How To Sell Off a City

Welcome to Rahm Emanuel’s Chicago, the privatized metropolis of the future.

Rick Perlstein January 21, 2015

Rahm Emanuel shakes hands with Rick Osterloh, president of Motorola Mobility, at the April 22, 2014 opening of the company’s headquarters in Chicago. (Tasos Katopodis/Getty Images)

In June of 2013, Chica­go May­or Rahm Emanuel made a new appoint­ment to the city’s sev­en-mem­ber school board to replace bil­lion­aire heiress Pen­ny Pritzk­er, who’d decamped to run Pres­i­dent Barack Obama’s Depart­ment of Com­merce. The appointee, Deb­o­rah H. Quaz­zo, is a founder of an invest­ment firm called GSV Advi­sors, a busi­ness whose goal — her cofounder has been para­phrased by Reuters as say­ing — is to drum up ven­ture cap­i­tal for an edu­ca­tion rev­o­lu­tion in which pub­lic schools out­source to pri­vate ven­dors such crit­i­cal tasks as teach­ing math, edu­cat­ing dis­abled stu­dents, even writ­ing report cards.”

Most privatization deals fail every public policy test. There’s little record of successful competition between concessionaires to deliver services more efficiently.

GSV Advi­sors has a sis­ter firm, GSV Cap­i­tal, that holds own­er­ship stakes in edu­ca­tion tech­nol­o­gy com­pa­nies like Knew­ton,” which sells soft­ware that replaces the func­tions of flesh-and-blood teach­ers. Since join­ing the school board, Quaz­zo has invest­ed her own mon­ey in com­pa­nies that sell cur­ric­u­lar mate­ri­als to pub­lic schools in 11 states on a sub­scrip­tion basis.

In oth­er words, a key deci­sion-mak­er for Chicago’s pub­lic schools makes mon­ey when school boards decide to sell off the func­tions of pub­lic schools.

She’s not alone. For over a decade now, Chica­go has been the epi­cen­ter of the fash­ion­able trend of pri­va­ti­za­tion” — the trans­fer of the own­er­ship or oper­a­tion of resources that belong to all of us, like schools, roads and gov­ern­ment ser­vices, to com­pa­nies that use them to turn a prof­it. Chicago’s pri­va­ti­za­tion mania began dur­ing May­or Richard M. Daley’s admin­is­tra­tion, which ran from 1989 to 2011. Under his suc­ces­sor, Rahm Emanuel, the trend has con­tin­ued apace. For Rahm’s invest­ment banker bud­dies, the trend has been a boon. For cit­i­zens? Not so much.

They say that the first per­son in any polit­i­cal argu­ment who stoops to invok­ing Nazi Ger­many auto­mat­i­cal­ly los­es. But you can look it up: Accord­ing to a 2006 arti­cle in the Jour­nal of Eco­nom­ic Per­spec­tives, the Eng­lish word pri­va­ti­za­tion” derives from a coinage, Repri­vatisierung, for­mu­lat­ed in the 1930s to describe the Third Reich’s pol­i­cy of win­ning businessmen’s loy­al­ty by hand­ing over state prop­er­ty to them. In the Amer­i­can con­text, the idea also began on the Right (to be fair, entire­ly inde­pen­dent of the Nazis) — and prompt­ly went nowhere for decades. In 1963, when Repub­li­can pres­i­den­tial can­di­date Bar­ry Gold­wa­ter mused I think we ought to sell the TVA” — refer­ring to the Ten­nessee Val­ley Author­i­ty, the giant com­plex of New Deal dams that deliv­ered elec­tric­i­ty for the first time to vast swaths of the rur­al South­east — it helped seal his campaign’s doom. Things only real­ly took off after Prime Min­is­ter Mar­garet Thatcher’s sale of U.K. state assets like British Petro­le­um and Rolls Royce in the 1980s made the idea fash­ion­able among elites — includ­ing a right­ward tend­ing Demo­c­ra­t­ic Party.

As pres­i­dent, Bill Clin­ton great­ly expand­ed a pri­va­ti­za­tion pro­gram begun under the first Pres­i­dent Bush’s Depart­ment of Hous­ing and Urban Devel­op­ment. Hope VI” aimed to replace pub­lic-hous­ing high-ris­es with mixed-income hous­es, duplex­es and row hous­es built and man­aged by pri­vate firms.

