Chicago taxpayers got a $28 million windfall Thursday from the sale of the Chicago Skyway by investors to Canadian pension funds for $2.8 billion — $1 billion more than the city’s take from a landmark privatization deal a decade ago.
Mayor Rahm Emanuel signed off on the sale allowing the deal to close after the Spanish-Australian consortium that unloaded the Skyway and the three pension funds that bought it agreed to pay the city’s “real property transfer tax.”
The windfall was initially pegged at $21 million. The amount paid by Skyway Concession Company LLC and three of Canada’s largest pension funds actually amounted to $28 million.
Of that amount, $20 million 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. The remaining $8 million is paid by the seller to the CTA.
In addition to the tax windfall, Emanuel sought assurances that the new owners would address lead-containing paint on the Skyway and forge ahead with a 10 year capital plan to improve “deteriorating elements” of the 7.8-mile roadway.
Of particular concern were “35 structures whose ratings have declined below ‘good’ but have not yet declined to ‘fair.’”
Chief Financial Officer Carole Brown said when all of those conditions were met, Emanuel signed off on the deal, allowing the transaction to close.
“It was important to the mayor that we protect the taxpayers by getting the transfer tax and making sure the buyer had the resources and expertise to continue to operate the road and address the capital issues,” Brown said Thursday.
“Once we were comfortable that all of those issues were addressed, we were comfortable signing off on the transfer and they were able to close the deal. It’s all done.”
The transfer from one ownership group to the next should be “seamless” to motorists who use the toll road connecting Chicago and northwest Indiana, Brown said.
That’s because the schedule of toll increases laid out in the 99-year-lease will remain unchanged.
In exchange for a $1.83 billion cash infusion, Cintra-Macquarie took over Skyway operations and maintenance in exchange for 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 Skyway tolls rose to $3. The deal allowed tolls to go as high as $3.50 in 2011; $4 in 2013; $4.50 in 2015 and $5 in 2017. After that, the agreement called for annual increases of 2 percent or the rate of inflation, whichever is greater.
The private operator was free to charge an additional 40 percent surcharge to daytime commercial users, provided that truckers who use the Skyway between the hours of 8 p.m. and 4 a.m. are offered a corresponding decrease.
“They still have the ability to raise the tolls subject to the original agreement. That deal doesn’t change. But it’s not like they can jack up tolls as high as they want,” Brown said.
The skyway sale raised eyebrows because the price paid by the Canadian Pension Plan Investment Board, the Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan was $1 billion more than the city got for its 99-year lease a decade ago.
But a recent sale of parking garages showed the city faring better in that deal. Brown disclosed Thursday that downtown parking garages that former Mayor Richard M. Daley unloaded for $563 million in 2006 were sold this week for just $372 million. The new buyer, Millenium Garages LLC, is a joint venture comprised of Northleaf Capital Partners and AMP Capital.
“When the garages were originally sold, Morgan Stanley [the original buyer] made assumptions about how high they could raise parking rates that didn’t pan out. They overstated what Chicagoans would pay to park. They weren’t able to raise rates as high as they thought they could. That drove some of the value,” Brown said.
As in the skyway sale, Emanuel plans to demand that the owners and sellers of the parking garages pay the real property transfer tax and commit to a schedule of capital improvements to maintain the downtown garages.
“We now have a template for these kinds of transactions going forward,” Brown said.
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.
The skyway company reported collecting nearly $80.7 million in revenue from tolls in 2014, a slight increase from 2013.
After leasing the skyway, Daley went on a privatization spree. The great Chicago sell-off continued with downtown parking garages ($563 million) and Midway Airport ($2.5 billion) and culminated in the widely-despised, 75-year deal that privatized Chicago parking meters ($1.15 billion).
The Midway deal subsequently collapsed for lack of financing.
Unlike 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, 2015, 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.