The financialising local growth machine in Chicago

Introduction

Chicago Mayor Rahm Emanuel unveiled the Chicago Infrastructure Trust in 2012 as the first municipal infrastructure bank in the United States designed to link public sector infrastructure projects to private financial investment funds. The Trust scales up Chicago’s financialising legal-regulatory institutional arrangements by standardising public–private partnership processes, and creating legal frameworks to streamline and build capacity for infrastructure financialisation processes. It also innovates new revenue streams from public infrastructure projects where none existed before. The principal architect of the Chicago Infrastructure Trust was World Business Chicago, the policy-writing arm of the city’s most influential business civic organisation, the Commercial Club of Chicago. Mayor Emanuel established the Trust as an innovative strategy for the city to leverage private financing in order to modernise its infrastructure in a neoliberal era shaped by federal devolution, state austerity and an anti-tax climate, proclaiming, ‘I will not tie this city’s future to the dysfunction in Washington and Springfield [capital of the state of Illinois]’ (Schwartz, 2012). Global infrastructure investment funds established by Macquarie Infrastructure and Real Assets, J.P. Morgan Asset Management Infrastructure Investments Group and Citigroup immediately pledged to support the initiative with over a billion US dollars in investment capital (Schwartz, 2012).

The formation of the Chicago Infrastructure Trust signals a maturing of Chicago’s financialised legal-institutional regulatory structures over previous iterations of Chicago’s financialisation processes centred on individual public–private partnership contractual relations and attendant ad hoc risk management frameworks (Ashton et al., 2016). Significantly, Chicago’s maturing financialisation landscape is shaped by non-governmental actors representing the interest of global finance capital working within the local growth machine and inside municipal government agencies. There has been much scholarly concern with how financial interventions are transforming urban governance (Halbert and Attuyer, 2016), including the influence of global financial investment intermediaries and other extra-local financial actors (e.g. credit rating agencies and bondholders) in urban governance (Hackworth, 2007; O’Neill, 2009; Peck and Whiteside, 2016; Torrance, 2008). Others have underscored the active and influential role of local municipal governments in the financialisation of infrastructure through fashioning and utilising novel speculative instruments like tax increment financing bonds and interest rate swaps (Weber, 2010) or legal-institutional frameworks for the public management of risk (Ashton et al., 2016; Farmer, 2014; Gotham, 2016; O’Brien and Pike, 2015).

Our research contributes to the scholarship on the relationship between finance and urban governance by focusing on financialising local growth machines and their efforts to orchestrate a coherent regulatory environment for financialising infrastructure in Chicago, USA. In this article, we explore: 1) the role that international financial institutions and intermediaries play in the local growth machine; 2) how the composition and policy goals of Chicago’s local growth machine are being financialised; and 3) how these changes go on to impact municipal institutional-regulatory arrangements and planning processes. Our article begins with a brief overview of the urban infrastructure financialisation literature. We argue for the retooling of the growth machine thesis to capture the dynamics of financialising urban governance and the growing role of global financial actors’ involvement in local growth machines. We then discuss our case study approach to examining Chicago’s financialising growth machine and its influence on the Chicago infrastructure regulatory context.

In the next section, we write up a descriptive narrative of Chicago’s growth machine and maturing infrastructure financialisation policy-scape, focusing on the rise of World Business Chicago (WBC) as a finance-dominated economic development policy organisation of Chicago’s business community. We examine how WBC gained influence in local government through campaign contributions, and how they wielded their influence to author the city’s Plan for Economic Growth and Jobs and compose the city’s first public–private partnership bank, the Chicago Infrastructure Trust. We then focus on the Trust to understand how WBC is working to build a more standardised and streamlined infrastructure financialisation landscape in Chicago. We highlight that the adoption of innovative debt-financing into the policy tool-kit of Chicago’s growth machine occurred alongside the incorporation of finance capital into the cast of place entrepreneurs mobilising the state and governance to create and capture monopoly rent. We conclude with a reflection on the potential deepening of infrastructure financialisation at the urban and national scale. As finance place entrepreneurs secure positions at the commanding heights of local state and governance, they develop a policy repertoire for other state actors to draw from in response to the recurring problem of funding infrastructure development in an era of austerity.

Urban infrastructure financialisation

The concept of financialisation captures the hegemonic ascent of profit-making through financial means, rather than trade and commodity production. The hegemony of finance is produced through processes that intensify the influence of finance over the economy, political arrangements and everyday life (Martin et al., 2008). Urban areas and infrastructures are material points where global finance capital interacts with concrete and specific built environments and the institutional arrangements that govern them (Brenner and Theodore, 2002). As such, urban infrastructures are useful focal points to observe emerging financialisation dynamics.

During Keynesianism, grant-in-aid and revenue sharing via tax and transfer politics at the federal level matched by local revenues raised on municipal bond markets financed an urban infrastructural landscape that addressed economic development goals. Bond markets and financial intermediaries took a relatively hands-off approach in financing the Keynesian urban built environment. The turn to neoliberal accumulation reconfigured urban infrastructure financing dynamics. The federal shift to block grants to achieve decentralisation goals and the federal and state austerity budgets has forced municipalities to adopt stringent entrepreneurial growth uber alles policies (Harvey, 1989a). Devolution and austerity forced cities to become more entrepreneurial and competitive to attract geographically mobile capital and affluent creative class consumers, in part through infrastructure enhancements. Municipalities are increasingly expected to pay for these infrastructure upgrades from locally generated revenues. Entrepreneurial urban strategies dovetail with the deregulation of the financial industry throughout the 1980s and 1990s and innovations in financial instruments, which created a surplus of yield-seeking finance capital fostering new asset classes for investment opportunities (Ashton, 2009; Leyshon and Thrift, 2007). As such, infrastructure financialisation emerged as a spatial fix for finance capital seeking new profitable outlets for investment in an era of low growth, and a temporal fix for local governments with pressing demands for modernised and competitive infrastructure networks but starved by multi-scalar austerity agendas.