Chica­go led the way. In 1999, May­or Richard M. Daley, a Demo­c­rat, announced his inten­tion to tear down the pub­lic-hous­ing high-ris­es his father, May­or Richard J. Daley, had built in the 1950s and 1960s. For this Plan for Trans­for­ma­tion,” Chica­go received the largest Hope VI grant of any city in the nation. There was a ration of ide­al­ism and intel­lec­tu­al ener­gy behind it: Blight­ed neigh­bor­hoods would be renewed and their cul­ture of pover­ty” would be bro­ken, all vouch­safed by the hon­or­able desire of pub­lic-spir­it­ed entre­pre­neurs to make a prof­it. That is the promise of pri­va­ti­za­tion in a nut­shell: that the prof­it motive can serve not just those mak­ing the prof­its, but soci­ety as a whole, by bypass­ing inef­fi­cient gov­ern­ment bureau­cra­cies that thrive whether they deliv­er ser­vices effec­tive­ly or not, and empow­er grub­by, cor­rupt politi­cians and their pals to dip their hands in the pie of guar­an­teed gov­ern­ment money.

As one of the movement’s fans explained in 1997, his expe­ri­ence with nascent attempts to pay pri­vate real estate devel­op­ers to replace pub­lic hous­ing was an exam­ple of smart policy.”

The devel­op­ers were think­ing in mar­ket terms and oper­at­ing under the rules of the mar­ket­place,” he said. But at the same time, we had gov­ern­ment sup­port­ing and sub­si­diz­ing those efforts.”

The fan was Barack Oba­ma, then a young state sen­a­tor. Four years lat­er, he cospon­sored a bipar­ti­san bill to increase sub­si­dies for pri­vate devel­op­ers and financiers to build or revamp low-income housing.

How­ev­er, the rush to out­source respon­si­bil­i­ty for hous­ing the poor became a text­book exam­ple of one per­il of pri­va­ti­za­tion: Com­pa­nies fre­quent­ly get paid whether they deliv­er the goods or not (one of the rea­sons investors like pri­va­ti­za­tion deals). For exam­ple, in 2004, city inspec­tors found more than 1,800 code vio­la­tions at Lawn­dale Restora­tion, the largest pri­vate­ly owned, pub­licly sub­si­dized apart­ment project in Chica­go. Guar­an­teed a steady rev­enue stream whether they did right by the ten­ants or not — from 1997 to 2003, the project gen­er­at­ed $4.4 mil­lion in man­age­ment fees and $14.6 mil­lion in salaries and wages — the devel­op­ers were appar­ent­ly sat­is­fied to just let the place rot.

Mean­while, the $1.6 bil­lion Plan for Trans­for­ma­tion drags on, six years past dead­line and still 2,500 units from com­ple­tion, while thou­sands of fam­i­lies lan­guish on the Chica­go Hous­ing Authority’s wait­list. Be that as it may, the Chica­go expe­ri­ence looks like a lab­o­ra­to­ry for a new White House pilot ini­tia­tive, the Rental Assis­tance Demon­stra­tion Pro­gram (RAD), which is set to turn over some 60,000 units to pri­vate man­age­ment next year. Lack of suc­cess nev­er seems to be an imped­i­ment where pri­va­ti­za­tion is concerned.

Chica­go Inc.

Pri­va­ti­za­tion plain­ly made sense to anoth­er wit­ness to the Plan for Trans­for­ma­tion: Rahm Emanuel, who served as a Chica­go Hous­ing Author­i­ty vice chair­man from 1999 to 2001. After his time as a top aide in the Clin­ton White House, he made more than $18 mil­lion in two-and-a-half years as an invest­ment banker, brought into the busi­ness by the man who just became Illi­nois’ new Repub­li­can gov­er­nor, bil­lion­aire ven­ture cap­i­tal­ist Bruce Rauner.

And as may­or, Emanuel has proven him­self prac­ti­cal­ly an addict when it comes to bro­ker­ing deals with his for­mer invest­ment banker com­rades and the oth­er busi­ness inter­ests he keeps on speed dial. As the Chica­go Read­ers Ben Joravsky and Mick Dumke dis­cov­ered when they filed a Free­dom of Infor­ma­tion Act request for the mayor’s pri­vate sched­ule, Emanuel almost nev­er met with com­mu­ni­ty lead­ers dur­ing his first year in office, but he met con­stant­ly with rich bankers like Rauner, BMO CEO William Downe and Lar­ry Fink, chair­man and CEO of Black­Rock, the world’s biggest mon­ey man­age­ment firm. These are his people.

