March 16, 2012
Three weeks after Governor Pat Quinn delivered his FY2013 budget address, details on the recommended FY2013 capital budget are still not widely available. In most years, the Governor is required under the State Budget Act to deliver the operating and capital budgets for the coming year no later than the third Wednesday in February. This year the deadline was extended to the fourth Wednesday through a resolution passed by the General Assembly during its FY2012 fall veto session.
On the day of the Governor’s budget address, February 22, 2012, a full copy of the FY2013 operating budget book was made available on both the Governor’s budget page and the website of the Governor’s Office of Management and Budget (GOMB). In past years the capital budget book has been published online at the same time, but this year it remains missing from the websites more than three weeks later. A list of nearly 5,000 capital expenditures, which total $24.9 billion in capital appropriations, has been made available on the Governor’s budget for FY2013.
Unlike the State’s operating budget, which requires that all appropriated funds be spent in the same year they are approved, capital appropriations are reauthorized over multiple years as planning, approval, funding, engineering and construction of capital investments commence. According to the capital projects list for FY2013, the Governor is recommending the reauthorization of $19.8 billion of spending approved in previous years and an increase of $5.0 billion for new projects in FY2013. However there is little explanation of these line items in the list and it is nearly impossible for the general public to understand the details of this proposal. A capital budget book for FY2013 was circulated on compact disk the day of the Governor’s budget address but has not yet been widely distributed online like the operating budget and may still be subject to change.
The State budget was separated into two documents beginning in FY2005 due to the differences between operating and capital spending. Not only are capital appropriations spent over multiple years but funding of capital projects is also very different. Many of the State’s infrastructure investments are financed through bonds and repaid over the life of the assets. The State then collects revenues from user fees and taxes outside the State’s operating funds in designated funds to repay the capital borrowing. The largest of these funds is the Road Fund, but capital projects are also supported through the School Construction Fund, the Capital Projects Fund and many other smaller funds. The State also receives significant funding from the federal government for and other sources capital investments that are used to pay for some projects directly without bond funds.
The timing of projects and funding variables in the capital budget make balancing the revenues and other resources used to support the capital budget very different from the annual operating budget. Separating the budget documents for the State’s capital spending and ongoing operations is intended to provide additional transparency and let the public more clearly track how all of the capital dollars are spent.
As discussed here previously, in FY2012 the General Assembly reauthorized the State’s Illinois Jobs Now! capital program for the second time since its inception in FY2010. The legislature also approved new capital appropriations totaling $2.2 billion in FY2012. The capital budget included reauthorization of $22.8 billion in previously approved projects, bringing the total to $25.1 billion. Although the capital budget included a significant increase last year, the enacted total was $2.1 billion less than the increase recommended by the Governor for FY2012.
In FY2010 the State also approved a package of revenues to pay for the more than $16.0 billion in debt that would be issued to support the capital spending. As previously discussed here, these taxes and fees have yet to produce the funding levels projected when Illinois Jobs Now! was originally approved.
According to the Governor’s budget presentation, the FY2013 capital budget recommendation appears to include three new areas of bond-funded spending outside the Illinois Jobs Now! program. These projects make up $3.0 billion of the total $5.0 billion in new recommended spending and would need additional revenue sources to support the increase in capital borrowing, according to the Governor’s senior budget officials. However, the possible revenues sources have not yet been proposed.
The capital projects list for FY2013 includes $950 million for a new program called 21st Century Schools to upgrade education technology and facilities statewide. It does not specify individual projects but divides the program into separate grants areas including $566 million for pre-kindergarten through 12th grade, $240 million for public universities, $144 million for community colleges and $50 million for construction of early childhood education facilities. Other new bond-funded appropriations include unspecified grants totaling $500 million for drinking water projects, $400 million for wastewater projects and $100 million for flood control initiatives. Finally, the FY2013 capital list includes roughly 120 lines for grants and projects to upgrade and maintain to State facilities totaling approximately $1 billion.
Not only does the State lack a budget book to explain the additional capital spending proposed for FY2013, but it continues to reauthorize and expand its current capital spending without an established and publicly available capital improvement plan (CIP). A well-organized and annually updated CIP helps ensure efficient and predictable execution of capital projects and helps prevent the waste of scarce funding resources. Establishing a multi-year CIP is a best practice recommended by the Government Finance Officers Association and includes:
- A comprehensive inventory of all state-owned assets, with description of useful life and current condition;
- A five-year summary list of all projects and expenditures per project as well as funding sources per project;
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Criteria for projects to earn funding in the capital budget including a description of an objective and needs-based prioritization process;
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Information about the impact of capital spending on the annual operating budget of each project;
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Brief narrative descriptions of individual projects, including the purpose, need, history, and current status of each project; and
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An expected timeframe for completing each project and a plan for fulfilling overall capital priorities.
Although the annual capital budget book usually contains some of these elements for some projects, a large portion of the budget lacks such detail. A list of nearly 5,000 appropriations usually accompanies the capital budget document but no planning documents are available to explain the prioritization of projects or the total capital needs of the State. The capital budget book usually includes a description of a process coordinated by the Capital Development Board and GOMB to assemble and prioritize the projects in the capital program, but typically no documentation of the process, comprehensive needs assessment, final ranking or schedule for funding projects are included in the budget book. More than half of the spending in the capital budget is described in terms of broad grants for various spending areas. However, many agencies and other governments that receive capital funding do maintain their own CIPs outside the Governor’s budget. Some good examples of organizations that receive funding from the state capital budget and maintain multi-year CIPs include Illinois Department of Transportation, the Illinois State Board of Education and the Regional Transportation Authority, which oversees funding for mass transit in the greater Chicago metropolitan region.