The shift to the neoliberal financialisation of infrastructure is distinct from the Keynesian approach to infrastructure provision in three ways: 1) intensification of municipal dependence on ever more capricious and rapacious credit markets (Hackworth, 2007); 2) packaging of public sector revenue streams for a range of interest-bearing investment vehicles; and 3) empowerment of financial institutions and intermediaries in transformative urban governance and regulatory structures (Krippner, 2005; O’Brien and Pike, 2015; Peck and Whiteside, 2016). Bond markets supplied cities with capital to transform their urban landscape according to the new entrepreneurial and post-industrial growth demands – what Peck and Whiteside (2016) called bond market urbanism. The magnitude of infrastructural demands means that cities can no longer rely solely on traditional municipal bond markets for access to capital. New infrastructure investment funds were formed to solve this revenue problem by linking finance capital to place-based urban infrastructure (Clark et al., 2012). To tap into these investment funds, entrepreneurial municipal governments work with financial intermediaries to concoct a slew of financial mechanisms and innovative revenue bonds to fund infrastructure imperatives, such as public–private partnerships (P3s), special taxing districts and other debt instruments (Weber, 2010). Finance, in alliance with municipal governments, increasingly digs into the niches of the urban system to create revenue streams and investment opportunities where none existed before.

P3s represent the strongest link between supply-side private finance investment strategies and municipal demand for revenues to finance growth politics. P3s have been slow to take off in the United States, largely due to the presence of a robust municipal bond market. The 2007 global economic crisis changed these dynamics. US cities experiencing declining revenues and high debt leverage on the muni-bond market prompted greater demand for private infrastructure financing. However, the lack of institutional supports in US cities has been a significant hurdle confronting institutional funds seeking to invest in urban infrastructure (Organisation for Economic Co-operation and Development, 2011). Completing and carrying out P3 deals often means surmounting multiple levels of bureaucratic red tape for approval, financing and management, all of which reflect the piecemeal nature of infrastructure financialisation in the lagging US market (O’Neill, 2019). Private capital favours institutional practices that can standardise and facilitate the process of infrastructure financialisation to manage risk, enforce contracts and ensure revenue targets (Ashton et al., 2016). Early P3 arrangements in the United States accomplished risk management through contractual mechanisms that inserted the power of finance in local governance arrangements and legal frameworks, forging ‘glocal infrastructure governance’ (Torrance, 2008). In these deals, US municipal officials often confronted asymmetrical knowledge of contractual negotiations and legal frameworks needed for a balanced distribution of risks and rewards (Farmer, 2014). To address these barriers, finance capital and entrepreneurial municipalities are forging an alliance to engineer a more mature financialisation policy-scape through standardising and rationalising urban regulatory and organisational structures (O’Neill and Phillip, 2015).

Financialising growth machines

We use the growth machine thesis (Logan and Molotch, 1987; Molotch, 1976) as a heuristic to understand how the changing internal architectures of elite led urban coalitions mobilise and transform inherited governance structures through emergent strategies pursuant to the spatialised class interests of elites. The time and place specific bundle of actors comprising growth machines can be understood as local hegemonic blocs through which elites pursue state spatial projects and strategies by mobilising economic, political and cultural urban actors around a ‘growth consensus’ (Brenner, 2004; Jessop, 1997a; Jessop et al., 1999). The growth consensus is materialised in planning documents, policies and initiatives and acts as a mercurial and conjunctural schematic for transforming urban land and the built environment. State projects and accumulation strategies, or hegemonic projects, are enacted, not pre-given (Brenner, 2004), and, therefore, attuned to the class composition and pecuniary and geographically grounded interests of elites. Place-grounded elites turn to the collective power of the coalitional form – or ‘organisational manipulations’ (Logan and Molotch, 1987) – to amplify their power in transforming state machineries and geographies of accumulation into ‘spatial fixes’ (Brenner, 2004; Harvey, 1989b).

A foundational insight of the growth machine thesis identified place entrepreneurs, or those ‘directly involved in the exchange of place and collection of rents’ (Logan and Molotch, 1987: 29), as key players in these coalitional efforts. Place entrepreneurs (also referred to as the rentier class) are historically and structurally motivated to orchestrate and be situated as the tertius gaudens in coalitional efforts, due to their position in the space-economy and relationship to the place commodity (Logan and Molotch, 1987). The strategic aims and actions of place entrepreneurs, therefore, hinge on two features intrinsic to capitalist real-estate markets: differential rent (the unique spatial advantage of one location relative to another) and monopoly rent (the social power accompanying the exclusive right to benefit from owning space) (Harvey, 1989a; Logan and Molotch, 1987). These act as the chief modes of value extraction informing the strategies and scalar logic of place entrepreneurs in the transformation of the built environment. Well-networked and monied rent-seeking developers, landowners and financiers are able to wield the amplifying power of coalitions to move beyond strategies of capturing differential and monopoly rents, that is, through a spatial jockeying for well-timed investments, towards strategies that direct state resources and appropriate governance structures to both create and capture differential and monopoly rents.

Growth machines are embedded in prevailing state projects and accumulation strategies, which act as the material and discursive contexts privileging some strategies, interests, spatial scales of action, time horizons and coalitional possibilities over others (Jessop, 1997a). This concept of strategies selectively implies, at once, a degree of maneuverability in the creative destruction of policy and place, and the limiting effects of prevailing institutional arrangements and geographies of accumulation in blocking, redirecting and redistributing finite resources. The inextricable link between growth machines and regimes of accumulation highlights elements of the original growth machine thesis, such as scalar strategies, class composition of place entrepreneurs, and urban and state contexts, which bear scrutiny in light of the profound territorial and temporal re-arrangement of global capital accumulation since the 1970s (Jonas and Wilson, 1999). Growth machines emerge, dissolve and operate in structural constraints that are temporally, spatially and strategically specific. Scholarship has touched on a variety of these contexts and how they alter the formation, dissolution and operations of growth machines and local governance, including global and entrepreneurial cities (Jessop, 1997b; Jessop and Sum, 2000), edge cities, ex-urbs, technoburbs (Phelps and Wood, 2011), privatopias (MacLeod, 2011) and cross-city regional development collaborations (Wachsmuth, 2017).

Our work contributes to this line of theoretical and empirical inquiry by studying the ways in which the emergent neoliberal regime of accumulation has recast the scalar strategies and composition of urban place entrepreneurs in a context of global inter-urban competition and the ascendant hegemonic influence of finance capital in urban governance. Urban entrepreneurialism has replaced urban managerialism of the Keynesian era with a discursive context of ‘endogenous’ development, the material reality of federal and state austerity and the political reality of an anti-tax climate. During Keynesianism, place entrepreneurs utilised the collective power of growth coalitions to ‘jump scale’ (Smith, 1996), overcoming the limitations of municipal debt-financing by mobilising federal legal-regulatory institutions and securing what amounted to billions of dollars for (sub)urban projects through revenue bonds, mortgage capital, grant-in-aid programmes and revenue sharing (Mollenkopf, 1983; Phelps and Wood, 2011; Squires et al., 1987).

