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* Greg Hinz…
Faced with a shortage of infrastructure capital and a big employer that needs help, the state of Illinois is moving into the private toll bridge business.
In a rather unique twist today, Gov. Bruce Rauner announced a deal under which CenterPoint Properties will build a $170 million to $190 million private toll bridge linking Interstate 80 and its huge multimodal facility in Will County.
Rauner said the first-of-its kind deal, a variation on the public/private partnership model, will alleviate traffic congestion on local roads that weren’t built to handle fleets of 18-wheelers while strengthening the local economy.
“This project is long overdue and will only enhance the region’s position as a freight hub for North America and an economic engine for the state,” Rauner said in a statement. “Illinois needs more projects just like these creative solutions to fund infrastructure.”
Under the deal, which Rauner said has the backing of the city of Joliet and Will County, but won’t need General Assembly sign-off, CenterPoint would be authorized to build and operate a new toll bridge on Houbolt Road over the Des Plaines River and the BNSF tracks.
Rauner said yesterday at the press conference that he wanted to keep the tolls as low as possible because he has a lot of friends who are truckers and they don’t like paying tolls.
Whatever happens with the tolls, they need to make sure this one is done right.
* Meanwhile, Marc Levine, the chairman of the Illinois State Board of Investment, has a new op-ed in the SJ-R…
Hopeless. Unmanageable. Unfixable. It is all we hear about Illinois’ fiscal status. But before we give up hope on reform and renewal, transformation is occurring at many levels of state government. Through management action, the Illinois State Board of Investment has been able to save taxpayers hundreds of millions of dollars in the last year.
ISBI manages $16 billion in pension assets, mostly for Illinois state employees. Because the pension system is so vastly underfunded, pension contributions have become one of the largest line items in the state budget, crowding out spending on education, social services and placing pressure on lawmakers to raise taxes.
Here is what ISBI has done to help. Since Gov. Rauner’s election, ISBI has cut its annual investment management expenses by 50 percent, or about $40 million. ISBI expects to save $200 million over the next five years, without sacrificing returns or increasing risk.
How? ISBI, like many pension systems across the country, had been enamored with Wall Street investment managers, particularly hedge funds. Inconveniently for everybody, these funds failed to add value. Over the past three years ISBI paid hedge fund fees of $180 million. What did ISBI get for it? Before fees, the hedge fund portfolio underperformed a simple balanced index fund that costs virtually nothing. So early this year ISBI reduced hedge fund investments by 70 percent and fired nearly all of our hedge fund managers.
ISBI has also terminated about half of our “active” investment managers — those trying to beat the markets. They also failed to add value, yet were being paid fees in the millions. Shouldn’t underperformance by a government vendor be cause for dismissal? There’s nothing special about money managers — imagine the outrage if a construction firm built bridges that were consistently less safe than industry standards.
In total, ISBI has taken about $3 billion back from these managers and invested the money in index funds at minimal cost. Does this mean our pension fund will miss great returns? In fact, it’s exactly the opposite — our investment consultant projects that our expected returns will be higher and our risk is lower. And that’s before taking into account the expense savings.
…Adding… One more…
Illinois is ditching the controversial state PARCC exam for high school students, instead giving 11th-graders a state-paid SAT college entrance exam next spring.
The announcement from the Illinois State Board of Education on Monday comes after only two administrations of PARCC, in the spring of 2015 and 2016, following dismal test scores and thousands of students skipping the exams. […]
At the high school level, the PARCC exams took away from key instruction time, school administrators said, as tests piled up in the spring, including Advanced Placement exams for honors-level students and a college entrance exam in many districts.
Against that backdrop, some students didn’t seem to take PARCC seriously.
“There was no element of skin in the game for the kids — they didn’t know why they had to take the exam,” said Argo Community High School District 217 Superintendent Kevin O’Mara, president of the High School District Organization of Illinois.
posted by Rich Miller
Tuesday, Jul 12, 16 @ 9:14 am
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Bingo- Both these are examples of what Rauner should have been doing all along.
