The Chicago Skyway, built in 1958 for $101 million, is a 7.8 mile, six-lane, toll bridge that connects Chicago to Indiana and the east. In January 2005, the city of Chicago signed a 99-year lease of the Skyway for $1.83 billion with a private company. This transaction, the first of its kind in the United States, caused many states and localities to look more closely at public-private partnerships.
As in many cities, Chicago hoped to boost revenues without raising taxes. Leasing the Skyway would provide a new source of capital for the city, potentially eliminating the city's risk of Skyway ownership, and result in improved toll road services for the public. From the city's perspective, it was the right time for the sale; with completion of the $250 million Skyway reconstruction project, the market value of the asset had never been higher. Private sector interest in the asset could be traced to a 45-year operating history, potential for modernization (electronic tolling), and strong toll revenue growth rates were appealing. Plus, limited future capital expenditures and lack of competing direct routes also added value to the Skyway.
Under the guidance of financial advisors Goldman, Sachs & Co. and Loop Capital Markets, in March 2004, Chicago issued a Request for Qualifications. Bidders were required to prove they were technically qualified to manage the Skyway in operations, maintenance, customer service and safety standards and that they were financially qualified to purchase and maintain the Skyway. By the May 5, 2004, deadline, the city received qualification statements from 10 teams, five of which, the city deemed five qualified. Qualified bidders were given extensive information about the Skyway's financial history, the engineering of the asset, traffic models, and operations and maintenance requirements. In October 2004, the Cintra-Macquarie Consortium was chosen as the concessionaire. Cintra-Macquarie Consortium is composed of Cintra Concessiones de Infraestructuras de Transporte, S.A. of Spain and Macquarie Investment Holdings, Inc. of Australia. The consortium has experience operating more than 30 toll roads, including the Highway 407 Toll Road in Toronto.
Under the lease agreement, the concessionaire makes an up-front, single payment to the city of Chicago and retains the right to collect tolls on the Skyway for 99 years. The concessionaire also has rights to skyway restaurant revenues, but all other revenue rights, such as billboard revenue and sale of naming rights, remain with the city. Other lease terms include detailed operating standards to ensure safety in operations and capital maintenance; city minority and female-owned business requirements in contracting activities; and compliance with Chicago Living Wage Ordinance for employees. Additionally, the Chicago Police Department retains jurisdiction to enforce laws on the Skyway for which the city is reimbursed. Future passenger auto toll limits also are stipulated in the agreement. Through 2008, the toll will remain at $2.50, with an allowed increase of $0.50 every two years until 2017. For the years beyond 2017, rates can increase annually by the greater of inflation (CPI) or the increase in per capita gross domestic product, with a minimum guaranteed increase of 2% per year.
Allowing governmental control over tolls/pricing, operating standards, and other key parameters were critical measures for the city to protect public interests. The city retains the right to inspect the Skyway, make repairs in the event of default, or address an emergency or actions that may impair the continuous operation of the facility. The concessionaire is required to provide various reports on financial status, traffic, accidents, environmental issues and the like. In addition, should the private operator not perform satisfactorily, the city can reclaim control of the asset and keep the up-front payment.
Before deciding how to handle the lease proceeds, Chicago Mayor Richard M. Daley directed his financial team to meet with financial rating agencies to recommend specific uses of the funds. Final distribution included Chicago retiring existing Skyway debt, eliminating short-term debts, paid down long-term debt obligations, establishing a people neighborhood and business investment fund, and establishing a long-term reserve of $500 million. Due to the influx of money and the way it was spent, Chicago's financial rating improved. Standard & Poor's Rating Services revised the city's financial outlook from stable to positive, citing one of the main drivers to revise the city's outlook was the prudent use of funds and in particular the establishment of the $500 million long-term reserve fund.
The Chicago Skyway lease has proven to be a catalyst for activity across the country, with several states exploring similar agreements. The Texas Department of Transportation entered into a public-private partnership for the new Trans Texas Corridor, and Indiana's Governor Mitch Daniels spearheaded a 75-year, $3.85 billion lease plan of the Indiana Toll Road, using the same consortium that operates the Skyway. In Virginia, state transportation officials reviewed proposals to privatize the 14-mile Dulles Toll Road, opting to hand over control to the region's airport authority. In Delaware, state officials are considering leasing out several roads, including a section of Interstate 95; and in New Jersey, Governor Jon Corzine has indicated he would consider leasing the New Jersey Turnpike the Garden State Parkway.