Illinois Jobs Now! state capital program: We have no money, how do we pay for it?

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• By Chrissy Mancini Nichols
• February 28, 2012
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The problem

Three years into the Illinois Jobs Now! state capital program, revenues are far below projections.  Revenues are so far below that the state had to transfer money from the Road Fund to make the required debt service payments on the $5.3 billion in bonds that have been issued thus far.  Since no plan has materialized from state leaders to make up this funding, we want to hear your ideas.

Background

In 2009 Gov. Quinn signed into law the much needed Illinois Jobs Now! state capital program.  The six-year, $31 billion infrastructure plan was the state’s first long-term capital program in a decade. It was expected to create 439,000 jobs and infuse much-needed capital into Illinois’ aging infrastructure.  At the time, the Metropolitan Planning Council (MPC) viewed Gov. Quinn’s signing of the legislation as a mixed bag. The plus side: The package included $160 million for water projects, about $18 billion for transportation, and, for the first time in any capital plan in Illinois, $130 million for housing. These investments would help leverage approximately $4 billion in federal funding. MPC saw a downside though: Money allocated by the new capital plan was not coupled with spending reforms to evaluate the merits of projects against state goals and funding the plan was based on uncertain revenue sources like video gaming.  

When the IllinoisJobs Now! plan was passed, the legislature approved both the $31 billion in infrastructure spending and the revenue increases to pay for it. The major revenue source was dependent on implementing new video poker machines across the state. The law allowed establishments that have a liquor license to install up to five video poker machines and imposes a 30 percent tax on revenue.  Other revenues included increases in driver's license and license plate fees, higher taxes on alcohol, candy, soft drinks and beauty products, and additional lottery proceeds from the private marketing of the state lottery.  These funding sources were expected to bring in up to $1.2 billion annually to make the debt service payments on bonds issued to fund projects.  However, actual revenues have fallen far short.  In fiscal year (FY) 2011, the first full year of revenues, these sources only generated $457 million.

Revenues are down due to a series of delays.  An Illinoisappellate court held the legislation violated the state constitution’s single subject clause.  The Illinois Supreme Court eventually upheld the capital plan, but the lower court’s ruling blocked the state receiving revenues from increased liquor taxes, which were held in a protest fund.  The ruling also delayed implementing the privatization of the lottery and video poker.  Unfortunately, the biggest revenue issue has not been overcome: Many communities have “opted out” of implementing video poker. When the law was passed, cities and municipalities were allowed to “opt out” of installing video poker machines.  It did not, however, tie opting out to the related loss in revenues. Since passage, more than 60 communities have opted out. What’s more, even those communities that “opted in” have not been able to begin installing equipment due to issues with securing a contractor to monitor the new terminals and validating applications.  As a result, video gaming expansion will be delayed at least until FY 2013 – and there is no consensus on a plan to replace revenues from municipalities that have opted out.

Further, every other revenue increase passed to pay for the bill also has fallen short of projections.  The state has resorted to transferring Road Fund revenues to the Capital Projects Fund to cover payments on debt service.  The Road Fund is a special revenue fund and the primary funding source for the state’s ongoing construction of roads, bridges and other transportation infrastructure. Any amount transferred from the Road Fund to the Capital Projects Fund must be repaid, meaning even higher deficits in the Capital Projects Fund in the years to come.

What’s the solution?

Since state leaders have not come up with a way to replace video poker revenues or fund the capital program deficit, MPC is looking to give them some options.  For example, they could increase the state’s motor fuel tax or index it to inflation, something that hasn’t been done in Illinois since 1991.  That move alone would bring in an additional $855 million annually, enough to make up the difference. Illinois sorely needs an infrastructure program. The state’s backlog of transportation infrastructure projects is in the hundreds of billions. Please share your ideas with us. 

Table 1 shows how much revenues are off compared to projection.

Table 1: Actual revenues compared to the original projections for each of the new capital program revenue sources.   FY 2011 is the first full year of revenues.

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