Chicago is close to making a deal to lease Midway Airport to a private operator for 99 years. That’s a valuable asset and a long time, and no major U.S. airport has ever entered into such an agreement — all of which gives the City Council reason to look very closely at this $2.5 billion deal.
In the current economic environment, there are two obvious questions: Is this the right time? Is this the right price?
In the two years since Mayor Richard Daley floated the idea of putting Midway in private hands, outside analysts have projected that the deal could be worth $3 billion, even as much as $3.5 billion. But on Monday, Daley said the $2.5 billion bid by Midway Investment and Development Co. is “a very good return, especially given the current stress in the credit markets.”
It’s reasonable to ask, then, whether Daley is leaving half a billion dollars or more on the table in his haste to make this deal.
John Schmidt, the city’s main lawyer on the deal, says no. Schmidt says the city didn’t anticipate a $3 billion bid, especially after it had reached costly agreements with the airlines to secure their support. The airlines were promised 25-year leases from the new operator, with landing fees, rents and other charges frozen for six years and held to increases at the rate of inflation for the next 19.
The current credit squeeze probably did have an effect on the bids. Lenders are being stingier with their money and charging higher interest rates. But that isn’t likely to get better in the short term, say six months to a year. Delaying the deal longer than that could affect the agreements with the airlines, Schmidt said, or cause problems with the FAA approval process, which requires the city to move forward at a “reasonable” pace.
That’s a reasonable argument.
The city’s deal to lease the Chicago Skyway to a Spanish-Australian consortium for 99 years has demonstrated the benefits of leasing public assets judiciously. Chicago got a $1.8 billion windfall, which it used to pay down debt and set up a $500 million rainy day fund. That raised the city’s credit rating and lowered its borrowing costs.
The Midway deal would net the city $1 billion after debt and transaction costs. Unfortunately the city can’t invest that money as it did the Skyway money. A 2006 state law requires that most of it be spent on infrastructure projects and to shore up shaky city pension funds. Consider that the payoff to organized labor so it won’t try to squelch a big privatization deal. Not pretty.
Of course, if the city could get its hands on the money, it might be tempted to use it to plug a reported $420 million gap in the 2009 budget. That, of course, would only stall some tough budget decisions.
Maybe the prospect of a big Midway payoff and new construction jobs will make it easier for labor to accept some things the city has needed to do for a long time — such as reduce the number of workers on each city garbage truck.
In principle, this page has supported privatization efforts. It’s a good idea to get the city focused on essential public services and out of the business of running an airport, which can probably be done more efficiently by a private firm.
Encouraged by the success of the Skyway deal, Chicago is moving forward with plans to put its parking meters and recycling plants in private hands, and the city has leased four underground parking garages.
The guiding principle in all such agreements should be to secure more efficient operations and make government more financially sound. At first glance, the Midway lease appears to pass that test.
