Illinois Has Third Major Deficit: Infrastructure Funding

NEW ANALYSIS by the Fiscal Futures Project at the University of Illinois Institute of Government and Public Affairs finds a third looming fiscal problem for the State beyond an unbalanced operating budget and pension debt. Depending on the estimate of infrastructure need, the state has an infrastructure-funding deficit of approximately $31 billion. Read the policy brief here.

THIS MEANS the State would need an additional $31 billion in new revenue today to address its annual infrastructure funding needs over a ten-year, debt financed capital program. Moreover, this estimate assumes Illinois maintains its relatively high current bonded debt burden. Assuming the State wants to reduce its debt burden to be more in line with other States, the infrastructure-funding deficit may be as large as $46 billion.

THE REPORT, titled All bad things come in threes: Illinois’ third type of deficit, Infrastructure funding, examines how the State’s debt service structure (schedule of principal and interest payments on its current bonds) cannot absorb the State’s needed new infrastructure debt. In summary, the analysis is as follows:

• Estimates of the State’s annual future infrastructure needs are substantial, ranging from $4.2 billion at the lowest to $8.4 billion at the highest, and centering on $6.3 billion (base case).
• The study calculates how much new revenue the State will need to address its annual infrastructure funding needs over a ten-year, debt-financed capital program.
• Under the base case of $6.3 billion in annual bond-financed infrastructure funding, the State’s infrastructure funding deficit is almost $18 billion assuming the State maintains its current high debt burden. If the State wanted to reduce its debt burden to a level more in line with other states, the State’s infrastructure funding deficit is almost $32 billion.
• If the State were to invest in the lower estimate ($4.2 billion annually) of infrastructure needs, and maintain its current high debt burden, the infrastructure deficit is $6 billion. For the higher estimate ($8.4 billion annually), the deficit is $31 billion. Assuming the State wants to reduce its debt burden, the lower and higher infrastructure funding deficit estimates are $19 billion and $46 billion, respectively.

FURTHER COMPLICATING matters, the State’s recent fiscal struggles may continue to have a negative effect on the State’s credit rating. This will likely exacerbate the infrastructure-funding deficit, as interest rates on future state bonds will increase due to the state’s deteriorating fiscal outlook.

THE REPORT concludes: “Given the fiscal and budgetary urgency of dealing with the other two deficits the State faces, it may be convenient to ignore the State’s infrastructure funding deficit. But this is perilous. By failing to maintain, replace and improve its infrastructure and other physical capital assets, Illinois limits the future productivity and income-earning ability of its businesses and workers. This will ultimately lead to a lower standard of living for future generations of Illinoisans.”

THE FISCAL Futures Project is a research group based at the University of Illinois Institute of Government and Public Affairs.  For more information, contact Kelsey Kapolnek, IGPA Communication Coordinator, kjmccoy@uillinois.edu or (312) 996-8854.

Read the full report (PDF) Read the fact sheet (PDF) Read an extended debt affordability analysis (PDF)