When he took office as may­or, Emanuel inher­it­ed sev­er­al major deals with cor­po­ra­tions for city ser­vices. One is infa­mous: the park­ing meter deal between Mor­gan Stan­ley, Allianz Cap­i­tal Part­ners and the Abu Dhabi Invest­ment Author­i­ty — the poster child for pri­va­ti­za­tion deals gone wrong.

May­or Daley’s 2008 deal to sell off Chicago’s park­ing meter fran­chise was nego­ti­at­ed in secret; City Coun­cil mem­bers got just two days to study the con­tract before sign­ing off on it. Under the deal, rates prompt­ly sky­rock­et­ed. And worse: Not only does the pri­vate­ly owned Chica­go Park­ing Meters get the mon­ey when­ev­er one of Chicago’s fine upstand­ing cit­i­zens pumps mon­ey into a meter; CPM gets paid even when they don’t. Each park­ing meter has been assigned a fair mar­ket val­u­a­tion.” When the city takes what is called a reserved pow­ers adverse action” — any­thing from remov­ing a meter that impedes traf­fic flow to shut­ting down a street for a block par­ty — CPM can demand a pay­ment for the loss of that meter’s fair” mar­ket val­ue for the entire time it’s down.

What’s more, a 2009 esti­mate from the city Inspec­tor Gen­er­al found that the city had sold the meters for about half of what they were worth. Then, in 2010, Forbes esti­mat­ed that the city had in fact been under­paid by a fac­tor of 10.

What, then, did the new may­or do? He simul­ta­ne­ous­ly bad­mouths the deal and defends it to the death,” explains pub­lic inter­est lawyer Thomas Geoghe­gan, who argued in an unsuc­cess­ful law­suit that the con­tract was invalid because it uncon­sti­tu­tion­al­ly usurped the police pow­ers of the city. On the one hand, Emanuel loud­ly boast­ed he’d rene­go­ti­at­ed the deal to the public’s ben­e­fit. Park­ing became free on Sun­day (but the hours peo­ple had to pay to park on week­nights were extend­ed, vouch­saf­ing CPM’s prof­its). Mean­while, he was care­ful to say noth­ing bad about the multi­na­tion­al con­sor­tium, which con­tin­ues to bilk his con­stituents. That would dis­cour­age oth­er would-be con­ces­sion­aires — like the ones with whom he nego­ti­at­ed a $154 mil­lion deal to oper­ate dig­i­tal bill­boards along Chicago’s express­ways for a term of 20 years.

That’s in keep­ing with the cash-up-front, con­se­quences-lat­er log­ic of pri­va­ti­za­tion deals. An extreme exam­ple is a 2004 deal that then-may­or Daley won’t even be alive to see the out­come of: the leas­ing of the Chica­go Sky­way for $1.8 bil­lion to a con­sor­tium com­posed of Mac­quar­ie, a Syd­ney-based invest­ment firm, and Cin­tra, a Span­ish pri­vate infra­struc­ture devel­op­er, for 99 years.

In 2007, Chicago’s chief finan­cial offi­cer, Dana Lev­en­son, explained the ratio­nale for the deal to Busi­ness­week: There is mon­ey to be had, and cities need mon­ey.” He point­ed out that because of the $1.8 bil­lion cash influx, Chica­go was able to pay off its debt, com­mit $100 mil­lion to social pro­grams like Meals on Wheels, and have enough left over to earn as much inter­est income as it used to make from tolls (which now went instead to the con­ces­sion­aires in Syd­ney and Spain). Sounds nice — unless you hap­pen to dri­ve on the Sky­way. On Jan­u­ary 1, the price to dri­ve its eight miles rose to $4.50, up from the two bucks it cost when the city ran it, mak­ing it the high­est toll-per-mile road­way in the Unit­ed States; if prices had reflect­ed only infla­tion, it would cost $2.50. To investors, that’s the point. As Tim­o­thy J. Car­son, vice-chair of the Penn­syl­va­nia Turn­pike com­mis­sion, not­ed years ago in fight­ing a deal to pri­va­tize that high­way: There’s no mag­ic here. These [deals] are large­ly dri­ven by one fac­tor: the per­mit­ted toll increases.”

