Magazine article Government Finance Review

The City of Chicago's Passenger Facility Charge Bonds: Innovative Financing for O'Hare Airport's Noise Mitigation Program

Magazine article Government Finance Review

The City of Chicago's Passenger Facility Charge Bonds: Innovative Financing for O'Hare Airport's Noise Mitigation Program

Article excerpt

The bonds, secured by a pledge of airport PFC revenues, carry triple A ratings due to the Federal Aviation Administration's Record of Decision guarantee.

Each year the Government Finance Officers Association bestows its prestigious Award for Excellence to recognize outstanding contributions in the field of government finance. The awards stress practical, documented work that offers leadership to the profession and promotes improved public finance. This article describes the 1997 winning entry in the policies and procedures subcategory of the capital financing and debt administration category.

Since 1962, O'Hare has been the primary commercial airport for the City of Chicago, as well as an important transfer and connecting point for numerous domestic and international flights. It is located 18 miles northwest of the city's central business district and occupies approximately 7,000 acres of land. In 1996, O'Hare was the busiest airport in the world for the 35th consecutive year as measured by total passengers and was the busiest airport in the world as measured by total aircraft operations, as it has been for 34 out of the last 35 years. The airlines serving O'Hare operate out of four terminal buildings.

O'Hare creates numerous economic resources for the City of Chicago and surrounding suburbs and generates many opportunities for businesses. A factor in the increased growth in the surrounding suburbs, the airport directly employs more than 45,000 individuals, provides in excess of 300,000 direct and indirect jobs, and contributes more than $13.5 billion annually to the local economy.

Total annual aircraft operations at O'Hare increased 8 percent from 841,013 in 1992 to 909,593 in 1996. This growth in traffic contributed to an increase in noise for suburban residents. Both the city and airlines wanted to improve relations with the surrounding neighborhoods through a noise mitigation program.

The City of Chicago's 1996-2000 Capital Improvement Plan (CIP) for the airport (see Exhibit 1) focused primarily on upgrading and rehabilitating taxiways, runways, and terminal facilities, and on related infrastructure improvements. In addition to developing O'Hare's physical facilities, the CIP includes a noise mitigation program to provide funding for residential and school soundproofing. By improving the quality of life of the residents and increasing home values, the residential and school soundproofing will lead to expanding goodwill for the airport with surrounding communities. While everyone benefits from the better education children receive as a result of reducing the noise distraction through school soundproofing, noise mitigation programs usually receive minimal support from the airlines.

Funding: Passenger Facility Charge

In 1990, Congress enacted the Passenger Facility Charge (PFC) Act, which provides monies for initiatives such as noise mitigation. The PFC act allows a public agency that controls a commercial airport to charge each paying passenger enplaning at the airport a PFC of $1.00, $2.00, or $3.00. Before imposing and using PFCs, a public agency must apply to the Federal Aviation Administration (FAA) for approval. On June 28, 1993, the FAA issued the initial PFC approval that authorized the City of Chicago to impose PFCs at O'Hare at the rate of $3.00 per eligible enplaned passenger, beginning September 1, 1993.

The proceeds from PFCs may be used to finance eligible airport-related projects that preserve or enhance safety, capacity, or security of the national air transportation system, reduce noise at the airport, or furnish opportunities for enhanced competition between or among carriers. Chicago could have used PFC revenues to sponsor its noise mitigation program; however, with this method of pay-as-you-go funding, the program would have taken many years to complete. City staff, exploring options to leverage PFC revenues by issuing revenue bonds to provide immediate cash resources for funding a significant noise mitigation program, found that no other entity had issued PFC bonds in a structure that could meet the needs of the city and its bondholders. …

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