The political project of neoliberalism altered the capacity of prevailing local strategies in crisis-prone Keynesian cities to realise growth through federal funds. Federal re-regulations of municipal bond markets and urban policy institutionalised both an emboldened role of national and international investors in municipalities (Bond Market Association, 2001) and an increased onus of infrastructure development on urban governments (Hackworth, 2007). The combined effect of these phenomena placed growth machines in a fiscal problematic referred to as the ‘dual imperative’, or economic growth re-coupled with infrastructure development. The viability of the growth machine hinges on its ability to secure the preconditions for competitive urban landscapes attuned to the infrastructural needs of variegated and clustering growth sectors (like business services, tourism, technology and biomedical research) that enable place entrepreneurs to capture rents (Kirkpatrick and Smith, 2011).

In the neoliberal context, growth machines have turned towards (inter)national money managers to resolve the ‘dual-imperative’ tension formerly mitigated by the federal government under Keynesianism. Local rentiers utilise growth machines to actuate state and governance as a means of jumping scale to both the national and international level in order to form alliances with finance capital to sustain urbanisation. The growth in global pools of surplus money seeking investment and national re-regulation contributing to a competitive state project have pressured municipalities to bend to the spatial and temporal needs of finance. However, urban policy and the regulatory scaffolding of local accumulation is also transformed through emergent growth strategies pursued by local rentiers. These place entrepreneurs have a vested pecuniary interest in retooling the local state to forge and sustain alliances with financial capital, which aid in creating and capturing rents.

The resultant financialisation of space and governance and the concomitant urban spatial fix as a conduit to complete the high-finance circuit of capital has amplified the role of interest rent-seeking global financial capitalists in the cast of place entrepreneurs. The result is a two-way scalar project: local rentiers jump scale upwards to form alliances with national and international financial institutions, and finance capitalists use a downward scalar strategy to shape local state and governance as a means of rationalising space for investment. Both sets of interests meet at the urban scale in growth machines, which are used to enact strategies pursuant to their respective relationship with the exchange value of place. In other words, finance capital is not only an exogenous disciplinary force, but an active, local player in shaping and institutionalising growth and place-based exchange strategies.

The incorporation of the finance capitalist as a place entrepreneur also suggests that exchange value of place and rent extraction is polyvalent. If ‘intensifying’ land use is the modus operandi of local rent-seeking developers, ‘financialising’ land use is the modus operandi of finance capitalists as place entrepreneurs. Finance capitalists extract value through interest-bearing capital, or the title of ownership that yields a dividend. In some respects, these flows of value are akin to ground rent, which is also a form of fictitious capital in which money is laid out in purchasing the claim upon anticipated future revenue from land and the built environment (Harvey, 1982). However, the qualitative difference in the form of value capture suggests that local rentiers and financiers share different relationships to the place commodity, which is a defining relationship shaping growth strategies (Logan and Molotch, 1987). Financiers aim to shape governance in a way that allows them to create and directly capture monopoly rents through exclusive rights to revenue streams. This is accomplished through leasing operation rights over existing infrastructure, providing maintenance upgrades for existing infrastructure or constructing and maintaining new infrastructure in exchange for a revenue stream traditionally tied to user fees or a dedicated payment from tax revenues.

The global financial industry is taking on the role of a glocalised place entrepreneur within the local growth machine through the traditional channels identified by Logan and Molotch: participation in business civic organisations, campaign contributions and securing political appointments to local planning and government decision-making positions. We are interested in exploring how the increasing participation and influence of global finance capital is financialising Chicago’s local growth machine politics and shaping urban infrastructure dynamics, priorities and regulatory frameworks. Chicago has been a salient example in the use of lease-financing of state functions and the corollary reconfiguration of state functions to serve the pecuniary interests of finance capital (Ashton et al., 2016; Farmer, 2014). Studying the ways in which finance capital actuates urban state and governance to extract value from place is instructive as it demonstrates both the grounded interests of finance capital at the urban scale and the cascading effect these place entrepreneurs have in altering the institutional mechanisms meant to regularise urban space, polity and economy to meet the need of long-term financial investment.

Research method

The aim of our project is to explore the role that global financial institutions and intermediaries play in Chicago’s local growth machine through urban governance and institutional practices that steer planning and financing processes. We want to understand: How are Chicago’s growth machine’s composition and political policy goals financialised? How does the growing interconnectivity of Chicago’s growth machine with global finance capital actors and intermediaries remake local state policies and institutional practices to accomplish a more standardised and coherent financialising regulatory regime to extract variegated interest-bearing rents from place? Literature points to the importance of the local state in constructing financial markets (Ashton et al., 2016; Clark and O’Connor, 1997; Farmer, 2014; Weber, 2010). Our questions and the application of the growth machine heuristic build on this literature by addressing the political contestation endemic to the local mediation of global circuits of finance. Emergent financialised regulatory practices in Chicago are not a pre-given. They are the ongoing result of a ‘trial-and-error search’ for regulatory policy (Jessop, 2002) and an iterative application of this policy by an interlocking, interscalar set of political and economic elites with keen interests in shaping urban political projects and hegemonic visions. Our questions aim to highlight the mechanism through which these elites can assert dominance at the urban scale and thus shape the construction of financial markets.

Chicago is a significant case study for understanding how the local growth machine is being financialised by non-local and locally-based interests, and how these interests are re-configuring local institutional frameworks for a number of reasons. First, Chicago is regarded by the financial industry as a leader of infrastructure privatisation experimentation in the United States. It has privatised part of its highway system (the Chicago Skyway), its public parking garages and its parking meter system. Accordingly, the first-of-its-kind Chicago Infrastructure Trust municipal bank is regarded as a test case for other municipalities to mimic or, at the minimum, learn lessons from when forming their own municipal bank. In addition, Chicago has a highly active business civic community organised by the Commercial Club of Chicago (CCC) and its policy-writing organ World Business Chicago (WBC). The influence of Chicago’s business community in urban governance and city planning has long provided a lens to observe the concrete and specific ways in which the growth machine operates (see Hirsch, 1983, and Squires et al., 1987, on the political-economic machinations that altered Chicago’s post-Second World War landscape, and Weber, 2015, for the post-industrial, global city).

