"O'Hare expansion funding criticized"

Thursday, July 17, 2003

O'Hare expansion funding criticized
BY PATRICK CORCORAN
The Chicago (IL) Pioneer Press


While Chicago officials claim to have secured key funding for expansion at
O'Hare International Airport, critics are calling the financing plan nothing
more than a house of cards.

On July 9, Mayor Richard Daley and Chicago airport planning officials
announced that they had secured nearly $3 billion in backing for expansion
in a deal with six airlines, including United and American.

This agreement comes as a surprise to many in light of the recent economic
downturn which has affected the aviation industry.

United is in bankruptcy and American, in recent months, has come close to
filing for bankruptcy.

The agreement was completed without notice in May and details regarding the
project have been elusive

According to city press releases, the start-up costs of the estimated $6.6
billion project will be covered by the city and later fees. Some $2.9
billion agreed to be paid by the airlines, will be used when the project
nears completion.

Additional funding sources include $1.9 billion from bond sales, $658
million from passenger charges and $363 million in anticipated grants from
the federal government's Airport Improvement Program. Further project costs
would be repaid by future increases in runway fees charged to the airlines.

Currently, the project, which was approved by the General Assembly in May,
is awaiting official approval from Gov. Rod Blagojevich and the Federal
Aviation Administration. Blagojevich has said he favors the project, but he
has not yet signed the O'Hare Modernization Act into law.

Apparently the agreement between the airlines and the city was reached after
nine months of negotiations when city officials agreed to allow the airlines
to refinance existing debt to O'Hare and permit the airlines to defer
interest payments to the city.

Opponents are calling the creative financing scheme improbable. They point
to previous estimates that have put the cost of the ambitious modernization
plan at $20 billion, not $6.6 billion.

Elk Grove Village Mayor Craig Johnson, a outspoken opponent of expansion,
believes the entire financing plan and especially the agreement between the
airlines and the city are irresponsible.

"The airline industry has changed. The old dinosaurs, United and American,
are not the ones that are making all the money anymore. This agreement
doesn't take that into account."

Johnson also criticized the plan because city officials promised that the
project would not be financed by taxes. However, the airport user fee
increases that will be used to finance expansion amount to just that --
taxes.

If the modernization project progresses according to the city's plans, the
first phase would take place sometime in 2005 with the entire overhaul of
the airport reaching completion 12 to 15 years later.

The first phase of the project would include architectural costs, land
acquisition, the construction of one runway and the relocation of three
runways at a cost of $2.5 billion. All the work would take place while the
airport is fully operational.

The initial phase does not include the construction of a western access, nor
does it include the cost of the proposed ring road.

Before construction can begin, however, the project needs the approval of
the FAA, and the acquisition must be completed of some 433 acres, including
533 homes, scores of businesses and two cemeteries.

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