As for the Sky­way, the hit is like­ly to get worse — and the claimed ben­e­fits will fade, too. Research by John B. Gilmour of William and Mary Uni­ver­si­ty indi­cates that the longer road pri­va­ti­za­tion deals last, the more they reward investors but short­change the public.

He ran a math­e­mat­i­cal mod­el based on the deal the state of Indi­ana inked in 2006 to lease the Indi­ana Toll Road, the Main Street of the Mid­west,” for a 75-year term. The delight­ful ini­tial cash pay­out closed the state’s bud­get deficit, But, accord­ing to Gilmour’s midrange esti­mate, by the time that deal reach­es the last third of its term, only 13 per­cent of rev­enue goes to the public.

Why would politi­cians nego­ti­ate 75-and 99-year con­tracts that sys­tem­at­i­cal­ly short­change their con­stituen­cies the longer they last? Because the con­ces­sion­aires are able to exploit the sim­ple fact that no politi­cian, even ones named Daley,” last in office that long. Politi­cians reap imme­di­ate glo­ry for clos­ing deficits with­out rais­ing tax­es and fund­ing pop­u­lar pro­grams, an irre­sistible temp­ta­tion. Vot­ers blame the cor­po­ra­tions that oper­ate the roads for the toll increas­es and rev­enue short­falls, not the politi­cians who wrote or vot­ed for the deals in the first place. Then, when the dam­age is done, IBDYBD — I’ll be dead, you’ll be dead,” to repur­pose the phrase that became pop­u­lar among the cyn­i­cal Mas­ters of the Uni­verse who struc­tured the finan­cial time-bombs like mort­gage-backed secu­ri­ties that tanked the glob­al econ­o­my in 2008. A short-term infu­sion of cash that forces the recip­i­ent more and more into hock the longer the arrange­ment lasts: It’s like going to the pay­day loan store,” explains Tom Tress­er, a Chica­go-based anti-pri­va­ti­za­tion activist.

What Rahm hath wrought

Oth­er cities and states did their home­work and reject­ed the pri­va­ti­za­tion fad. In 2008, Penn­syl­va­nia turned back Demo­c­ra­t­ic gov­er­nor Ed Rendell’s dream of sell­ing off the state’s famous turn­pike for 75 years to a con­sor­tium of Citi Infra­struc­ture Investors and the Span­ish com­pa­ny Alber­tis Infraestruc­turas. The pro­posed deal would have raised tolls by about two-thirds with­in 10 years (to $36.40 to trav­el from one side of the state to the oth­er), would have even­tu­al­ly made the state pay the con­sor­tium for lost traf­fic dur­ing emer­gency road-clo­sures, and would have turned over trans­porta­tion-plan­ning deci­sions to far-off cor­po­rate bureau­crats. And after Atlanta leased its water sys­tem to Unit­ed Water Inc. in 1997, lead­ing to a series of water-main breaks and billing dis­putes, the city’s water­shed com­mis­sion­er said, I don’t believe the city will ever look at pri­va­tiz­ing essen­tial ser­vices again.”

Rahm Emanuel’s Chica­go, though, press­es ahead.

Soon after tak­ing office, Emanuel announced the Chica­go Tran­sit Authority’s new Ven­tra smart card” pay­ment sys­tem for pub­lic trans­porta­tion. Cubic, the San Diego-based defense con­trac­tor that got $454 mil­lion in tax­pay­er mon­ey to cre­ate it, had faced endem­ic com­plaints in near­ly every oth­er city in which it had been intro­duced. The sys­tem proved just as dis­as­trous in Chica­go: For months, card fail­ures forced bus dri­vers to sim­ply wave pas­sen­gers through. Or cus­tomers were charged twice if their purs­es or back­packs brushed too close to the read­er upon exit­ing a bus. Fed­er­al gov­ern­ment employ­ees found they could ride free by swip­ing their work IDs. The sys­tem­at­ic glitch­es are dev­as­tat­ing to the argu­ment that busi­ness is bet­ter than gov­ern­ment at deliv­er­ing services.