We seek to describe how global rentier finance capital penetrates and remakes local policy regimes (Peck, 2003). As such, our exploratory research on Chicago’s financialising growth machine and urban governance dynamics emphasises the territorially situated context of financialising urban policies, which are enacted by place-specific or ‘actually existing’ sets of interlocking actors, organisations, government agencies and institutional structures. The place-specificity of growth machines and municipal regulatory regimes calls for a contextualised and detail-orientated mode of analysis able to parse the internal architectures of local governance. An in-depth single case study approach is best suited for studies that are context-dependent (Flyvbjerg, 2006; Yin, 2003), such as the scholarship of urban politics and political coalitions (Nicholson-Crotty and Meier, 2002; Gerring, 2016).

We collected a mix of primary and secondary documentary data pertinent to identifying key actors, financial intermediaries and business and financial organisations, and the key mechanisms through which financialisation is developed and institutionalised at the urban scale. We used government websites (Chicago Infrastructure Trust and Illinois State Board of Elections’ Sunshine database), non-governmental organisation websites (World Business Chicago) and newspaper articles published in the leading local and national press (the Chicago Tribune and the New York Times) to identify influential growth machine actors and financial intermediaries in decision-making positions. We identified Chicago’s financialising growth machine’s planning and policy priorities by reviewing their outward-facing planning and budget documents (with an emphasis on the city’s Central Area Plan, World Business Chicago’s Plan for Economic Growth and Jobs and the Chicago Infrastructure Trust’s web portal, for documents related to its current and proposed projects, including Request for Proposals, criteria for bids and contract agreements). We also reviewed reports and press releases issued by the City of Chicago and its planning agencies, the Chicago Transit Authority, the City Council of Chicago, World Business Chicago, Chicago Infrastructure Trust, Moody’s Investor Services and the Organisation for Economic Co-operation and Development to identify how growth machine actors represent and legitimate planning and policy priorities.

Chicago’s debt machine model of growth

Since the 1970s, global economic restructuring dethroned manufacturing as the leading pole of economic growth in Chicago. The subsequent hegemonic project aimed to accommodate and expand a business services agglomeration economy capable of securing Chicago’s position as a global city. City officials and business civic leaders took an entrepreneurial approach towards remaking downtown into a more glamorous and economically powerful global city by deploying government resources to subsidise new office construction, transportation enhancements and city beautification efforts (Farmer, 2011; Weber, 2015). To this end, the City of Chicago made billions of dollars in investments to support various up-scale redevelopment efforts by demolishing public housing, subsidising condo conversions and new office construction, building public schools with exclusive performance requirements and building green recreational spaces in select parts of the city. Chicago’s downtown office, housing and entertainment construction boom encountered a significant barrier – all these developments had to compete for scarce and expensive space in an area that was, for the most part, already developed. After the few pockets of space were filled in and old industrial spaces were repurposed for new economic uses, the downtown core was running out of locations to absorb new growth. In order for Chicago to sustain place-based growth, the growth machine targeted the areas to the Loop’s South, West and North Sides (composing the Central Area) for redevelopment that would require a massive outlay of capital to finance new public works infrastructure and amenity upgrades.

Chicago’s growth machine, led by the Commercial Club of Chicago, activated a plan to focus municipal and federal dollars into projects to overcome Chicago’s built environment barrier by expanding the city’s Central Area. The Commercial Club of Chicago (CCC) is recognised as the most powerful and enduring business civic organisation guiding Chicago’s growth machine (Hamilton, 2002). The CCC was founded in 1877 and is currently composed of ‘senior executives’ from Chicago’s business community. CCC has been on the planning committee for all of Chicago’s major planning documents going back to the first Mayor Richard J. Daley’s administration in the 1950s. By the 1980s, it took a more deliberative role in city planning and policy prioritisation by forming affiliated non-profit organisations, including World Business Chicago. The CCC’s policy branches act as its legitimation and technical-policy wings aiding in the promotion, adoption and implementation of policies geared towards transforming the built environment. CCC’s policy-focused committees hired a professional staff tasked with researching and writing policy briefs on the front end, and consultants to assist in the implementation of policy on the back end.

World Business Chicago (WBC) was created in 1999 to write, advise and implement economic development policy and business centred projects. WBC has an 80-member board consisting of the city’s heavy hitting financial, corporate, business service, research and technology, commercial and real estate firms. Almost half of the WBC board is composed of executives from locally-based financial firms like Grosvenor Capital Management and financial firms headquartered in other cities, like Goldman Sachs based out of New York City. Many of the financial firms that play an active role in WBC have established infrastructure investment funds and provided legal services and operations management for infrastructure public–private partnerships, including Goldman Sachs, Bank of America, Northern Trust Corporation and Citicorp.

The CCC approached Mayor Richard M. Daley’s administration to draft a central planning mechanism that would design and finance the outward expansion of the Loop’s high valued real estate market into adjacent neighbourhoods, resulting in the Central Area Plan (CAP) in 2003. The steering committee of the CAP was composed as a public–private partnership with participation of the municipality and its service agencies, and key stakeholders representing prominent downtown businesses, investment banks, retailers and real estate magnates, many of whom were members of the Commercial Club of Chicago (City of Chicago, 2003). The Central Area planning process empowered CCC to influence the planning agenda for public service enhancements and amenities located in the Central Area, in conjunction with the government and its service agencies. In this respect, CAP is a state spatial project (Brenner, 2004) cohering and coordinating the city’s service agencies, Chicago Transit Authority, Chicago Park District and Chicago Public Schools, to help plan and finance the construction of a resource dense environment conducive for expanding the Central Area.

