August 04, 2023
The General Assembly has approved and Governor Pritzker has signed an approximately $46.5 billion FY2024 capital budget.
Unlike the State’s annual General Funds budget, which is intended to cover only the cost of operations for the current fiscal year, capital appropriations are reauthorized over multiple years as planning, engineering and construction of capital investments commence. Since 2005 the capital budget has been proposed in a separate document from the State’s operating budget and is not part of the annual General Funds expenditures. The current multi-year capital budget was initially approved in 2019 as the Rebuild Illinois capital plan; this action provides annual appropriation authority for capital project spending to proceed. Information about the Rebuild Illinois capital plan can be found here and here.
The State of Illinois capital plan does not include a comprehensive statewide capital improvement plan (CIP). A CIP would typically establish priorities to balance capital needs with available resources, air capital projects with funding sources, ensure orderly repair and maintenance of capital assets and provide an estimate of the size and timing of future debt issuance. Rather, it includes a list of projects. Developing a CIP is an important best practice financial accountability measure because capital projects are expensive and must be paid for over a number of years that the funds are borrowed.
However, despite the lack of a comprehensive capital plan, Public Act 102-0573 does require the Illinois Department of Transportation (IDOT) to develop a multi-modal transportation improvement program for the state’s transportation system. IDOT is in the process of using objective and quantifiable technical analyses to guide transportation investment decisions. The project selection process will include public input from stakeholders as well as both a quantitative analysis of the evaluation factors to be used and a qualitative review by IDOT. More information on this program can be found here and here.
Annually, IDOT prepares and publishes a 6-year highway improvement program as part of the capital budget that outlines how much it will spend on state and local highway systems. The FY2024-2029 program will total approximately $27.0 billion in funding over the 6-year multi-year period, with $4.6 billion allocated for FY2024.
Types of Project Funding
Current State of Illinois capital spending was originally authorized in FY2019 with approval of the multi-year Rebuild Illinois Capital Plan. While new funds may be added annually, previously authorized funds are reappropriated each year until they are spent. The following chart shows the total multi-year $46.5 billion capital budget enacted for FY2024 by the type of project funding. The majority of this capital budget, $41.5 billion, is reappropriated funds, including $24.1 billion in reappropriated bond proceeds, $15.9 billion reappropriated current (pay-as-you-go) funds and $1.5 billion in federal funds. Of the approximately $4.9 billion in new appropriations, $4.4 billion will come from current funds, $442.1 million will be derived from federal funds and $87.5 million will be from bond funds.
Capital Budget Expenditures
The following table compares total spending by department in the multi-year capital budget enacted by the General Assembly for FY2024 to the enacted capital budgets for FY2022 and FY2023.
Total capital appropriations will decrease by 4.8% or $2.3 billion in the 3-year period between FY2022 and FY2024, declining from $48.8 billion to just over $46.5 billion. New appropriations during that three-year period will decrease by 18.6%, or $1.1 billion. The decrease is due to the fact that capital spending authorized in FY2019 with the Rebuild Illinois Capital Plan is reappropriated each year until it is spent; smaller amounts of new spending are added to the plan each subsequent fiscal year. Reappropriations over the 3-year period will decrease by $1.2 billion or 2.8%.
The next exhibit shows FY2024 capital budget spending by source of funding. Of the $15.9 billion in reappropriated current funding, 79.3%, or $12.6 billion, is earmarked for Department of Transportation projects. The largest amount of total reappropriations, roughly $23.2 billion, is also reserved for Department of Transportation projects. The second largest amount of total reappropriations, $8.6 billion, will be for Capital Development Board projects. The Capital Development Board oversees the construction and rehabilitation of state facilities.
Approximately $4.4 billion in new current (pay-as-you-go) funding was primarily appropriated for five departments: Transportation, Environmental Protection, the Capital Development Board, Commerce and Economic Opportunity and Natural Resources. Federal resources will pay for $442.1 million in new spending, while only $87.5 million will be derived from borrowed funds.
Total multi-year capital budget spending by major department for the enacted FY2024 budget is shown below. Spending on transportation will be the largest portion of the State’s capital expenditures at $26.5 billion. This spending within the Illinois Department of Transportation includes statewide road and bridge construction and surface improvements, as well as mass transit. The second largest amount, $8.7 billion, is earmarked for Capital Development Board projects. Nearly $5.5 billion will be spent on projects overseen by the Department of Commerce and Economic Opportunity.
FY2024 Capital Budget Revenues
The state capital plan is supported by certain state taxes such as motor fuel taxes, as well as non-tax state resources such as motor vehicle and operators license fees, bond issue proceeds and federal receipts. Much of the capital budget is supported by borrowed funds. Information about Illinois’ debt burden can be found here.
The FY2024 Illinois one-year State Capital Budget projects that total resources deposited into all appropriated capital funds will rise by 5.0% from the previous fiscal year, increasing from an estimated amount of $10.4 billion in FY2023 to $10.9 billion. Roughly 50.0% of all revenues, or nearly $5.5 billion, will come from non-tax sources, while 25.2% or $2.7 billion will come from state tax receipts and 24.8%, or $2.7 billion, from federal receipts.