Anoth­er wonky fea­ture of the Ven­tra sys­tem is that it was designed to suck up the hard-earned mon­ey of mil­lions of less-for­tu­nate Chicagoans into bank cof­fers. The tran­sit cards can dou­ble as deb­it cards, you see, pro­mot­ed as a boon for Chicago’s un- and under-banked. But dig the cus­tomer fees hid­den in the 1,000-page con­tract the city signed with Cubic: $1.50 every time cus­tomers with­draw cash from an ATM, $2.95 every time they add mon­ey to their online deb­it account with a per­son­al cred­it card, $2 for every call with a ser­vice rep­re­sen­ta­tive and an account research fee” of $10 an hour for fur­ther inquiries, $2 for a paper copy of their account infor­ma­tion, and, if you decide you’ve had enough, a $6 bal­ance refund fee.” This all makes mince­meat of the pro-pri­va­ti­za­tion argu­ment that the mar­ket­place” is more trans­par­ent than a gov­ern­ment bureau­cra­cy. The city might have been able to antic­i­pate this before ink­ing the deal had they paid atten­tion to the fact that Mon­ey Net­work, the pay­ment pro­cess­ing com­pa­ny part­ner­ing with Cubic, had received the low­est pos­si­ble grade from the Bet­ter Busi­ness Bureau, and that anoth­er part­ner, Meta­Bank, was fined $5.2 mil­lion by fed­er­al reg­u­la­tors for a scheme to issue deb­it cards fund­ed by tax refund loans at inter­est rates of up to 650 percent.

How did this all go down? Con­sid­er, as a clue, the case of one John Fly­nn. As the Chica­go Tri­bune report­ed, Fly­nn was the Chica­go Tran­sit Authority’s vice pres­i­dent of tech­nol­o­gy from 2000 to 2008, then decamped for the pri­vate sec­tor. Dur­ing a four-year term at the Chica­go divi­sion of Cubic, Fly­nn helped bro­ker the $454 mil­lion Ven­tra deal. Then, last year, under Emanuel, he returned to the city’s employ.

Pro­pa­gan­dists vaunt pri­va­ti­za­tion as a brave new world beyond the icky quid pro quos of old-school munic­i­pal pol­i­tics. Tell that to Deb­o­rah Quaz­zo — who might just laugh all the way to the bank. A year ago, when I first start­ed research­ing this arti­cle, I sent Quaz­zo an email pos­ing two sim­ple ques­tions: Giv­en the work her firm does in edu­ca­tion, did she antic­i­pate recus­ing her­self from school board deci­sions that pre­sent­ed a con­flict of inter­est? And did she antic­i­pate putting invest­ments in a blind trust dur­ing her tenure? I nev­er heard back. Then, this past Decem­ber, the Chica­go Sun-Times report­ed that com­pa­nies in which she invest­ed have reaped $2.9 mil­lion in busi­ness from Chica­go Pub­lic Schools — com­pared to only $930,000 in the three-and-a-half years pri­or to her appointment.

She told the paper she saw no con­flict of inter­est: It’s my belief I need to invest in com­pa­nies and phil­an­thropic orga­ni­za­tions who improve out­comes for chil­dren” — and that she wasn’t involved in the deals or aware that her com­pa­nies’ take had tripled since she took office. Which would make her either a pret­ty inat­ten­tive school board mem­ber or a pret­ty inat­ten­tive exec­u­tive: Some of her com­pa­nies that had pre­ex­ist­ing con­tracts with CPS cut their prices after Quaz­zo joined the school board so their bills would fall under the thresh­old that would require review by dis­trict bureau­crats. One of those bills came to pre­cise­ly $24,999. The thresh­old for review? $25,000, nat­u­ral­ly. Pri­va­ti­za­tion is build­ing a new Chica­go machine in many respects more offen­sive than the machine of old.

The $14 bil­lion Philadel­phia-based facil­i­ties ser­vice con­glom­er­ate Ara­mark has a well-earned rep­u­ta­tion for unsa­vory labor rela­tions and shod­dy busi­ness prac­tices — for instance, the mag­gots dis­cov­ered in food served in Ara­mark-run prison cafe­te­rias in Michi­gan and Ohio. That didn’t keep the Chica­go School Board from vot­ing in March of 2014 to give Ara­mark a $260 mil­lion, three-year con­tract to han­dle cus­to­di­al main­te­nance. Before the first month of the 2014 school year was out, how­ev­er, a group of Chica­go prin­ci­pals released a report describ­ing filthy con­di­tions in their schools since Ara­mark took over, includ­ing rodents, insects, mouse drop­pings and urine left in toi­lets for weeks. Con­di­tions had been so bad just before the schools opened that par­ent and teacher vol­un­teers had pitched in with cleaning.

