In 2002, then-Mayor Richard M. Daley sold the City Council on a plan “to generate millions of dollars of new revenue” by selling the land and tracks beneath the Orange Line and leasing them right back.
Fast-forward 13 years.
Mayor Rahm Emanuel’s administration last summer sold $1.1 billion worth of bonds, with much of that money being used to rid City Hall of the Orange Line deal and others that Emanuel aides say have become a financial drag.
Of the $1.1 billion, $181 million went toward buying back the Orange Line. “We collapsed that deal so now we can own it again,” said Carole Brown, the city’s chief financial officer.
Daley’s decision to sell the Orange Line — which, unlike the other train systems in Chicago, was owned by the city instead of the CTA — caused little stir at the time. The CTA had cut a similar deal for the Green Line four years earlier.
The agreements allowed the private investors who bought the train lines to get lucrative federal tax breaks on their depreciation. Cities and transit agencies around the country, including ones in New York and Washington, D.C., had done similar deals, eventually costing the federal government billions of dollars.
Congress eventually closed the tax loophole, but that didn’t affect deals already in place.
The Orange Line agreement was set to last until 2031, records show, but it had provisions to protect the buyers in the event the city might not be able to make lease payments. Those protections included costly penalties to the city should its credit rating plummet below investment grade.
That’s what happened last May, when Moody’s Investors Service downgraded the city’s credit rating to junk bond status. That led to the city negotiating to end the deal altogether.
It’s not the only Daley deal the city moved to end early using proceeds from the July bond sale. City Hall also used $2.4 million to buy back the city’s 911 computer and radio system from investors.
Bond proceeds also were used to pay $35 million in debt from Daley’s acquisition of the Michael Reese hospital site, which he hoped to use to house athletes for the 2016 Olympics; $62 million to settle a dispute with investors in four downtown parking garages the city privatized in 2006; $18.5 million to settle a dispute involving the parking-meter privatization deal of 2009; and $195 million to terminate interest-rate swap agreements on earlier borrowing.
