CHICAGO -- Chicago has received the green light to levy a passenger facility charge on air travelers, but will issue only a minimal amount of bonds backed partially by the fees.

The Federal Aviation Administration on Tuesday approved the city's application to levy a $3 passenger facility charge for six years on boarding and connecting passengers at O'Hare International and Midway airports.

The passenger facIlity charge is expected to raise about $90 million annually, according to the city's Department of Aviation. At a press conference yesterday, Mayor Richard Daley said revenues from the charge will help finance $741 million of capital projects at O'Hare and $100 million of projects at Midway over the next 10 years.

John Harris, chief of staff for the Department of Aviation, said that the city intends to issue $37 million of bonds for improvements at Midway. Those bonds will be backed by a double-barreled pledge of general airport revenues from Midway and the passenger facility charges, he said.

City finance officials declined to comment on why the city chose a double-barreled pledge.

Harris said that bonds will not be issued for any of the O'Hare projects because of concerns by O'Hare-based airlines about paying off bonds for capital improvements. He said that the city responded to those concerns by spreading out the projects over time to reduce the need to leverage the passenger facility charges.

"At Midway, we already have airline approval for most of the projects," Harris said. "O'Hare airlines were much more reluctant to sign onto the double-barreled program."

Tim Hutchison, director of the passenger facility charge program for the city, said that the bonds for Midway Airport are expected to be issued in the first quarter of 1994.

The airport projects include terminal. runway, and taxiway improvements; soundproofing for 40 schools; and residential noise insulation for several thousand homes.

"Midway and O'Hare airports provide nearly 340,000jobs shared between Chicago and its suburbs," Daley said. "The personal income generated by these jobs totals 13.5 billion each year. Clearly, Chicago's airports are vital economic resources that must be carefully managed."

Daley's decision to proceed with the O'Hare and Midway projects reflects his intention to focus on the city's existing airports rather than build a new airport. Last year, Daley abandoned a plan to use passenger facility charges for a new airport in the Lake Calumet area on the city's southeast side after the Illinois General Assembly failed to quickly approve the plan.

In 1990, Congress voted to allow the collection of passenger facility charges by airports. A major reason for allowing the fees was the prohibition on using federal aviation trust fund revenues to secure bonds.

Rating agencies have made it difficult for airport issuers to obtain investment grade ratings for bonds backed solely by passenger facility charges because of FAA's power to terminate the airports' ability to levy the charges.

In published comments last year, Standard & Poor's Corp. said it would not rate bonds backed only by the charges, while Moody's Investors Service said those bonds would be unlikely to achieve an investment grade rating. Fitch Investors Service has said it will review such issues on a case-by-case basis.

In April, the FAA said it will terminate an airport's ability to collect a passenger facility charge only if there are "dire misuses" of the funds. The FAA issued the clarification in response to a request from Kidder, Peabody & Co. and Hopkins & Sutter, a bond counsel firm. The firms had requested the clarification as part of an effort to sell unrated bonds backed only by passenger facility charges to institutional investors.

A spokeswoman for the FAA said that the agency has approved passenger facility charges at 112 airports and is reviewing applications for 42 others.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.