The Chicago Skyway was sold to Canadian pension funds last week for $1 billion more than the city got for its 99-year lease a decade ago. But, there’s a silver lining for taxpayers: a potential, $21 million tax windfall.
Mayor Rahm Emanuel’s administration disclosed Wednesday that it has informed the Spanish-Australian consortium that has agreed to unload the Skyway for $2.8 billion, pending City Council approval, that Chicago’s “real property transfer tax” must be applied to the purchase price.
Molly Poppe, a spokesperson for the city’s Office of Budget and Management, pegged the windfall at $21 million. The estimate is the city’s portion of the real property transfer tax paid by the buyer at a rate of $3.75-per-$500 of sale price. Another portion of the tax is paid by the seller to the CTA, Cook County and the state.
The city’s demand is included in a letter sent this week from Chief Financial Officer Carole Brown to Fernando Redondo, chief executive officer of the Skyway Concession Company LLC.
Redondo could not be reached for comment. Skyway spokesperson Avis Lavelle could not be reached.
In the letter, Brown puts Redondo on notice about the issues that must be addressed before the City Council will approve the sale to a consortium of three Canadian pension funds.
Chief among them is the tax liability.
“We … want to make sure that SCC is aware of the city’s real property transfer tax requirement, Chapter 3-33 of the Municipal Code of Chicago,” the letter states.
“Based on our understanding of the proposed transfer, we believe that the [tax] will apply and be payable in connection with some or all of the transfer price. Please let us know if you disagree, have any questions or would like to discuss this issue.”
The letter also establishes several other issues that must be resolved before City Council approval of the sale: lead-based paint on the Skyway and the 10-year capital plan to improve “deteriorating elements” of the 7.8-mile Skyway connecting Chicago and northwest Indiana.
“We appreciate your assurance that SCC will continue to cooperate with the city’s engineers with respect to the capital expenditure plan — both now and following the proposed transfer,” Brown wrote.
“Our concern in this area relates to 35 structures whose ratings have declined below ‘good’ but have not yet declined to ‘fair.’ Such elements that are less than `good,’ but not yet ‘fair’ have been designated as ‘satisfactory’ or rated as `6’ as shown on the attached schedule [of repairs]. We would like to understand SCC’s plan to address those deteriorating elements and SCC’s plan to bring these matters to the attention of new ownership.”
A decade after investors gave the city more than $1.8 billion to lease the Skyway for 99 years, the rights to run the privatized highway and collect tolls were sold last week for $1 billion more than the original price.
A consortium of three major Canadian pension plans announced it had agreed to fork over $2.8 billion to acquire the company that holds the deal to run the Skyway until 2104.
The 99-year, $1.83 billion Skyway lease was the first in a series of city assets to be privatized by former Mayor Richard M. Daley in a desperate attempt to stave off major tax increases.
The original Skyway concession company was a partnership of Cintra Infraestructuras of Spain and Australia’s Macquarie Group. Their $1.83 billion payment in January 2005 was nearly $1 billion more than the next highest bid, which prompted speculation that the investors had overpaid.
In June, with 89 years left on the agreement, Cintra and Macquarie announced that they were looking to sell out.
The buyers are a consortium made up by the Canadian Pension Plan Investment Board, the Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan, according to a joint statement from the three entities. Each will have a 33.33 percent stake in the Chicago deal.
The Skyway company reported collecting nearly $80.7 million in revenue from tolls last year, a slight increase from 2013.
Cintra, a subsidiary of Madrid-based infrastructure group Ferrovial, owns a 55-percent stake in the Skyway deal. The other 45-percent interest in the Chicago concession belongs to two arms of Macquarie, according to city records.
The Spanish company said it would make $269 million from the nearly $2.84 billion deal.
After leasing the Skyway, the Daley administration entered into long-term concession agreements for four downtown parking garages and for the city parking-meter system, which yielded a $1.15 billion payout under a 75-year agreement.
But unlike the proceeds of the 2008 parking-meter deal — almost all of which were spent long ago — a good chunk of the money from the Skyway deal remains in the city’s coffers. As of March 31, more than $502.5 million from the Skyway deal still sat in a reserve fund, representing most of City Hall’s operating fund balance, records show.
In exchange for the cash infusion, Cintra and Macquarie took over Skyway operations and maintenance and got the right to pocket tolls that rose immediately to $2.50 — after being frozen at $2 since 1993.
The $2.50 toll remained in effect until 2008, when it rose to $3. The deal allowed tolls to go as high as $5 in 2017. After that, the agreement called for annual increases of 2 percent or the rate of inflation, whichever is greater.
Last week’s sale price was $1 billion higher than the windfall paid to Chicago taxpayers a decade ago, when the Skyway became the first major roadway in the United States to be turned over to a private operator.
With a return to taxpayers of $233 million a mile, $44,191 a foot and $3,682 per inch, Chicago aldermen were convinced the $1.83 billion deal would go down in history as the biggest steal since the Dutch bought Manhattan.
“If you ever decide to change careers, there’s truly a place in Las Vegas for you,” then-Ald. Richard Mell (33rd) told a beaming Daley in 2005. “You have been able to pull — not a rabbit out of a hat. You’ve been able to pull a $1.8 billion gorilla out of a hat.”
The $21 million windfall should soften the blow of the higher sale price. But Finance Committee Chairman Edward Burke (14th) said Wednesday he’s convinced it was a good deal for Chicago.
“That’s a long time. A lot of things have changed in the world of finance over that period of time,” Burke said.