by Don Washington on 2012/04/18
Before you read any further call your aldermen and find out how she/he voted on the Infrastructure Bank (Since the vote was postponed you should still ask.) If they voted yes promise that someday this vote is going to come back to haunt them and that day will probably be five or so years from now... if we're all lucky. Now on with the column and try not be too angry.
Sometimes the people in power lie and when they do so they depend on two things. One, you have no idea what the hell they are talking about. Two, the people in the media, covering them, have no idea what the hell they are talking about and will write down what they say word for word without reservation. When one’s idea is so bad that even our crack stenography corps over at the Sun-Times and the Tribune who WANT to endorse it suggest caution you know something Satan wouldn’t claim is about to become a terrifying new reality. Such is the case with the already incredibly shaky Infrastructure Bank.
Basically we are to believe five highly suspect financial entities, whose past behavior make a band of raccoons in your attic look ethical, are not going to engage in grand scale piracy and hardcore loan sharking with the blessing and protection of Don… I’m sorry Mayor Emanuel. I am very aware that my take, that no one with a pulse should trust Citibank and Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets, J.P. Morgan Asset Management’s infrastructure investment group and Union Labor Life Insurance Co. (Ullico), not to behave in a criminal manner at some point is considered both out there and irresponsible.
In my defense the evidence of such a possibility is screaming in all of our faces. There's their collective track record of epic fraud, opportunistic graft, privatization schemes, out-sized criminality and fiduciary irresponsibility to draw from so I am not sure why me pointing this out makes me a raving conspiracy theorist but I digress. Today as the City Council of Chicago lets this happen I suggest those of you paying attention to ponder a few things. Do you understand that the five person board of financiers will be deciding to build things with sister agencies without any kind of oversight?
So what we are talking about here is building new public schools, park district improvements and transit projects if we’re lucky but it could even involve new stadiums and the like. When I hear that private investors of the sort the Mayor has in mind want to make a profit on something I think that past performance is the best predictor of future behavior. This means that you should know about the New Markets Tax Credit.
If you don’t know what that is that’s okay, Mayor Emanuel is possibly counting on you having not one clue and that no one has brought it up is puzzling to me because we are setting up a system that seems to be tailor made for this scheme. The Clinton Administration created this tax credit to allow banks and equity funds to invest in community projects in underserved communities. The kind of places schools, new parks, CTA lines and the like should go.
Sounds good right, but here’s the deal, investors can almost double their investment in about seven years via a 39% federal tax credit on the money they are lending while collecting on the loans they are making. So they loan us $1.7 or $7.3billion, get a 39% tax credit for it and then get to charge us interest. What is not to like about this sweet deal if you are bank or a hedge fund? The answer you are looking for is nothing.
Now, who ends up paying the debt service on this money? Why that would be you and I, us the public. This is the high-interest, loan-sharking thing that myself and Tom Tresser are so alarmed about. It has already led to scandals in New York state as it stuffs public money into private pockets. The sweetest part of this being that the very people who will be profiting from the bank, wealthy investors with stock in this and that, will likely be deeply connected to the very people making the loans. This is not the fox guarding the hen house. This is the fox opening a hen house sitting franchising operation and the chickens volunteering to participate in it.
There is something more real to think about here, which I’ve been meaning to bring up but I always run out of space. Financing is not the same as funding. I know, your head is spinning because they both involve money and that should mean the same thing but it doesn’t. When one talks financing that means getting money right now to do something. It dances right around having to raise taxes or find money from the public to do something right now. This is about timing and action and that sounds good but it comes at a price and with strings as I’ve been yelling and screaming about for months. What financing doesn’t address though is the funding/wealth problem.
When you build a thing how do you maintain, preserve and expand its capacity into the future? Will the schools be toll schools or will there be some fee like a band fee or a sports fee to go to them… which, by the way no longer makes them free. Will all the roads be toll roads? How will we raise enough wealth to pay for/fund the things we build? When I say toll booth economics I mean that everything that used to be free, paid for by the public, will now be paid for like Netflix. This, by the way, is a terrible way to run an economy unless you are one of those extracting rent.
To put it another way replacing, repairing or building something new doesn’t create new value or automatically generate new economic development. So even if we finance these things through an infrastructure bank the debt service on the loan has got to be paid back with the money we have in our pockets right now. Which points us back to the rents at Charter schools in New York being a foreshadowing of our lot on a larger scale; savvy?
To be fair, I have to say that there will be some short-term positives. A far smarter person than I, Rohit T. Aggarwala, who I often don’t agree with, said a great deal about a national infrastructure bank and he said the Chicago bank could create some small good. That’s how all scams work, at first it’s all people working, things happening, buildings going up and people cooperating for the common good. Then it’s all debt service, have to generate a lot more wealth we don’t have and the good people at JP Morgan demanding their money right now and us finding ways to pay for it or else. A situation by the way we were told the Infrastructure Bank was designed to stop from happening.
Today our Aldermen are going to commit us to a particular course of action that has not exactly never been taken before and its track record is not one that should fill you with hope. One almost has to wonder if our Mayor plans to be present when the wheels fall off in five or six or seven years or will he be on to other things leaving behind another Chicago Miracle…
Just like Arne Duncan, Gerry Chico, Richard Daley and Paul Vallas did for education… Now that’s just bleak and cynical, why would a man who looks, sounds and acts like a cartoon super-villain, (Come on, he's like 5'6", threatens people's children with starvation and will be using a sonic gun pain gun on protestors that disobey his will. That's a super villain if ever there was one, right?) do such a thing?