Chicago Lands $1.8 Billion in Tollway Lease Deal

Published December 1, 2004

Chicago Mayor Richard M. Daley recently signed a $1.82 billion deal with a consortium of foreign investors to privatize the Chicago Skyway, a nearly eight-mile tollway system that links the City of Chicago with northwest Indiana.

The Chicago City Council voted 45-0 in favor of the 99-year lease on October 27. Minutes later, Daley signed the deal with the Cintra-Macquarie Consortium, a Spanish/Australian group that operates more than 30 tollroads worldwide.

Deal Called Good for City

“Like Rumpelstiltskin, Mayor Daley spun straw into gold by handing off to the Cintra-Macquarie Consortium the 7.8-mile roadway that, not too long ago, was an albatross around the city’s neck,” said Alderman Richard Mell at the signing.

On October 16, Chicago Tribune reporter Gary Washburn broke the story that Daley was considering handing control of the Skyway to private operators. Daley’s father, the late Mayor Richard J. Daley, was running the city when the road was built more than four decades ago.

The deal will return $233 million per mile to the taxpayers of Chicago, or $44,191 a foot–making it “the biggest steal since the Dutch bought Manhattan,” according to Fran Spielman, a reporter at the Chicago Sun-Times.

The Civic Federation, a Chicago-based nonpartisan group that advocates improvements in government efficiency, also approved of the deal. It is recommending the revenue be used to pay down the city’s long-term debt and boost its fund balance, according to an October 19 article in The Bond-Buyer’s online service.

99-Year Lease Effective Jan. 2005

The agreement takes effect within 90 days of the city’s October 27 approval. Cintra-Macquarie must pay the $1.82 billion by then.

“Cintra-Macquarie was one of five finalists for the lease deal, and it offered the highest price,” city Budget Director John Harris told the Chicago Tribune. Harris added the final price was “within the range of expectation.”

The agreement gives the consortium authority to raise the current $2 one-way toll to $2.50, where it must remain until 2008. A $3 fee is possible by 2011, and a $5 fee could be reached by 2017, with any further increases to be based on future inflation.

New Owner Plans Efficiency Upgrades

According to Jose M. Lopes, a director for the Cintra-Macquarie group, the firm is pleased with the deal and will monitor the toll situation for years to come.

“We are in the business of obtaining better revenues. That doesn’t mean getting the highest tolls, because if you get very high tolls, you lose customers and you get less revenue,” Lopes told the Chicago Tribune shortly after the city council’s approval.

Lopes also said the consortium will make sure traffic travels efficiently. Speaking about a similar toll road in Sidney, Australia, he said, “We’ve moved the toll booths over and had some free-flow electronic lanes. All of this is about better service. Rush-hour in the toll booths is bad for our customers, bad for business.”

Travelers React

One Skyway traveler agreed it is a good idea to trade higher tolls for more efficiency.

“I’d pay five bucks if I didn’t have to stop for all the construction and all the other stuff. I’d gladly do it,” Wisconsin businessman Bill Grider told the Chicago Sun-Times while on a recent trip on the Skyway. “It saves me 30 minutes to two hours depending on traffic. My time is worth more than an additional three bucks (over the next few years).”

Construction worker David Aguayo, however, told the newspaper he was a bit hesitant about the future fares.

“When it gets up to $3 each way, that’s 30 bucks a week. And that’s a lot of money at the end of the year. This won’t be very good.” But Aguayo added, “It’s a shortcut, even when there’s traffic, it’s better than going the other (alternative) way.”

In 2003, the Skyway was used by 17.4 million vehicles, generating almost $40 million in toll revenues. Both figures are about double those of 10 years earlier.

City’s Budget to Benefit

City officials have not yet said what they will do with the infusion of cash.

The Chicago Tribune reported on October 16 that Daley said, “I believe it would be fiscally irresponsible to use all of the money at one time. If we use the funds wisely, we can protect our taxpayers and our city’s financial situation for both the short term and the long term.”

City budget officials are projecting a deficit of $220 million in 2005. The lease payment may help the city avert a property tax hike, according to Jacqueline Leavy, executive director of Chicago’s Neighborhood Capital Budget Group, a local civic organization.

In an October 20 column, Chicago Tribune columnist John Kass quoted Leavy as saying, “It appears to be a way to avoid raising people’s property taxes.” However, she added, “We’re (still) not getting to the fundamental issue of being able to track the city’s spending and hold the city accountable for its use of public funds.”

Leavy quipped, “It almost has the feel of ‘Look! Halley’s Comet!’ Here is this mega-deal that comes along just in time.”

John W. Skorburg ([email protected]) is associate editor of Budget & Tax News and a visiting lecturer in economics at the University of Illinois-Chicago.