidding of the public sector arises from the growing reality that we no longer live in a free market system, but rather a perversion of that system in which nominally private big business and big government work as one to insure an ever tightening monopoly on the wealth a society produces.

How can one argue that “saving the lives of thousands of at risk kids” (It’s always “for the kids” or “for the children” isn’t it?) isn’t a worthy goal?   It’s easy to make such an argument, given the history of these ad hoc nonprofits that spring up to pilot something the Mayor and his cronies seem to want.   The money is raised and gets chewed up in the rat hole of bureaucracy.   And it always seems to be the same handful of politically connected players who are involved in such “civic endeavors.”   “The private sector” was pressured to finance the NATO summit and the G-8 conference.   The NATO summit went off reasonably well, but the G-8 never made it here.  There was plenty of shake down money left over after that summit that the Mayor is still using as a piggy bank for his cherished projects, like boat houses along the Chicago River.  The Olympic committee shook down local businesses for millions; we didn’t get the Olympics, but a lot of people got big salaries working at Chicago’s Olympic committee and they and others took lavish trips to promote our bid.   Millennium Park looks good now, but its luster wears off when one considers that it came in at whole number multiples of original cost estimates.   No problem, according to then Mayor Daley; we’ll just hit up the “private sector” for more dough.

If developing “intervention programs for younger kids,” whatever that means, is a worthy goal, why aren’t these types of endeavors financed with tax dollars?   Maybe because Chicago is broke and the taxpayers do not deem such programs sufficiently worthy to justify higher taxes.  So the Mayor extracts tribute from the “business community.”  To a certain extent, such giving is done from the goodness of the corporate hearts of those being “asked” to donate.  But local businesses have to be growing tired of the endless extortion racket that the mayors of Chicago call “public/private sector cooperation.”   Either that or the “donors” are being secretly paid back in city contracts or other consideration that comes out of the taxpayers’ pockets (See, for illustrative purposes, my 8/4/12 post on the now defunct Rant Political, TRUSTING THE CHICAGO POLITICIANS, reproduced below, for further illumination and speculation on such dealings.) or in simply being allowed to do business in Chicago without being harassed to an even greater extent by those who control both the bully pulpit and the enforcement mechanisms of the city and state.

Businesses that are operating here or considering operating here have plenty to discourage further investment in or relocation to Chicago:   high and increasing taxes, especially at the state level, a history of endemic corruption, still sub-par public schools, a crumbling infrastructure, a voracious and growing crime problem, even dyspeptic weather.   For the last twenty five years or so, they have to add “serving as the bottomless bursar for the career aspirations of the politicians who run the place” to the list of disagreeable traits Chicago displays for actual and potential investors.  This is no way to attract business to this once greatest of American cities…unless the Mayor and his minions are only interested in attracting businesses willing to play ball.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

TRUSTING THE CHICAGO POLITICIANS

8/4/12  

Like most cities, and especially like most cities in our industrial heartland, Chicago is having problems with its aging and often creaking infrastructure.   It seems that, over the years,  the public fisc has been exhausted by the types of things that pack the most potent payback for the pols, such as new parks, schools, streets, etc. and handouts for groups, such as officially and permanently aggrieved parties and billionaire owners of sports franchises, that compete for the title of most stentorian in making their demands of the politicians for the taxpayers’ money.   This has left little to maintain the old parks, schools, roads, bridges, etc., with the predictable consequences.

So back in the Spring, Chicago Mayor Rahm Emanuel’s plan for an “infrastructure trust” (“IT”) was approved by the pack of lap dogs we call a City Council in the city of my birth.   I first addressed the IT, before Rant Politics came into being, in one of my other blogs, The Insightful Pontificator; see my 4/18/12 post entitled “WHO YA GONNA TRUST; ME OR YOUR OWN EYES?”  The IT was rendered necessary, at least in the eyes of Mr. Emanuel and the mewing sheep who gaze ever lovingly into his eyes for their next order, because Chicago either can’t, due to the fiscal mess Mr. Emanuel’s predecessor, Richard M. Daley (“Richard II”) left the city, borrow any more money or at least can’t borrow money for the types of projects the IT is designed to finance.  

While we know that the IT is billed as “private/public partnership,” a term that, while sounding comforting to most of the populace, sounds more than vaguely Orwellian to yours truly, we know very little else about the workings of the IT, partially because details have yet to be worked out but partially, one suspects, because the Mayor and the participants in the IT would rather not have us know much about how this Goldbergian beast is to operate.   Even yours truly, who knows a thing or two about finance and financial structures, is confused about the IT.   Will the IT lend money to the city for various infrastructure projects?   Will the IT actually purchase assets, presumably to take advantage of the tax code’s depreciation provisions that are not available to municipalities that pay no federal income tax, and lease those assets back to the city?   In either case, the projects would go on the city’s books as debt, at least according to generally accepted accounting principles (“GAAP”).   As Alderman Jason Ervin said at the show hearings in the City Council for this monster, “It (the IT) looks a lot like debt,” to which Chicago CFO Lois Scott replied “You’re right.  It would be, in many ways, like debt.”  

So the reasonably financially cognizant, or even the merely concerned citizen, might ask why we need the IT if it is just a vehicle to lend money to the city that the city could otherwise not borrow.  Ms. Scott replies that

“The bulk of what the city is going to do in terms of infrastructure won’t have a ghost of a chance of going through an alternative source of financing.”

So why would the participant in the IT provide the city with such financing if conventional investors would not provide such financing?    One can think of three reasons.

First, the investors in the IT will demand, and justifiably so, outrageously high interest rates and/or lease payments to make a decent risk adjusted return on the financing no one else, according to Ms. Scott, will provide.  

Second, the investors in the IT will expect a return commensurate with the risk they are assuming, but not necessarily directly from these projects because doing so would make Rahm Emanuel look bad.   The Mayor would like to trumpet the IT as a “creative” way of doing infrastructure projects; to pay investors market rates would expose the IT for the batch of sweetheart deals it appears to be.   Better to hide from the taxpayers the IT’s juiciness for its investors by somehow nudging those investors to the head of the line for other projects the city is doing.

Third, the Mayor is bullying the “private sector” participants in this “public/private partnership” into taking a less than market return on their investments.   How, one might ask, can the Mayor bully even multinational corporations into subsidizing the city?  

To answer that question, one has to understand what politicians, and especially Chicago politicians, mean when they refer to “the private sector.”  To these lifelong pols, whether we mean Rahm Emanuel, Rich Daley, or any of the sycophants with whom they have surround(ed) themselves, the “private sector” refers to that group of nominally private companies, large and small, who wait obediently and obsequiously to be tossed, in a process that the politicians laughingly call “privatization,” one of the monopolies over providing formerly public goods or services.   Operating a monopoly is quite lucrative, as Econ 101 tells us; the prospect of attaining such a monopoly, or of losing one, can be quite intimidating to the companies that unashamedly refer to themselves as participants it the “private sector” in this town.  Such intimidation can be quite effective in motivating those whose idea of “free enterprise” is sitting at the Mayor’s feet, gazing pitifully, yet hopefully, yearning to be tossed a bone or two.

Whatever is at work here—actual market returns to endeavors that are supposedly undoable in the real marketplace, side rewards to IT participants, or intimidation of IT and prospective IT participants, the Chicago taxpayers are going to have to finance, one way or another, the upkeep of the infrastructure that makes the city work.   This will be expensive due to the raids pols have made on the city’s treasury for years.  The Chicago Infrastructure Trust is just a means of hiding these costs from the taxpayers while keeping the same old Chicago political games going.