Three reasons Illinois has an infrastructure deficit
By Chrissy Mancini Nichols
Sep 23, 2015
This post first appeared at metroplanning.org
We know Illinois has a pension and budget crisis. Google pension debt and you’ll find endless results about Illinois; daily media headlines scream how two months into the new fiscal year, the state has yet to pass a budget. What’s not talked about in the budget and pension morass is another deficit the state faces—the infrastructure deficit. But it’s one that must be addressed to get our economy going.
Illinois road, rail and transit systems are among the state’s strongest assets: a way to attract business and provide a high quality of life to residents. For the last 20 years, however, we’ve been investing less and less in transportation—less than 8 percent of our budget in 2014, compared to 13 percent in 1991—and the results are obvious.
The state faces billions of dollars in backlog for maintenance on its transportation infrastructure. The Illinois Dept. of Transportation reports that one out of four of our roads is in unacceptable condition today. The Department’s multi-year plan projects spending $200 million less than last year, and $1.1 billion less than the year before. With this downward spiral, nearly 40 percent of our roads will be unacceptable by 2020.
Illinois' low credit rating means it pays an additional $4 to $6 billion more in interest costs if it were to enact a new infrastructure plan—money that could be spent on the reconstruction of the 72-year old Red and Purple Line north, which has no funding.
Two factors contribute to insufficient funding. First, the state passes a five-year capital plan about once a decade, making long-range planning difficult if not impossible. In addition, with the lack of revenue from video gaming, the most recent capital plan was not fully funded. That funding backlog created unpredictability, inefficiency and the postponement or cancellation of projects. And consider that before Illinois Jobs Now, the state hadn’t passed a long-term capital bill since the 1999 Illinois First capital program.
There you have it—the infrastructure deficit.
In the latest analysis of The University of Illinois’ Institute of Government and Public Affairs, All Bad Things Come in Threes: Illinois’ Third Type of Deficit: Infrastructure Funding, senior fellow Martin Luby analyzed the state’s current bonded debt burden and credit rating to determine if Illinois has the capacity to fund its infrastructure needs. If you guess it doesn’t you’d be right. Three interesting takeaways:
- Illinois’ low credit ratings cost billions that could be spent on infrastructure
Investors use credit ratings to assess the ability of a state to repay bonds—the lower the credit rating, the greater the risk. A state with a low credit rating must pay more interest on its bonds to attract buyers willing to take that risk—and Illinois has the lowest credit rating of any state in the nation. Luby estimates that Illinois low credit rating means it pays additional interest of 0.2 percent to 2.0 percent on debt, resulting in $4 to $6 billion more in interest costs if it were to enact a new infrastructure plan—money that could be spent on an entire project, such as the reconstruction of the 72-year old Red and Purple Line north, which has no funding.
- Pension bonded debt is suffocating infrastructure investments in Illinois
State and local governments usually use bonded debt to fund infrastructure, but in Illinois, much of the increase in state debt over the past decade has been to fund pensions. Beginning in 2003, Illinois began to sell pension obligation bonds to pay its pension liabilities. Thus far it has issued $17.2 billion in pension obligation bonds that it must pay back through 2034 (this does not include the $85 billion pension unfunded liability.) The need to pay off pension bonds affects infrastructure investment because it limits how much revenue the state has to issue and pay off infrastructure bonds.
- Even if Illinois had more bonding capacity, it still wouldn’t be enough to adequately fund its infrastructure needs
Luby puts the state’s infrastructure needs in the hundreds of billions of dollars over the next 30 years. Over that time the state will retire some of its current bonds. When it does, the money spent on that debt service could either go to issue more debt (to fund infrastructure) or to lower the state’s relatively high debt burden (compared nationally.) Even if it chooses to use the freed up money to issue infrastructure bonds, Luby finds it won’t be adequate— Illinois will still need to raise tens of billions of dollars to make roads pothole free, bridges safe to pass and transit systems reliable.
The need to pay off pension bonds affects infrastructure investment because it limits how much revenue the state has to issue and pay off infrastructure bonds.
How do we begin making the infrastructure investments sorely needed? Follow the lead of other states who have taken action. Just this year, eight states raised their motor fuel tax. Legislators in those states voted to raise the gas tax because they know paying a little extra at the pump will make their constituents’ lives easier—with better, less congested roads, safer bridges and more reliable transit—and make their states more attractive to business.
Right now Illinois drivers pay only $8.25 a month through the state gas tax for the upkeep of our transportation network. That’s it, less than you’ll likely spend on today’s lunch. The Illinois motor fuel tax, which is a major source of our state's road and transit construction funding, has remained at 19 cents per gallon since 1991. Because it hasn't changed to keep up with inflation, the revenues from this tax are now worth about half of what they once were. The result? Even when taking into account other sources of transportation funding, such as highway tolls and transit fares, the share of our state budget that we've invested in transportation has fallen considerably over the past 20 years.
Other states are leaving Illinois in the dust by investing in transportation improvements to be more attractive to businesses, improve their residents’ everyday lives and grow their economies. We know we can't rely on the feds and we know what to fix—we just need to do it.
Illinois faces considerable financial obstacles, but continuing to starve infrastructure is not an acceptable option. Transportation is the essential link that makes our economy work and powers the future of our state. Accelerate Illinois, led by the Metropolitan Planning Council with support from business and other stakeholders including PNC Bank, ComEd, AARP, Active Transportation Alliance, Transportation for Illinois Coalition and many others, is designed to address these issues that keep us from getting where we want to go by identifying new state funding for transportation. Add your name to the growing list of Illinois residents letting our leaders in Springfield know that we are committed to improving our transportation system to growth the economy. Join the Accelerate Illinois campaign today!