May 23, 2014
The capital budget proposed by Governor Pat Quinn for FY2015 represents the sixth year of the Illinois Jobs Now! capital spending program and the first year since its inception that new bond-funded projects are not included in the recommendation.
The capital budget includes $2.9 billion in new appropriations that are funded on a pay-as-you-go basis and reauthorization of $16.5 billion in previously approved projects, bringing the total to $19.5 billion in requested spending authority. Bond-funded projects make up approximately $9.0 billion of the projects proposed for reauthorization in FY2015.
Unlike the State’s operating budget, which mostly requires that appropriated funds be spent in the same year they are approved, capital appropriations are reauthorized over multiple years as planning, engineering and construction of capital investments commence. The total spending approved in the FY2015 capital budget includes funding from the State, grants from the federal government and local matching funds. Since FY2005 the State’s capital budget has been proposed in a separate document from the operating budget and is not part of annual General Funds expenditures.
A list of all the proposed capital expenditures, both new and reauthorized, is available on the Governor’s budget website. This list includes thousands of lines of projects and large grant categories mostly managed by the Illinois Department of Transportation and the Capital Development Board. As previously discussed here, the State of Illinois does not have a comprehensive capital improvement plan to guide its annual appropriations process.
The capital budget proposed for FY2015 is $2.7 billion smaller than the FY2014 enacted capital budget, which totaled $22.2 billion. The authorized capital spending for FY2014 included $3.4 billion in new appropriations and $18.7 billion in reappropriations.
The following table compares the capital budget proposed by the Governor for FY2015 to the enacted capital budget for FY2014.
The State relies heavily on the sale of bonds to fund the capital budget. The original $31.0 billion Illinois Jobs Now! capital program, approved in FY2010, included approximately $16.0 billion of bond-funded expenditures.
According to an analysis of the proposed FY2015 capital budget published by the Commission on Government Forecasting and Accountability (COGFA), the State has issued $11.5 billion in bonds to pay for capital projects since the capital program began. A package of new revenue sources was authorized to pay for the additional debt related to spending on Illinois Jobs Now! and consists of the following:
- Statewide legalization and taxation of video poker;
- Expanded sales tax on candy, sweetened beverages and some hygiene products;
- Leasing a portion of state lottery operations;
- Increased per gallon tax on beer, wine and liquor; and
- Increased license and vehicle fees.
The proceeds from these sources are deposited in the Capital Projects Fund and are used to pay for debt service on new capital bonds and some ongoing capital expenses. However, the taxes and fees have yet to produce the funding levels projected when Illinois Jobs Now! was originally approved. The report on the capital budget from COGFA shows that the revenues from these sources are expected to total $704 million in FY2014 and $766 million in FY2015. However, the legislative projections provided when the spending was approved in FY2010 anticipated $943 million to $1.2 billion in new annual revenues beginning in FY2012.
The following table shows the revenues deposited into the Capital Projects Fund from FY2010 through FY2013, estimated revenues for FY2014 and FY2015 and the original annual projections by source.
The main shortfall in revenues is related to the delay in implementing and taxing legalized video gaming, which was the largest single source of revenues in the approved funding package. Due to administrative delays, the first machines were not put into service until October 2012. Fiscal year 2013 was the first year that the capital budget received revenue from the 30% tax on video gaming. Under the law establishing legalized video poker, five-sixths of the tax revenues are used for capital project funding and the remainder are given to local governments to pay for adverse social effects of gaming.
The estimated FY2015 video gaming revenue totaling $168 million is well below the projection of $288 million to $534 million. This is largely due to the ability of local governments to opt out of video gaming or to continue existing local bans on the machines.
The COGFA report states that 48.1% of the Illinois population lives in communities where video gaming is illegal. Chicago, where video gaming remains prohibited, represents 21.0% of the State population. However, according to data from the State Gaming Board, the number of residents living in communities where video gaming is banned is on the decline and has dropped from 63.3% to 48.1% in the last year alone.
Although video gaming revenue accounts for the largest shortfall in capital funding, as shown in the table above, all other sources of capital projects revenue except liquor taxes continue to fall short.
According to the COGFA report, the State still has authorization to sell $6.2 billion in additional General Obligation Bonds and $1.1 billion in Build Illinois Bonds to pay for previously approved bond-funded projects. However, the Governor’s recommended FY2015 capital budget only anticipates the sale of $1.0 billion in General Obligation Bonds in the coming year and no Build Illinois Bond sales.