State tax revenues in FY2024 will increase by 11.7%, rising from $2.5 billion to $2.7 billion. Over 97% of all state tax revenues for the capital plan in both FY2023 and FY2024 are from motor fuel taxes.
State non-tax resources include motor vehicle and operators license fees, bond issue proceeds, the sale of property, transfers and other fees and repayments. They will increase by 4.2%, from $5.2 billion to nearly $5.5 billion. Most of this increase will be driven by a $410.3 million, or 21.4%, increase in bond issue proceeds.
Federal receipts will increase slightly, by 0.3%, or $7.0 million, to $2.7 billion.
New General Obligation Debt Issuances in FY2023 and FY2024
In the FY2024 Budget proposal released in February 2023, the State announced that it would issue nearly $2.2 billion in new GO bonds to fund capital projects. This is an increase from the $1.8 billion planned for issuance in the prior 2023 fiscal year. The bond issues over the five years from FY2020 through FY2024 will support projects in the State’s Rebuild Illinois capital plan approved in June 2019.
In March 2023 the State updated its initial bond issuance figure for FY2024 by indicating that it would increase the bond amount by issuing approximately $2.5 billion in general obligation bonds in May. These bonds will be used to fund accelerated pension benefit payments, to finance Rebuild Illinois capital expenditures and to fund information technology projects under previous capital programs as well as the Rebuild Illinois program). Moody’s assigned an A3 with a stable outlook to these bonds, while S & P assigned an A- with a stable outlook rating and Fitch assigned a rating of BBB+ with a positive outlook.
Bond Ratings
Bond ratings are one of the factors that help determine interest rates the State must pay to issue debt. The following table shows the current ratings for Illinois’ General Obligation Bonds and Build Illinois Bonds.
Recent Rating Agency Actions
In 2022 and 2023 three of the rating agencies – Moody’s Investors Services, Standard & Poor’s Global Ratings and Fitch Ratings – upgraded the credit ratings for State of Illinois debt. Credit upgrades are indication of an improved fiscal condition and can allow governments to offer lower interest rates.
Moody’s Investors Services
Moody’s Investors Services upgraded the State of Illinois’s issuer rating from Baa1 to A3 on March 14, 2023. Concurrently, it increased the credit ratings of the State’s general obligation and Build Illinois sales tax bonds to A3 from Baa1. Moody’s cited continued improvement in the State’s financial situation for the upgraders, including expansion of fiscal reserves, increased payments toward outstanding liabilities such as the pension funds and improved governance processes. The rating agency warned, however, that Illinois continues to face large long-term liability pressures that constrain its fiscal flexibility.
On April 21, 2022, Moody’s had upgraded the rating of State of Illinois debt from Baa2 to Baa1 with a stable outlook. The rating agency cited the State’s steady revenue growth, which has allowed Illinois to increase its reserves and make additional payments towards pension liabilities as a key reason for the upgrade. At the same time, Moody’s also upgraded its rating for outstanding Build Illinois sales tax bonds from Baa2 to Baa1 with a stable outlook.
Fitch Ratings
In May 2023, Fitch Ratings revised the outlook on the State’s general obligation bonds to positive from stable due to the State’s improved economic outlook and increased reserves.
In March 2023 Fitch revised the State of Illinois’s rating outlook to positive from stable and assigned a BBB+ rating to the State’s $2.5 billion in general obligation bonds. The change reflected the State’s plans to increase its reserve fund contributions and its improved fiscal resilience.
In May 2022 Fitch made the following ratings upgrades:
- State of Illinois general obligation bonds were upgraded to BBB+ with a stable outlook from BBB-;
- Senior and Junior obligation Build Illinois sales tax revenue bonds were upgraded to A with a stable outlook from the previous BBB+ rating; and
- The issuer default rating was raised to BBB+ with a stable outlook from BBB-.
Fitch cited the State’s increased contributions to its reserves, the ending of certain pandemic-related non-recurring fiscal measures and the return to normal fiscal decision-making processes as the primary reasons for the upgrades.
Standard and Poor’s Global Ratings
In February 2023 Standard and Poor’s Global Ratings raised its credit rating to A- from BBB+ with a stable outlook on the State of Illinois’ outstanding long-term general obligation debt. It also raised the rating to A from A- on the State’s Build Illinois junior and senior lien sales tax bonds. The reasons given for the upgrade were the State’s increased repayment of its liabilities, increases in the Budget Stabilization Fund and a slowing of growth in statutorily required pension fund contributions.
Standard and Poor’s Global Ratings previously raised its rating on State of Illinois general obligation debt to BBB+ from BBB with a stable outlook in May 2022. At that time, it also raised the rating on Build Illinois senior and junior lien sales tax bonds to A- from BBB+. The upgrade was due to the State’s increased financial flexibility, improved revenue reporting transparency, increased funding for the stabilization fund, additional contributions to the State’s pension funds, the elimination of the State’s bill backlog and the use of surplus revenues to reduce liabilities.