Comment by Honeybear Tuesday, Jul 12, 16 @ 9:21 am
Telling that Centerpoint didn’t have a representative speak at the press conference yesterday. I’m not sure that he private financing of this project has been finalized.
Comment by Stones Tuesday, Jul 12, 16 @ 9:22 am
Vanguard (not Bernie Sanders, not Elizabeth Warren, not liberal Democrats) is what keeps Wall Street up at night.
Comment by Almost the Weekend Tuesday, Jul 12, 16 @ 9:23 am
I’m happy to see a reduction in the active management fees at ISBI. However I’d like to see a greater explanation/analysis on the reduction of hedge fund investments. I’m all for reducing the management fees paid to hedge fund managers but I have a small concern about a reduction in the amount invested. My memory is that when the bottom fell out of the market in ‘08 having those hedged positions saved the portfolio from greater ruin, is that accurate? If that’s accurate how would our risk be lower by reducing our hedged positions? If my memory is not accurate I’d welcome the opportunity to read a better explanation why.
Comment by The Captain Tuesday, Jul 12, 16 @ 9:34 am
In the ‘credit where credit is due’ category, I’m thrilled we dumped the hedge funds and the hedge funds managers. Those were crap shoots at best and out right fraud the rest of the time. On the toll bridge idea — as long as the bridge deal does not include any possible ‘bail out’ in the future (like when Centerpoint decides profits are more essential than maintenance and the thing is falling into the river) that put the state on the hook, I’m totally fine with it. But I want to see the fine print.
Comment by Not quite a majority Tuesday, Jul 12, 16 @ 9:41 am
This is what so many people are frustrated about with Rauner. We may not have voted for him but after he won thought, OK, he is a business guy who can probably get some things done.
Instead we got a frontal assault on unions and human services. He has wasted a lot of chances and burned a whole lot of bridges.
Comment by Give Me A Break Tuesday, Jul 12, 16 @ 9:44 am
These “managed funds” were often no more than pinstripe patronage. Long ago I gave up on them since they virtually all underperform the market after fees and loads and only invest in low cost index funds now. I guess it just took the state a bit longer to figure this out.
Comment by Illinois Bob Tuesday, Jul 12, 16 @ 9:52 am
Captain, I have a few thoughts on hedge funds that I’ll post in awhile-tied up right now. In the meantime, I just want to say that from my 30,000 foot view that Marc Levine and the ISBI staff have done a great job of retooling the ISBI portfolio.
Comment by Arthur Andersen Tuesday, Jul 12, 16 @ 9:54 am
The new buzz word in investment funds is Smart Beta. Low-cost funds that are weighted towards specific indicators that have proven to historically beat the market.
Comment by Chicagonk Tuesday, Jul 12, 16 @ 9:55 am
==he has a lot of friends who are truckers==
Name one, Bruce. Governor Rauner has a habit of lying about the dumbest, most inconsequential stuff and it costs him credibility on larger things.
Comment by LizPhairTax Tuesday, Jul 12, 16 @ 9:56 am
After following this locally and statewide for the last few decades, I’ve found that the educational bureaucracy has figured out that the surest way to avoid seeing how more money (and the way its spent) hasn’t really led to improved outcomes. When you change the testing criteria every few years you have no long term basis of comparison. 3-5 years before “starting over” is the general plan to avoid accountability.
First it was shifting from the Stanford to the Iowa test every few years. Then it was IGAP to ISAT, then off to ACT, PARCC and SAT.
Keep changing the yard stick and you’ll never see how you have, or haven’t, come.
Comment by Illinois Bob Tuesday, Jul 12, 16 @ 10:00 am
There’s something just a wee bit ironic about Rauner dumping high-fee fund trollers. Takes a hustler to know a hustler.
