Chicago will receive $42 million in federal funds for the construction of a new air traffic control tower at O’Hare International Airport that is part of the city’s larger, $7.5 billion runway reconfiguration and expansion project now underway.

Mayor Richard Daley and U.S. Sen. Richard J. Durbin, D-Ill., announced on Monday that Chicago and the Federal Aviation Administration have signed a 20-year agreement that allows the FAA to occupy the new control tower now under construction. It provides for the city to recover the $42.3 million cost of building the tower.

“This agreement is good for the FAA, good for the city of Chicago, and good for our nation’s air travelers,” Durbin said in a statement. “We now have a state-of-the-art air traffic control tower as part of a modernization project that will help reduce delays and congestion while increasing safety and capacity.”

The city yesterday entered the market with its long-awaited new-money and refunding sale of nearly $1 billion of O’Hare-related revenue bonds. Lehman Brothers was the senior manager and Financial Security Assurance provided triple-A insurance.

The city initially planned to sell the bonds in November but postponed the deal due to a rise in interest rates over the fall that would have cut the savings of the refunding piece. The City Council approved the airport sale last spring, but officials held off on issuing the debt until the FAA’s approval of its application to finance various projects with the passenger facility charges collected on the price of a ticket. The city also needed permission to use $270 million of PFCs to help cover the $400 million in cost overruns that the city has blamed on delays in land acquisition and demolition because of ongoing litigation.

The deal includes a mix of new-money and refunding bonds, including $784 million of bonds backed by a third-lien general airport revenue bond pledge and $188.6 million of bonds backed by a PFC bond pledge.

The $3 billion first phase of the expansion project relies on a mix of borrowing, federal grants, and PFCs. The city expects to open a new runway late next year as part of the first phase. Negotiations with the airport’s major airlines are ongoing over the next phase. The overall project calls for three existing runways to be relocated and two others extended, a new terminal with an automated people mover system, and a new western entrance.

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