What hap­pened next? With­in days of the report’s release, Ara­mark announced it was lay­ing off 470 of its jan­i­tors, reduc­ing the cus­to­di­al labor force by almost 20 per­cent. In response to com­plaints that such lay­offs help destroy the work­ing class, Chica­go Pub­lic Schools CEO Bar­bara Byrd-Ben­nett, an Emanuel appointee, all but boast­ed about one of the most prob­lem­at­ic aspects of pri­va­ti­za­tion: the way it allows pub­lic offi­cials to evade account­abil­i­ty. The Chica­go Sun-Times para­phrased her: They are employed by pri­vate com­pa­nies, so it’s not the dis­trict lay­ing them off.”

Of course, anoth­er thing that elites like about pri­va­ti­za­tion is that it lets them lay off pub­lic employ­ees — espe­cial­ly union­ized ones. In Chica­go, pri­vate­ly run char­ter schools that replace tra­di­tion­al pub­lic schools are not cov­ered by Chica­go Teach­ers Union con­tracts, and most are not union­ized. Before the Chica­go Sky­way was pri­va­tized, the toll-tak­ers were full-time city employ­ees with full ben­e­fits. Now many are part-time con­trac­tors with­out ben­e­fits. When a Japan­ese-owned tech­nol­o­gy com­pa­ny took over respon­si­bil­i­ty for the call cen­ter that han­dles water bill com­plaints, jobs were out­sourced to part-timers. All told, since 2009, the city has cut 5,000 jobs, in addi­tion to lay­ing off 1,700 pub­lic-school employ­ees. This is bad not just for the work­ers who lost their jobs and the labor move­ment gen­er­al­ly, but could serve to dri­ve down wages for all work­ers in the city.

Pri­va­tiz­ers like Emanuel say they have no choice: The city is going broke. That ali­bi is thread­bare. Short­ly after his inau­gu­ra­tion, May­or Emanuel threat­ened 625 lay­offs unless the city’s unions acced­ed to a set of work rule changes. In response, the city’s Coali­tion of Union­ized Pub­lic Employ­ees — which rep­re­sents 6,400 work­ers — quick­ly released a study propos­ing to save the city $242 mil­lion. The plan: Adopt more effi­cient sched­ul­ing and con­tract­ing pro­ce­dures, get rid of unneed­ed mid­dle man­agers instead of front-line union work­ers — and, defy­ing con­ven­tion­al wis­dom, replace pri­vate con­trac­tors with city work­ers. Accord­ing to two COUPE prin­ci­pals, Chica­go Fed­er­a­tion of Labor Pres­i­dent Jorge Ramirez and Labor­ers Local 1001 busi­ness man­ag­er Lou Philips, they nev­er got a direct response from City Hall. We’re say­ing we can save you more than $200 mil­lion and they don’t even read it!” Ramirez told Emanuel biog­ra­ph­er Kari Lyder­sen.

So things rest: Most pri­va­ti­za­tion deals fail every pub­lic pol­i­cy test. There’s lit­tle record of suc­cess­ful com­pe­ti­tion between con­ces­sion­aires to deliv­er ser­vices more effi­cient­ly. The very log­ic is faulty, because most gov­ern­ment ser­vices are what econ­o­mists call a nat­ur­al monop­oly” — which turns out to be what makes it so attrac­tive to cap­i­tal­ists in the first place: Infra­struc­ture is ultra-low-risk because com­pe­ti­tion is lim­it­ed by a host of forces that make it dif­fi­cult to build, say, a rival toll road,” as Busi­ness­week explained way back in 2007. With cap­tive cus­tomers, the cash flows are vir­tu­al­ly guar­an­teed.” Mean­while, trans­paren­cy is plain­ly a joke; indeed, alder­men in hock to May­or Emanuel have let lan­guish an ordi­nance draft­ed by unions and pro­gres­sive alder­man demand­ing actu­al trans­paren­cy. So, what’s real­ly going on here?

