Yvette Shields, The Bond Buyer
CHICAGO – Chicago’s pick of The Boring Company and its untested technology for high-speed transit service between downtown and O’Hare International Airport has skeptics and champions in the municipal market.
Chicago Mayor Rahm Emanuel and Elon Musk, founder of the infrastructure and tunnel construction firm, face skepticism over the yet-to-be-proven technology, the ability of the firm to raise the roughly $1 billion in capital, and how fast it can overcome regulatory, environmental, and safety hurdles.
“This transformative project will help Chicago write the next chapter in our legacy of innovation and invention,” Emanuel said, adding that “a 21st century transportation system” is central to competing on an international stage and strengthening the city’s economy. “This plan further sets Chicago apart from the competition.”
At a press conference Thursday, the two men laid out the bare bones of the proposed line that would whisk passengers between downtown and the airport in 12 minutes in automated vehicles traveling through an underground tunnel as electric “skates.” The firm was chosen over another qualified bidder offering a more conventional high-speed rail transit line. Four firms initially vied for the privately funded project.
Amid wide-ranging doubts over how a first-of-a-kind transit system will be built and operated, Emanuel is banking on the private financing requirement.
“We get the upside with no financial risks,” with Musk and his company’s reputation on the line to raise the capital and successfully build and operate the line, the mayor said.
“If we succeed it will be a great thing for the city and if we fail I guess me and others will lose a bunch of money,” said Musk, the chief executive officer of electric vehicle producer Tesla and aerospace manufacturer SpaceX.
The project will have little initial impact on Chicago paper in the market as city funds are not at risk, several market participants said.
IHS Markit and Municipal Market Data analysts said they did not observe any notable changes in city spreads to the benchmark in trading Thursday as the market opened to widespread coverage of the project.
Brian Battle, director of trading at Chicago-based Performance Trust Capital Partners, and Richard Ciccarone, who heads up Merritt Research Services LLC, offered divergent perspectives on the city’s gamble.
“Is it a good idea to connect downtown to the airport with a high-speed service? Absolutely,” Battle said. But it might have been wiser to go with a service that relies on tested technology instead of “shooting for the stars,” he said. “Our risk is that Elon Musk can’t do it.”
Ciccarone believes the project’s benefits may be worth the risk especially since the city’s balance sheet isn’t in jeopardy and it can’t afford traditional financing methods due to the burden of other funding demands, and existing debt and pension obligations that have dragged its ratings down to a low of junk.
“I believe if we are talking about bringing Chicago into the 21st century as an attractive city you have to talk about non-traditional financing avenues” and convenient travel between downtown and the airport “is consistent with being a global city,” Ciccarone said.
“If we are going to think visionary and if can get a private investor to take on the risk, then Chicago is better off,” Ciccarone said.
“Maybe we are not bearing financial risks today, but we might bear financial risk in the future,” Battle said, if the project advances but faces unforeseen fiscal or construction challenges. “There are unknown risks. In the future we might have to fix it or take over the project” or find a new private partner “and complete a project which is dependent on new technology.”
The state of Indiana was forced to take over a faltering public-private road construction partnership last year due to the private developer’s fiscal woes and Chicago has seen its share of boldly envisioned projects that have stalled.
Tesla has consistently failed to keep the promises he made to investors over production levels for its Model 3 sedan.
The proposed line will begin inside the Loop downtown at the site of an unfinished transit “superstation.” A deep black hole has long been seen from Lake Shore Drive after its development ended a decade ago during the financial crisis.
“Cutting edge has its risks,” Ciccarone acknowledged. “Does Elon Musk have the ability to get the financing and complete the project based on the technology? Right now the risks are on the backs of a private company but you have to worry about the long-term viability and solvency of the entrepreneur…but right now the promise is no government money and the risk is private.”
While most expect the City Council will agree to go along with the project, it faces heightened scrutiny from aldermen fearful of facing a backlash should the project sour. Aldermen were criticized for swiftly signing off on the former Mayor Richard Daley’s parking meter lease that’s been labeled as a sweetheart deal for the private investors at the expense of ordinary Chicagoans.
“Before we green light a potential boondoggle, the public deserves answers about how this will be paid for, and how this supposedly entirely privately funded plan will be kept accountable to Chicagoans,” Alderman Scott Waguespack, chairman of the council’s Progressive Reform Caucus, said in a statement Thursday. “There are questions about the economic, social, legal and environmental impacts that the public needed answered before choosing this project.”
Musk sees construction on the tunnel beginning before the end of the year, possibly in three to four months, because there are few regulatory bodies with review powers. He believes the project can be finished 18 to 24 months after construction begins.
Asked how he will raise the roughly $1 billion price tag he’s said the project will cost, Musk said he doesn’t “see any obstacles” citing his past success in raising capital for his endeavors.
Musk acknowledged the skepticism over the technology.
“There is a role for doubters, people should question things and it shouldn’t be taken as a given that things are going to work because often things don’t work,” he said at the news conference, adding that no one in the aerospace industry believed SpaceX would achieve its rocket ambitions.
“Were there doubters when Chicago reversed the flow of the river?” Emanuel said. “Yes. Where are they today?”
The city will now begin negotiations with the goal of reaching a final contract agreement that would go to the City Council for approval. The Boring Company would finance and operate the line in exchange for collecting fares and other project specific revenues like advertising.
Musk said fares would roughly be about half the average cab and ride-share fare.
There is already train service between downtown and the airport: the 45-minute ride on the Chicago Transit Authority’s Blue Line costs $5 when boarding at O’Hare, $2.50 otherwise. Taxis and ride share cars typically cost between $40 to $50 and travel time can run from between a half hour to more than an hour depending on traffic.
Boring promises a high-speed system in which passengers are transported on autonomous electric skates traveling at 125-150 miles per hour. Electric skates – to be built on a modified Tesla Model X SUV chassis – would carry between eight and 16 passengers, or a single-passenger vehicle could leave stations as frequently as every 30 seconds.
The Boring Company says it knows how to increase tunneling speed and drop tunneling costs by a factor of 10 or more compared to traditional methods, but has not delivered such a tunnel to the public. Tesla cars using its “Autopilot” advanced cruise control have been in severalhigh-profile crashes.
About 20,000 air passengers travel daily between O’Hare and the Chicago Central Business District, the city says, and that’s forecast to grow to at least 35,000 daily air passengers in 2045.