What Happened?
Chicago recently put a stop to an initiative to privatize Midway airport after one of the last two bidders backed out of the race. Without a competition between bidders in place, Chicago officials may have been at the mercy of the remaining organization looking to gain ownership of the airport.
The Goal
If the deal had gone through, it would have been one of the largest local privatization efforts in the nation’s history, demonstrating the growing interest in joint venture endeavors between cash-strapped local governments and private investors. The Mayor and other officials estimated the remaining bid was about $2 billion and there was no room for negotiation on the city’s part.
City Hall officials are looking to make wise financial decisions on behalf of the taxpayers to get Chicago out of debt without allowing private interests to take too much control. The remaining bidder did not offer to meet this heightened level of taxpayer protection and left the city with no choice but to back out of the deal.
Good Decision? Bad Decision?
The remaining bidder is rumored to have drafted a 40-year lease on Midway airport, which would take a source of revenue stream away from the city for the next four decades. While the deal would have helped solve some short-term budgetary concerns without raising taxes, some officials argue privatizing the airport could anger the public and give a private organization too much control.
Chicago is not new to the idea of privatization either. In 2004, the city sold the Chicago Skyway to a private investment group for a 99-year operational lease of $1.8 billion. Chicago’s parking meters were also privatized in 2008 under a 75-year agreement to generate $1.2 billion in revenue. Public opinion in both scenarios demonstrated distrust in privatization strategies as safe sources of financial stability.
In 2008, Chicago launched an effort to privatize Midway and almost signed a 99-year deal for $2.52 billion. After financing issues thwarted that agreement, the city tried again and attracted 16 international bidders. The initiative was inspired by the Federal Aviation Administration’s experimental privatization program.
FAA Sells Out
The FAA’s Airport Privatization Pilot Program was created to help equip local governments and states with access to capital to improve transit infrastructure through partnerships with private financing and management. Private companies are encouraged to own, manage, lease or develop public airports, which in turn are expected to generate economic activity locally and increase government revenue streams.
To apply for an airport privatization initiative, both the public entity selling the infrastructure and the private buyer must submit an exemption request to the FAA. The application should include the objectives of the project, the timetable for completion of any changes and all appropriate financial information. The FAA has 10 slots available for participation nationwide, and will oversee the legal settlement and transfer of the airport to the private owner for the selected transactions.
Moving In New Directions
Gov1 has tracked various airport privatization strategies in Chicago and other communities.