The remaking of Chicago’s downtown was shaped by neoliberal state restructuring, and a shift away from more traditional, Keynesian approaches to urban renewal. First, devolution and state austerity contracted state and federal financial support for urban redevelopment, forcing the city to finance its downtown makeover on credit. For instance, in the Chicago context, as Mayor Daley advanced the growth machine’s post-industrial redevelopment goals throughout the 2000s, the State of Illinois did not fund a new major capital programme as it had in the 1980s and 1990s. However, municipal bond markets offered Daley considerable leeway to debt finance his redevelopment agenda with a bond market urbanism strategy (Peck and Whiteside, 2016). Even though debt financing has been a normal practice for cities to pay for their activities for decades, in the 2000s there was a discernible intensification of Chicago’s dependence on debt financing indicated by the greater magnitude of debt issued during this period. The city issued US$10 billion in general obligation debt between 2000 and 2013 – a threefold increase from the 1990s – primarily for the construction of new public infrastructure, improvements to existing infrastructure and to pay off debt taken out, in part, to finance earlier infrastructure projects (Grotto et al., 2013). In total, Chicago’s debt burden surpassed US$20 billion by 2012, making Chicago one of the most heavily indebted cities (per capita) in the United States (City of Chicago, 2013). In the wake of its high debt leverage, private infrastructure investment funds emerged as a permissible source of revenues, which switched the city’s debt dependence from the traditional municipal bond market to rent-seeking global finance.

The (early) Chicago P3 model

The city first entered the infrastructure investment market through lease-financing. Lease-financing is a type of public–private partnership, which cultivates a more direct relationship between municipalities and private investors and transforms debt payments into rental payments. The Chicago infrastructure P3 model pioneered by the Daley administration is similar to the Macquarie model of early infrastructure financialisation identified by O’Neill and Phillip (2015). Under the early Chicago P3 model, the city would enter into a multi-generational lease with a concessionaire to operate existing infrastructure in exchange for rights to collect user fees over the duration of the lease. In exchange for rent collection rights to existing infrastructure, the concessionaire would provide the city with a large, upfront payment that was often used by the Daley administration to plug operation budget gaps and pay off debt previously issued to pay for, among other things, the construction of infrastructure projects. Agreements were contingent upon ad hoc risk management practices enshrined in contractual mechanisms that often resulted in the rewriting of municipal legal frameworks and mobilised state authority structures to minimise the risk exposure for private investors (Ashton et al., 2016; Farmer, 2014).

Chicago was the first city in the United States to form a P3 regulating part of its existing roadways with the 2005 lease of the Chicago Skyway (the section of Interstate 90 highway connecting Chicago to the Indiana Tollway). The city also brokered a lease for its four parking garages in the area adjacent to the city’s premier tourist spectacle Millennium Park in downtown Chicago to Morgan Stanley Infrastructure Partners in 2006. The city used the upfront cash payments for the leases to pay off debt and shore up its reserves in an effort to appease the bond markets.

As it became clear that Mayor Daley was open to infrastructure P3s, the chief financial consultant for the Millennium Park garage deal, William Blair & Company, approached the city with the idea of leasing its 36,000 parking meter system in 2007. The city’s budget office then hired William Blair & Company as its chief financial consultant on the parking meter P3, and opened bids for the city’s parking meter system. In December 2008, a consortium of global infrastructure investors helmed by Morgan Stanley Infrastructure Partners (MSIP) won its bid to lease the city’s 36,000 metered parking system over a 75-year period for an upfront payment of US$1.15 billion. MSIP took formal control over system operations in February 2009. The city’s parking meter P3 is widely regarded as a failure, largely due to the city’s lack of technocratic knowledge to balance out MSIP’s risk avoidance strategies embedded in the contract (Farmer, 2014). The public was outraged when it was revealed in a MSIP debt-sale memorandum that MSIP placed the value of the parking meter lease at US$11.6 billion – a tenfold profit over what they paid the city (Preston, 2010). In addition, Morgan Stanley Infrastructure Partners regularly activates the contract’s adverse action clause, a financial penalty paid any time city action imposes a cost on the parking meter system, such as temporarily or permanently removing parking meters from the system to repair streets, hold street festivals or reconfigure its street-level transportation system for bus rapid transit or bike lanes (Dannin, 2011; Farmer, 2014). The city was billed nearly US$20 million annually to cover adverse action penalties, eating up the upfront payment it received for the meters. To pay these penalties, the cash-strapped city turned to the bond markets to raise revenues (Gillers and Dardick, 2015). While this attempt at P3 infrastructure financialisation was riddled with rookie mistakes attributed to the City of Chicago’s immature technocratic knowledge of P3 risk transfer mechanisms, the flows of substantial investment dollars in an era of devolution and austerity nonetheless remained alluring to Chicago city-builders who sought to re-jig the city’s P3 practices.

Campaign contributions

The hegemony of finance and the rise of public–private partnerships to finance city infrastructure projects contributed to the ways political influence has been remade under advanced neoliberal urbanisation. During the Keynesian era, Chicago’s growth machine’s goals were accomplished through machine politics where mayors and City Council members steered federal urban renewal funds and local contracts to campaign contributors. Since most of these contributors to the old machine came from local and regional actors, government contracts were typically doled out to more locally situated real estate developers, merchants and industrial patrons (Bennett, 2010). The hegemony of global finance capital and global economic restructuring ushered in what Bennett (2010) called a new mode of ‘pinstripe patronage’ where city contracts and other favours are more regularly rewarded to transnational corporate, finance and law firms whose executives generously donate to the mayor’s campaign fund.

Mayor Richard Daley declined to run for a seventh term in office in 2010, instead using his political influence to elect his successor, Rahm Emanuel, to office. Over the course of 2010–2014, Mayor Rahm Emanuel’s campaign fund, and Political Action Committees (PAC) and Super PACs supportive of the Mayor’s election campaign, raised approximately US$26 million. The magnitude of campaign contributions for municipal mayoral elections created a space for finance capital to influence local electoral outcomes. Using the Illinois Sunshine database (Illinois State Board of Elections, 2018), which tracks political contributions in the state of Illinois, we looked at campaign contributions to Richard M. Daley, Rahm Emanuel and Emanuel’s Super PAC Chicago Forward between 1999 and 2018 from individuals employed at capital management firms as a snapshot of the growing influence of finance in local elections. Overall, Mayor Emanuel received nine times more campaign contributions from people employed at capital management firms than Mayor Daley. Many of these capital management firms operate at the global scale but have local offices.