It’s about mon­ey and power.

Con­sid­er, final­ly, the mys­tery of Emanuel’s infra­struc­ture trust.” The idea was announced with great fan­fare in March 2012 as an inno­v­a­tive way to pour pri­vate mon­ey into pub­lic goods like air­port expan­sion, street and water improve­ments, and an expand­ed com­muter rail net­work. An inte­grat­ed, com­pre­hen­sive approach” for build­ing a new Chica­go,” Emanuel called it — with lit­tle risk to the pub­lic. The Pow­er­Point pre­sen­ta­tion alder­man watched before vot­ing 41 to 7 to approve the deal con­tained only five slides. The New York Times cred­u­lous­ly report­ed the city’s esti­mate that the trust would cre­ate 30,000 jobs over the next three years.” How? Three years in, with not a sin­gle new job cre­at­ed, no one seems to have any idea.

Maybe they’re just work­ing out the kinks. Chica­go Pub­lic Schools cer­tain­ly hasn’t giv­en up on the idea. In late 2014, the school board and the City Coun­cil approved a $17 mil­lion agree­ment with sev­er­al invest­ment banks, includ­ing Gold­man Sachs, to expand preschool using social impact bonds.” The plan hinges on suc­cess pay­ments” that are trig­gered if chil­dren per­form well on kinder­garten readi­ness tests and third-grade lit­er­a­cy tests. The bet­ter kids do, the more investors get — up to dou­ble their mon­ey over the 16-year pro­gram, accord­ing to an analy­sis by the edu­ca­tion mag­a­zine Cat­a­lyst Chica­go. The deal, Cat­a­lyst explains, relies on a com­pli­cat­ed for­mu­la that pos­es lit­tle risk to investors … large­ly due to the proven track record of the project’s cho­sen preschool pro­gram.” Ben­e­fit to the pub­lic hard­ly seems the pri­ma­ry aim when you con­sid­er the expec­ta­tion — built into the deal — that Chica­go chil­dren will be using few­er spe­cial edu­ca­tion services.

Chicago’s NBC affil­i­ate, WMAQ, edi­to­ri­al­ized, Once again, the city is about to enter into a com­plex, long-term finan­cial trans­ac­tion with mil­lions of dol­lars at stake with almost no debate, lit­tle under­stand­ing of how the pro­gram works, and no third par­ty to weigh in on the poten­tial risk and rewards” — with chil­dren as col­lat­er­al, to boot. Why? Fol­low the mon­ey. Rues Tom Tress­er: These are invest­ment bankers at work cook­ing up busi­ness for their cam­paign con­trib­u­tors. … The banks and bil­lion­aires who are sit­ting on piles of cash are look­ing for some sweet deals, like Mor­gan Stanley’s get­ting $10 for every $1 they invest­ed in our park­ing meters. They play. You pay.”

What’s next? Now that Emanuel is glid­ing to like­ly re-elec­tion in Feb­ru­ary, quite pos­si­bly a munic­i­pal con­sti­tu­tion­al apoc­a­lypse. The enabling leg­is­la­tion for his infra­struc­ture trust includes the fol­low­ing lan­guage: To the extent that any ordi­nance, res­o­lu­tion or order of the city is in con­flict with the pro­vi­sions of this ordi­nance, the pro­vi­sions of this ordi­nance shall be con­trol­ling.” It sounds like a for­mu­la to turn the gov­ern­ing of the City by the Lake over to the bankers on a street called Wall. When Chica­go vot­ers go to the polls on Feb­ru­ary 24 to decide whether to keep Rahm Emanuel as their may­or or replace him with some­one else, this is what that race should be all about.

Rick Perl­stein, an In These Times con­tribut­ing edi­tor, is the author of The Invis­i­ble Bridge: The Fall of Nixon and the Rise of Rea­gan (2014), Nixon­land: The Rise of a Pres­i­dent and the Frac­tur­ing of Amer­i­ca (2008), a New York Times best­seller picked as one of the best non­fic­tion books of the year by over a dozen pub­li­ca­tions, and Before the Storm: Bar­ry Gold­wa­ter and the Unmak­ing of the Amer­i­can Con­sen­sus, win­ner of the 2001 Los Ange­les Times Book Award for his­to­ry. His book Rea­gan­land is forth­com­ing from Simon and Schus­ter in August.
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