The Port Authority of New York and New Jersey's board ratified a tentative deal struck in March that provide up to $1.6 billion in public financing and subsidies for "the full restoration of the entire World Trade Center," the agency said in a statement.
Agency chairman Anthony Coscia called the action "a major milestone" for the trade center destroyed on Sept. 11, 2001, and developer Larry Silverstein hailed it as "fantastic news for New York."
Stakeholders will share the financial risk so as to protect limited public resources, said Chris Ward, the executive director of the Port Authority, which owns the 16-acre site.
The vote comes after almost two years of negotiations with the agency. The two sides had tentatively agreed on the deal in March after repeated clashes over construction timing and financing amid a rough real estate market.
The deal calls for the Port Authority to put up $1 billion to help finance a 64-story building already under construction at the southeast corner of the site, to be completed in 2013. The Port Authority has agreed to rent space in the building for its new headquarters.
The $1.8 billion high-rise will be funded by about $1.4 billion of tax-exempt Liberty Bonds and $450 million of insurance proceeds. The agency's $1 billion would only be used if the building doesn't repay its debt.
The agency also will provide $600 million in backup financing for a 71-story tower, if Silverstein finds tenants to lease 400,000 square feet and raises $300 million in cash.
Plans for a third Silverstein tower are on hold until market conditions improve.
"Downtown has emerged as one of the world's most exciting mixed-use neighborhoods, offering an unparalleled blend of high-tech office space, retail, residential living and cultural attractions," Silverstein said in a statement.
Silverstein had leased the trade center six weeks before it was decimated in the terrorist attack. He has paid the Port Authority billions of dollars in rent since then for the 10 million square feet of office space lost in the attack.
The Port Authority re-negotiated Silverstein's lease in 2006 and took over responsibility for building and leasing the tallest planned tower. The 1,776-foot 1 World Trade Center - formerly called the Freedom Tower - is set to be completed in 2013.
A memorial to the 2001 attacks and a transit hub are also under construction.
Philippe Visser, the agency's assistant director, told the commissioners that their ratification provides for the "immediate restoration" of the site's east side while phasing in the towers. In addition, he said, a "cash trap" will ensure that public money is reimbursed before cash flows to Silverstein Properties.
Ward added that his agency had to make sure public resources would not benefit the private partner, who at first sought to have the agency finance all three of his towers. Silverstein has invested mostly insurance money in the rebuilding.
The deal also includes a provision for either the rehabilitation or rebuilding of the Bayonne Bridge that links Bayonne, N.J., with the New York City borough of Staten Island, at a cost of $1 billion. New Jersey officials have urged the Port Authority to raise the bridge to accommodate container ships that have gotten bigger in recent years.