Chicago Forward, the Super PAC backing Emanuel’s re-election campaign, raised nearly US$1 million from just seven corporate executives in one day alone, including Michael Sacks, vice-chair of World Business Chicago and CEO of Grosvenor Capital Management. Other World Business Chicago members representing some of the largest global investments firms, like JPMorgan Chase and Goldman Sachs, also made generous donations to Emanuel’s election campaign. Overall, nearly half of Emanuel’s campaign contributions came from just 100 mega-donors with ties to both local and global financial services (Kidwell and Heinzmann, 2011). Emanuel’s fundraising success enabled him to saturate television and radio airwaves with costly campaign ads and to marketise his get-out-the-vote organisation efforts, rather than rely on precinct captains.

Plan for economic growth and jobs and the Chicago infrastructure trust

In the post-2008 global economic crisis recovery, Chicago’s growth machine embraced new economic development strategies centred on technological innovation and biomedical research as the key vehicles to stimulate urban growth. The financialising growth machine was able to exert considerable influence over the city’s next major development plan, Plan for Economic Growth and Jobs (PEGJ), produced for the city by Chicago’s new Mayor Rahm Emanuel in February 2012 (City of Chicago, 2012). In a planning strategy that differs from previous administrations, Emanuel took the planning process out of the hands of the city agencies and gave WBC responsibility to author the PEGJ plan. The PEGJ empowered financial intermediaries to exert more coherent and comprehensive planning responsibilities over public infrastructure priorities.

The PEGJ maintains continuity with the downtown-centric office-tourism-residential development goals characteristic of early Chicago entrepreneurial city building, reflecting the variegated interests of non-financial place entrepreneurs in enhancing exchange value extraction. The PEGJ also envisions a retooling of the city’s infrastructure network with significant public investments to support infrastructure and amenities for high skilled workers and technology firms, advanced manufacturing clusters, innovation incubators and venture capital start-ups (City of Chicago, 2012). The plan calls for Central Area upgrades involving more targeted public investment for a faster fibre optic cable network and high-tech research hubs, like the refurbished 1871 Chicago Tech Centre supporting tech start-ups located in the downtown and the state of the art UI Labs on Goose Island, linking the university’s research capacities to commercial technology companies. Acknowledging the tech sector’s preference for environmentally-friendly design and urban lifestyle, the plan promotes energy efficiency projects, more green leisure spaces and public transit linkages and biking infrastructure to interconnect tech hubs, research centres and creative class neighbourhood enclaves to the downtown core (City of Chicago, 2012). To this end, the PEGJ looks to enhance airport travel connectivity to the downtown by constructing an O’Hare Express train service from O’Hare International Airport to the Loop.

There were two key obstacles for financing Chicago’s high-tech infrastructure imperatives: political resistance to privatisation and Chicago’s high debt load taken out to finance earlier entrepreneurial infrastructure projects. As details of the parking meter deal favouring Morgan Stanley Investment Partners came to light, city residents had lost their appetite for P3 deals that delivered tenfold profits to financial investors for multi-generation leases. Mayor Emanuel encountered a surprisingly competitive mayoral re-election bid in 2011, when over 40% of Chicago residents supported a mayoral candidate who ran on an anti-privatisation platform.

The city’s bond market urbanism strategy also hit institutional and fiscal limits. Chicago’s bond market urbanism was successful insofar as city policy remained fiscally sound and stable (Peck and Whiteside, 2016). The magnitude of the city’s US$20 billion debt provoked a disciplinary response by global credit rating agencies, locking Chicago out of the low-cost muni-bond markets. In 2015, Moody’s Investors Service downgraded the city’s bond rating to Ba1 – slightly above junk status – due to the city’s growing pension liabilities and debt service payments (Moody’s Investors Service, 2015). Moody’s rating made Chicago’s debt more expensive, forcing the city into higher interest bond markets to finance infrastructure projects. The growth machine’s solution to these forces was to form stronger linkages to private infrastructure investment funds.

In order to tap into the growing number of global infrastructure investment funds, the Emanuel administration partnered with World Business Chicago to form the Chicago Infrastructure Trust in 2012 – the first municipal infrastructure bank with the primary mission to link public sector projects to private infrastructure investment funds. WBC and the Emanuel administration designed the Trust to orchestrate a more coherent and systematic infrastructure financialisation framework for the city. The Trust remakes state authority structures beyond piecemeal public–private partnership contractual relations and attendant risk management institutional frameworks that characterised the early Chicago P3 model. By creating an institutional home for infrastructure investment processes and having professional staff on hand, the Trust could avoid the political pitfalls of the early Chicago P3 model by reducing asymmetries of knowledge and investors’ risk avoidance strategies that pushed revenue risk back onto the city. The Trust scales up Chicago’s financialising legal-regulatory institutional arrangements by producing technocratic knowledge, standardising public–private partnership processes and creating legal frameworks to streamline and build capacity for infrastructure financialisation processes, creating a more mature financialisation landscape.

Political appointments to the Trust’s board of directors have given more direct governance powers to the financialising growth machine. Projects are proposed by the mayor’s office and selected by the Trust’s board of directors according to criteria established by the Trust. The mayor has sole control over appointments to the seven-person Trust board of directors. Mayor Emanuel filled the majority of his appointees with financial investors and/or affiliates of firms that are members of World Business Chicago. In 2015, Emanuel selected Kurt Summers as chair of the CIT board. Summers is a former Senior VP at Grosvenor Capital Management, a financial firm that is also a WBC member. Emanuel’s other appointments to the CIT board in 2015 included: Debra Cafaro (CEO of Ventas investment fund); Carl Lingenfelter (chief administration officer of Northern Trust Hedge Fund Services); Kym Hubbard (head of investments for Ernst & Young Global); and Miguel Zarate (managing partner for investment consulting firm Marquette Associates). While Cafaro also moonlights as a member of the WBC board of directors, Northern Trust and Ernst & Young have other associates that serve on the WBC board of directors. The remaining Emanuel appointees included one City Council member (as requested by the City Council before they approved the formation of the Trust) and Jorge Ramirez, the president of the Chicago Federation of Labor, whose trade union members would benefit from new construction projects. Due to its de facto planning role on the Plan for Economic Growth and Jobs and its authority on the Trust board arranging private financing for city projects, World Business Chicago is well positioned to prioritise infrastructure projects that align with the financialising growth machine’s accumulation strategy.

