Built in the late 1950s, the Chicago Skyway soars gracefully–the Calumet River, a sea of bungalows and the city’s rusted industrial back yard below–and terminates in a pool of red ink. It has made some money in recent years but not enough to shake off its reputation as a financial sinkhole.
There has been talk for a couple of years of turning the skyway over to a private firm to run. Last week, Mayor Richard Daley made good on that. He announced that a Euro-Australian firm had agreed to pay $1.82 billion–that’s billion with a “b”–to lease and operate the skyway for 99 years. The check will arrive at City Hall 90 days after the deal is signed. The winner of the contract already operates 30 toll roads worldwide.
This deal apparently is the first of its kind in this country, and the mayor deserves credit for pulling it off. The skyway could become a national model for the private operation of roadways. It provides a tremendous financial boost to the city and rids the city of the obligation to perform a function that can almost certainly be done more efficiently in private hands.
Almost from the time it was built, the skyway’s fatal flaw has been that drivers could hop on the nearby Dan Ryan and Bishop Ford expressways and get to Indiana almost as fast–and toll-free. The skyway’s ridership, maintenance and financial health deteriorated to the point that by 1994, bondholders had been paid only $10 million of the $101 million it cost to build the concrete-and-steel turkey. The city recently had to put $240 million into repairs.
When floating casinos began to turn Gary into a Rust Belt Reno that attracts thousands of Chicagoans, the fortunes of the skyway started looking up. To the surprise of many, it started making money again.
The city is not shedding an asset. It will still own the skyway and provide some services such as police patrols. But operations, maintenance and toll collection will be handled by the private firm. Under the deal, tolls can go up to $2.50 in 2008 and to $5 by 2017. After that, increases will be limited to 2 percent a year or the rate of inflation, whichever is greater.
Presumably, the private operator will be guided by supply and demand in setting future tolls. Motorists will still have a choice: Save time by taking the skyway or take a more time-consuming route at no cost. That will be an incentive to keep tolls reasonable and the roadway in good shape.
Next question: How should the city use its windfall? Some aldermen already are behaving as if $1,000 bills have started blowing in from the City Council’s air vents.
Aldermen, stop licking your lips. About $430 million will have to go to the skyway bondholders, who have been nervously waiting to recoup on their investment. Some of the remaining funds should go toward reducing the city’s $5 billion general obligation bond debt. One rating agency recently reduced its outlook for Chicago on the basis of the city’s projected deficits and minimal operating reserves. That ought to be a warning to those dreaming of a spending spree.
The mayor has signaled that proceeds from the deal will not be used to close the city’s $220 million budget gap for 2005. He will have to resist pressure to do just that. Eliminating the gap with a one-time revenue source will only postpone the need to reconcile the city’s unbalanced revenues and expenses. Reducing the city’s debt and replenishing operating reserves should be the first order of business.
The private operation of the Chicago Skyway is a good deal all around, and a credit to the mayor’s willingness to think creatively.
How about that: $1.82 billion for a big bridge. Now, how much do you think the right to operate some of those CTA bus routes would fetch?
