CHICAGO -- The Chicago city council yesterday gave final approval to issuing up to $110 million of revenue refunding bonds to cure the Chicago-Calumet Skyway bond default.

The council voted 33 to 7 in favor of the bond issue after a long-time opponent of the skyway failed once again to return the matter to the council's finance committee for further review.

Alderman John Buchanan, whose ward includes a portion of the skyway, argued that the 7.8 mile toll road has been a "boondoggle" from its beginning in the 1950s. The bond refinancing and a planned $183 million capital improvement program for the skyway are based on an erroneous assumption that traffic will increase on the toll road, Buchanan said.

The refunding issue would simply be bailing out current skyway bondholders, who, he said, might have acquired the bonds at a price of 60 cents on the dollar.

"[Those bondholders] can wallpaper their rooms with skyway bonds as far as I'm concerned," Buchanan said.

Alderman Ed Burke, who heads the finance committee, said that both the city's credit rating and its ability to issue future debt for the skyway would be impaired if the $90.2 million of outstanding skyway bonds is not redeemed by the Jan. 1 maturity date. Burke also said that long-standing bondholder litigation over the default would continue and lead federal courts to appoint a receiver to oversee the skyway.

Chicago would also face an interest rate penalty of 5% more than the 3 3/8% and 4 3/8% rates on the outstanding bonds, Burke said.

While a few other aldermen agreed with Buchanan, the vote of 11 to 29 fell far short of the 26 votes needed to refer the matter back to committee, where it had been approved April 28. Earlier this week, Buchanan also failed to convince the finance committee to reconsider the bond issue ordinance. At the council's May 4 meeting, Buchanan succeeded in delaying final city council approval of the issue.

Chicago plans to issue $103 million of refunding bonds Tuesday through a syndicate led by PaineWebber Inc.

The refunding will redeem outstanding skyway bonds at a price of 101%by July 1. On May 4, bondholders' lawyers agreed to drop longstanding litigation against the city, pending approval of the refunding plan by the city council and subsequent payment of holders of the defaulted bonds.

The bonds have been rated BBBminus by Standard & Poor's Corp., Baa by Moody's Investors Service, and BBB by Fitch Investors Service. However, city officials are exploring insurance for the deal.

In 1963, lack of sufficient traffic caused a default on $101 million of revenue bonds sold in 1955 and 1957 to build the skyway, which connects the southeast side of Chicago with the northwest corner of Indiana. In 1991, the city redeemed $10.8 million of the bonds through a tender offer.

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