June 22, 2018
Following the enactment of the State of Illinois FY2019 budget on June 4, the Civic Federation blog has analyzed the potential impact on the General Funds and on local governments. This blog post will discuss the provisions for capital spending and the State’s long-term debt.
FY2019 Capital Budget
For the most part, the appropriations bill passed by the General Assembly includes all capital spending requested by Governor Bruce Rauner in his proposed FY2019 capital budget. The proposal included $16.8 billion of total capital spending, including $7.8 billion of new appropriations and $9.0 billion of reappropriations. Of the new appropriations, the Governor proposed that $3.6 billion be financed with bonds and $4.2 billion spent on a pay-as-you-go basis.
However, the enacted budget made several changes to the Governor’s proposal. It allocated $53.1 million to repairs at the Quincy Veterans’ Home, which has been hit by multiple cases of Legionnaire’s disease. This amount is reduced by $11.9 million from the proposed budget amount and falls fall short of the $190-230 million for a new facility recommended by a Department of Veteran’s Affairs task force report issued in May.
The enacted budget also includes $192 million related to the planned Obama Presidential Center in Jackson Park. The total includes a $180 million grant to the Chicago Department of Transportation for road improvements in and around the park and a $12 million grant to the RTA to rehabilitate the 59th Street Metra station.
Another $115 million in smaller projects are added by the enacted budget to the Governor’s proposal, for a net increase of $295 million. The total appropriation of roughly $17.1 billion is the largest capital bill since FY2015. The roughly $8.1 billion of new appropriations are the highest amount since the passage of FY2010’s Illinois Jobs Now! capital plan.
However, since the FY2019 budget does not raise any additional revenues for capital projects, it is unlikely that a majority of the appropriations will be spent during the fiscal year. Authorized projects that are not completed or started may be rolled forward with reappropriations in future years.
The availability of long-term funding for capital improvements from existing revenue streams remains uncertain. It has been over 28 years since Illinois has raised its motor fuel tax, and revenues have not kept up with the cost of construction. The Illinois Jobs Now! plan relied on a package of revenues, such as video poker taxes, that failed to materialize as projected. Moreover, that plan and capital budgets since then have lacked a comprehensive assessment and prioritization of the State’s capital needs.
Governor Rauner has stated that he will introduce a capital bill with “tens of billions” in the next six months. Likely to be included are the $11 billion of projects identified by the Illinois Department of Transportation in its recently released FY2019-24 highway improvement plan.
The enacted FY2019 budget implementation bill increases the State’s General Obligation bonding capacity by $1.8 billion. Of this amount, $1 billion is restricted to funding the two pension buyout plans authorized by the FY2019 budget. The remaining $800 million falls short of the more than $3.6 billion of new bond-financed capital spending authorized this year.
Finally, the budget implementation bill authorizes the Governor’s Office to issue long-term refunding bonds to finance termination payments for interest rate swap agreements. It also exempts any such transaction from the usual prohibition against extending the maturity of existing debt. The total cost of terminating swap agreements has fallen over the last several years as interest rates have risen, from $153 million in 2016 to $83 million in April 2018. The State has twice renegotiated the agreements with swap counterparties in order to lower the credit ratings thresholds at which Illinois would be automatically forced to make termination payments. However, the Governor’s Office has said that it is still weighing options with regard to the newly granted refunding authority.