The Trust coordinates the proposal process, evaluates proposals and selects the winning bid. The City Council still has the power to approve contracts at the back end of the process. Crucially, the Trust identifies infrastructure projects that can potentially generate interest-bearing rents from public revenue streams tied to traditional sources, like user fees, fares, tolls or dedicated payments from city tax revenues, as well as promote more innovative and speculative revenue sources, like capturing anticipated cost savings generated from infrastructure upgrades. In order for the more groundbreaking schemes to be operative, the Trust would be involved in engineering new governance practices or remaking existing regulatory mechanisms that are obstacles to new rent collection modes. Importantly, the Trust provides government bonding status to private investors, thus lowering their overall cost of borrowing. The Trust is authorised to issue taxable or tax-exempt debt (by using the municipality’s tax exempt status) through bonds, loans and grants, and to raise revenues through securities for projects that serve the public interest. These forms of debt can be used to directly subsidise projects or leverage federal grants tied specifically to projects holding a public–private partnership status, like startup funds for bus rapid transit systems. By having a streamlined and standardised institutional mechanism in place, Chicago can gain a competitive advantage in the intercity competition for scarce federal infrastructure dollars tied to P3s. In this way, the Trust interlocks local and federal financialising frameworks and institutions.

The Trust’s P3 model reflects institutional learning on the part of the government and attempts to build political will in the face of public resistance to P3s. The Trust repudiated the early Chicago P3 model of long-term leases in favour of deals spanning 15 to 40 years, with the city retaining full ownership and control of the asset. While private investors will share in the revenue stream to cover financing or service operation cost, the Trust will also impose a cap on the amount of profits investors can capture to just under 5 per cent, to prevent investors from fleecing the city. Excess profits will be returned to the Trust. In this way, there is a greater transfer of risk onto the private sector than in previous Chicago P3 contracts. In addition, when unveiling the Trust to the public, Emanuel publicised that five investment firms expressed an interest in investing a total of US$1.7 billion in potential infrastructure projects. These large investment firms included globally active infrastructure investment funds like J.P. Morgan Asset Management Infrastructure Investments Group, Citibank, Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets and Union Labor Life Insurance Company (ULLICo), managing labour union pension and life insurance investment funds (the first three firms are also WBC members).

As global financial firms are seeking to financialise local governance arrangements, they can experiment with policies, practices and institutional models in one city that can be mobilised and mimicked in other cities (McCann, 2011). Lessons learned from the Trust, whether positive or negative, can provide financialising interests with institutional expertise that can enable them to implement a more viable model in other cities and thereby horizontally extend financialising institutional arrangements. Policy replication is a key reason that former President Bill Clinton, representing the Clinton Global Initiative (CGI), stood by Emanuel’s side at the Trust’s launch. Speaking on behalf of CGI, Clinton promoted the Trust on the media circuits, acknowledging, ‘What we’re trying to do is to get other cities to do the same thing’ as the Chicago Infrastructure Trust (Holeywell, 2013). A few months after the launch, the Clinton Global Initiative announced that it would partner with the US Conference of Mayors (USCM) to focus on the infrastructure issues confronting US cities. CGI and USCM formed the Infrastructure Financing for Cities Task Force to explore ways other municipal governments could establish urban infrastructure banks like Chicago’s and lure private capital to invest in public infrastructure projects that encourage economic growth. Due to his firsthand experience, Chicago Mayor Rahm Emanuel chaired the task force.

Retrofit Chicago and the O’Hare Express train

The Emanuel administration promoted the Trust as a way to modernise Chicago’s 20th century infrastructure network for a 21st century economy through a variety of ‘transformative’ infrastructure projects such as energy efficient upgrades, a bus rapid transit system, an extension to the existing Red Line and an Airport Express train (Mayor’s Press Office, 2012). The first project advanced by the Trust, the Retrofit Chicago deal inked with Bank of America, retrofitted 60 municipal buildings with energy-efficient upgrades (like new lighting and weatherproofing) in order to reduce energy consumption. Project managers expected lower energy consumption to generate energy cost savings. These speculative cost savings would be used to pay back investors for the upfront cost of the retrofit. The project was trimmed down from an anticipated US$225 million investment to US$13.5 million, in part due to the speculative nature of its revenue stream and the difficulty of measuring cost savings (City Council of the City of Chicago, 2015). Nonetheless, the Retrofit experimentation provides financialising actors lessons on how to bundle potential cost savings into an investment vehicle. Scholars are grappling with whether the environmental focus of infrastructure financialisation presents an opportunity for urban governments to battle climate change given the political realities of fiscal austerity, or to work as a Trojan horse making privatisation more palatable for the public (Castree and Christophers, 2015; O’Neill and Phillip, 2015).

Another Trust project, the O’Hare Express System train service, is also a useful example of how the Trust’s infrastructure priorities for stimulating economic growth may work at cross interests with the infrastructure imperatives of the larger public. The O’Hare Express train service was first proposed in the mid-2000s by Mayor Daley, but plans were put on hold after the 2007 crisis. The O’Hare Express train would interconnect global business and traveller networks with Chicago’s downtown office complex, tourist sights and real estate developments, thereby creating a place-based competitive advantage for Chicago’s business community. As the inter-city competition to attract technology headquarters like Amazon escalated, the Chicago Infrastructure Trust initiated the procurement process for the O’Hare Express as its first fully privatised public works project, with the private concessionaire responsible for all parts of the Design-Build-Finance-Operate-Maintain process in exchange for user-fee monopoly rents.

The O’Hare Express would provide a non-stop train service from O’Hare International Airport to the downtown Loop, trimming the route’s travel time down to 20 minutes. The Express train’s path would align with existing public train routes to the airport that make local stops (either the city’s Chicago Transit Authority’s Blue Line train or the suburban commuter Metra train) (Chicago Infrastructure Trust, 2017). Planners have suggested that the Express trains should be given priority over local services, whereby local trains would have to wait at the station in order to allow Express trains to pass by or local train schedules would have to be modified (have their frequency reduced) to accommodate the added service (Chicago Transit Authority, 2006). To cover the cost of construction and operation, early estimates determined that the concessionaire would have to charge around US$15 for a one-way ticket, making the train an affordable option for only affluent business travellers, tourists or residents who live downtown (Chicago Transit Authority, 2006). The O’Hare Express train would contribute to Chicago’s uneven transportation system by providing a premium train service for the affluent while doing little to provide relief for Chicago’s working-class residents (Farmer, 2011; Graham and Marvin, 2001).