Warren Buffett is winning his famous milion-dollar bet with the hedgies, big time. Eight years in, Buffett’s S&P 500 index is up 66%, the hedgies 22%.
http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/
Comment by wordslinger Tuesday, Jul 12, 16 @ 10:02 am
“he has a lot of friends who are truckers”
That, and the mythical state agency without any computers, will get you Alton’s Clark Bridge.
Comment by Nick Name Tuesday, Jul 12, 16 @ 10:04 am
Hedging works great until it doesn’t.
See: Long Term Capital Management
Hedging is for farmers.
Comment by TinyDancer(FKA Sue) Tuesday, Jul 12, 16 @ 10:05 am
ACT is the norm for colleges in the midwest. I wonder why they settled on SAT?
Comment by Anonymous Tuesday, Jul 12, 16 @ 10:20 am
Because SAT won the contract.
Comment by Cheap Seats Tuesday, Jul 12, 16 @ 10:22 am
**he has a lot of friends who are truckers and they don’t like paying tolls.**
LOL.
Comment by JoeMaddon Tuesday, Jul 12, 16 @ 10:24 am
10:20 was me Rich. Strange, but Chrome doesn’t seem to be saving my Nickname any more. Not used to entering it.
Comment by PublicServant Tuesday, Jul 12, 16 @ 10:28 am
I imagine Common Core will soon be discarded as well. We estimated PARCC took three weeks of instruction away from our high school juniors for prep and testing. This does not include the two days for ACT testing right before PARCC was administered.
Comment by Wensicia Tuesday, Jul 12, 16 @ 10:43 am
Good moves. But 19 months to realize we were being hustled on pensions and Prairie State HS testing had marginal utility?
Comment by AJ_yooper Tuesday, Jul 12, 16 @ 10:51 am
=I imagine Common Core will soon be discarded as well.=
Probably not. The “New Illinois Standards” while imperfect, are actually pretty good compared to the 1997 Illinois Learning Standards. Schools, K-12, have invested significantly in adopting the new standards. Not that investment was not made by schools to move to PARCC, there was an investment in time and infrastructure, but that is not entirely wasted moving the high schools to SAT.
We are more accustomed to the ACT, and that was the preference of educators, but SAT won the bid.
The SAT is a more rigorous assessment, and the College Board is an excellent company with strong organization and research. Over a decade ago they developed a curriculum to support capacity for AP classes for 6th through 8th graders that they further developed through high school. Once schools adjust, this move will provide many benefits to kids.
Comment by JS Mill Tuesday, Jul 12, 16 @ 11:05 am
Centerpoint tried to get legislation passed to do this several years ago and failed miserably because they would have made several hundred million due to the legislation. Now Rauner does it for them unilaterally and says they don’t need legislation. This really needs to a close look at this. Smells fishy to me.
Comment by WizzardOfOzzie Tuesday, Jul 12, 16 @ 11:11 am
^^^ Someone really needs to take a closer look at this.
Comment by WizzardOfOzzie Tuesday, Jul 12, 16 @ 11:12 am
===The SAT is a more rigorous assessment, and the College Board is an excellent company with strong organization and research.===
Sorry JSMill, but I disagree with that. ACT and SAT are both mutually acceptable now. The reason I asked was because the ACT has a science section that the SAT doesn’t have, while the SAT has a vocabulary section that ACT doesn’t have. Some students with an aptitude for science prefer the ACT, and preform better on the ACT than the SAT. Some preform better on the SAT. Ideally, they should have been given a choice. I mean, what was the cost difference per student in the deal that the state could have cut?
Comment by Anonymous Tuesday, Jul 12, 16 @ 11:18 am
And coincidentally, the improved access route from I-80 to CenterPoint will greatly improve access to the Hollywood Casino on the Des Plaines River. Just a coincidence, I’m sure.
Comment by IllinoisBoi Tuesday, Jul 12, 16 @ 11:28 am
Is there any reason why ACT and SAT can not be merged into one test?