Conclusion

In this article, we explore the role that international financial institutions and intermediaries play in the local growth machine, how the composition and political policy goals of Chicago’s local growth machine are being financialised and how these changes go on to impact municipal institutional-regulatory arrangements. The Chicago Infrastructure Trust, coupled with the constituent legal, political and economic strategies that gave rise to the Trust, is an instructive case study of the transformation of growth machines confronting financialisation as recourse to the combined effects of austerity, devolution and rescaling. Our article contributes to debates on the changing character, composition and significance of growth machines as they confront the re-territorialisation of global capital accumulation and ascendancy of finance capital (Jessop et al., 1999; Jonas and Wilson, 1999; Kirkpatrick and Smith, 2011; MacLeod, 2011; Phelps and Wood, 2011). Specifically, we respond to claims that the growth machine necessarily dissolves or becomes internally incompatible as global capital penetrates urban state and space. Kirkpatrick and Smith (2011), for instance, observed that fiscal crises generate antagonisms in growth machines between ‘extra-local’ investors and localised interests. To the contrary, our case study suggests that global finance capitalists were incorporated into the ensemble of the local growth coalition and formed alliances with putatively local actors to generate political and fiscal capacity for sustained accumulation. The growth machine essentially describes the exercise of economic hegemony, in which a ‘leading’ fraction of capital coheres the conflicting interests of other fractions of capital and ‘subordinate classes’ around temporary and contingent accumulation strategies (Jessop, 1990). The class re-composition of place entrepreneurs in Chicago involved the ascendancy of financial capital in the exercise of local hegemony, which led to the financialisation rather than the ‘cannibalisation’ of the growth machine in Chicago (Kirkpatrick and Smith, 2011).

Chicago’s 21st century growth consensus rerouted the growth machine’s networks from the federal government (as with the Keynesian growth machine) to global-scale private investors. The growth strategy led to Chicago’s pioneering effort in rolling out large-scale infrastructure privatisation through the early P3 model. In tandem with the adoption of financialisation into the growth machine’s policy repertoire, finance capital itself was inducted into the cast of place entrepreneurs with a keen interest in drawing urban space into the high-finance circuit of capital. Global finance capital permeated Chicago’s growth machine through the traditional channels identified by Logan and Molotch: political influence (i.e. campaign finance) and securing key roles in business civic organisations like World Business Chicago (the policy organ of Chicago’s elite organisation the Commercial Club of Chicago).

Plan for Economic Growth and Jobs and the Chicago Infrastructure Trust are exemplars of finance capital as place entrepreneur. The newly incorporated directorate of the growth machine was able to exert a direct influence on the course of Chicago’s post-crisis hegemonic project through participation in World Business Chicago, which gained direct influence over Chicago’s planning process when the Emanuel administration empowered WBC to author the PEGJ. PEGJ projects confronted a fiscal barrier engendered by the growth machine’s previous urban redevelopment strategy, which was exhausting low-cost municipal bond financing and stoking political backlash against Chicago’s prevailing P3 model. In response to these barriers, World Business Chicago, working in conjunction with the Emanuel administration, orchestrated a more mature infrastructure financialisation mechanism in the Chicago Infrastructure Trust. The Trust attempts to reinvent urban governance to streamline private investment in public infrastructure, creating a hospitable climate to attract investments from global infrastructure funds.

On the one hand, the Trust has been an attempt to transform Chicago’s P3 model from an ad hoc process pitting the city in opposition to financial investors at the negotiating table to one that integrated financialising intermediaries, interests and institutional practices into state machinery and governance. On the other hand, Chicago’s over-reliance on the municipal bond market gave WBC and the Trust the pretext to innovate more speculative revenue generating instruments, like the Retrofit programme where investors are paid back with anticipated cost savings from declining energy use, that place city finances on riskier terrain. Nevertheless, the Trust forms a key node in the constellation of interlocking financialised governance institutions that empowers World Business Chicago to realise the growth machine’s infrastructure priorities in ways that contribute to the uneven geographic development of the city’s transit network. For example, the Trust has elevated the O’Hare Airport Express train service, identified in the PEGJ as a lure to ground multi-national corporations and high technology that favour green technology to the city, to the top of its infrastructure priorities, despite other needs across the system.

The specific ways in which growth machines carry out and institutionalise urban accumulation strategies have implications for other municipalities and can scale up to national accumulation strategies and state projects, as well. Growth machine activity is interscalar (Jessop et al., 1999). This is true of growth machines formed under Keynesianism, especially urban renewal growth machines, which pioneered model urban renewal legislation later adopted at the federal level (Hirsch, 1983; Squires et al., 1987). Chicago is often viewed as the seedbed of neoliberal policy in regard to housing and education. In this respect, the CIT functions as a testing-ground for transferable policy lessons for other city officials and growth machines actors seeking to build their own financialised institutional frameworks, albeit attuned to their own situational and path dependent contexts (Cochrane and Ward, 2012; McCann, 2011). Future research can analyse the professionals, consultants, networks and agencies that are involved in transferring or mobilising the financialising policy lessons from the Chicago Infrastructure Trust model.

Lessons learned from our Chicago case study are especially timely considering the current debates on infrastructure development at the national scale. Both the left and right of the political mainstream have embraced the logic that further refinement of neoliberalism is the only path forward to rebuild America’s decrepit infrastructure network. President Donald Trump campaigned on a platform promising a half-trillion dollar investment in infrastructure, later signalling that his administration would favour projects where private capital finance would cover the bulk of the investment. Trump’s infrastructure agenda aligns with the trend amongst urban liberals (see, for example, Florida, 2017; Katz and Bradley, 2013) who are drumming up consensus for a do-it-yourself urban devolution and entrepreneurial agenda that creates the political and economic conditions for carte blanche infrastructure privatisation. The absorption of Chicago’s growth machine by a politically active cadre of finance capital, intent on locking-in financialising institutional frameworks, may contribute to the political mainstreaming of the bipartisan urban infrastructure financialisation agenda. More importantly, the Chicago Infrastructure Trust will give the city a head start in the inter-city competition for federal infrastructure dollars flowing to municipal privatised projects if President Trump is able to move forward with his infrastructure plans, making the Chicago Infrastructure Trust a strategic model for other cities to emulate.