Comment by Mama Tuesday, Jul 12, 16 @ 11:42 am
We are sure that a private toll bridge near the casino is all on the square….and the distance from the Houbart Exit to the intermodal is _____ miles and all funded by the state and Will County
Comment by Annonin' Tuesday, Jul 12, 16 @ 11:58 am
==Is there any reason why ACT and SAT can not be merged into one test?==
Since higher education accepts either, why bother? Students still can take the ACT on their own time, a small fee is attached. Both have online prep and practice tests.
Comment by Wensicia Tuesday, Jul 12, 16 @ 12:16 pm
Has the EIS been completed for the Centerpoint the project? Has the FHWA approved the AJR for the I80 interchange reconfiguration? Work starting in 2017? Not likely.
Comment by Huh? Tuesday, Jul 12, 16 @ 1:09 pm
Levine is an IPI guy who supported Rauner’s private accounts, why am I skeptical about the veracity of these claims?
Comment by Liberty Tuesday, Jul 12, 16 @ 2:13 pm
= When you change the testing criteria every few years you have no long term basis of comparison. 3-5 years before “starting over” is the general plan to avoid accountability. =
For all of the grief that Illinois Bob receives on this blog, this is a very interesting idea. I don’t know if it’s intentional as Bob believes, but the constant changing of the measuring stick does make it nearly impossible to track the progress of any student cohort over time.
Comment by cover Tuesday, Jul 12, 16 @ 3:37 pm
Huh?- If it’s all being done with private money, they won’t need an EIS. They will need the typical Corps of Engineers permits, etc. They might need an AJR for the Houbolt Road interchange, IF the traffic patterns change so much that a new or rebuilt interchange is needed…and that’s questionable.
To all those who think this bridge would benefit Hollywood Casino, about 95% of their customer base would access it from the north even if the bridge were in place. There’s not much on the south side of the river except rail yards, landfills and industrial properties.
Comment by Six Degrees of Separation Tuesday, Jul 12, 16 @ 3:39 pm
..and why don’t they build an access road directly from I-55 that runs east to CenterPoint? It would only need to be about a mile long and wouldn’t require a bridge.
Comment by IllinoisBoi Tuesday, Jul 12, 16 @ 4:15 pm
IllinoiBoi,
That was one of the crossings looked at in the ill-fated Illiana Expressway study. Lots of environmental problems. Besides, Center Point already has access to I-55 at Arsenal Road. Why would a trucker go to a tolled access when a free one is available?
Comment by Six Degrees of Separation Tuesday, Jul 12, 16 @ 4:48 pm
To the ISBI/hedge fund comments-
Honeybear, You can’t turn an aircraft carrier on a dime, right? It takes time to appoint new Board members, run RFPs for investment consultant, make decisions on asset allocation, and run money manager searches in multiple asset classes. ISBI did all of this in about 12 months, and that is a remarkably good pace for that body of work, believe me.
Captain-Good question on the hedge funds. Truth is that they took hits in 2008-09 just like all the other asset classes,
just not as large as say, equities. In the lower return environment we are seeing this decade, many hedge funds are struggling to attain a return after (their large) fees that justifies their risk. A number of public pensions have reexamined their commitment to this asset class, most notably Calpers, which eliminated their $20b+ hedge fund investments last year.
Given that only about 20% of actively managed equity accounts (with little persistence) outperform a comparable index fund, the concurrent move by ISBI into much cheaper
index funds is also a good choice in my opinion.
Comment by Arthur Andersen Tuesday, Jul 12, 16 @ 5:18 pm
= Before fees, the hedge fund portfolio underperformed a simple balanced index fund … So early this year ISBI reduced hedge fund investments by 70 percent and fired nearly all of our hedge fund managers.=
This is an excellent example of how money can be saved on state pensions.
Comment by Enviro Tuesday, Jul 12, 16 @ 5:42 pm
Isn’t this the same person that stopped the Illiana Expressway? That was a P3 project as well. That project had gone though quite a bit of work, but was deemed a waste of money. I guess that it didn’t benefit the right company.
Comment by Blackhawk Tuesday, Jul 12, 16 @ 10:03 pm