President's Message 070908

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email Doug July 9, 2008

I am testifying at today's Committee of the Whole Special Session in Springfield. Below for your information are my remarks. Please feel free to contact me with any questions or comments.

Introduction

My name is Doug Whitley. I am President and CEO of the Illinois Chamber of Commerce. I appreciate the opportunity to speak before the members of the House of Representatives concerning capital funding for Illinois’ transportation systems.

I especially wish to observe for you how important these committee of the whole hearings are because in recent years the breakdown of the legislative process has greatly reduced -- practically eliminated-- the opportunities for timely, thoughtful, knowledgeable and deliberative analysis or input by an informed public. This has been particularly true where the most significant budget, tax and public policy measures are concerned, like this $35 billion capital bill.

I believe bad laws are being proposed and passed by the Illinois General Assembly in large part due to an unwillingness to seek input, a desire to stifle critique, as well as intimidating and ostracizing those who would dissent or propose constructive and collaborative solutions. ‘Take it or leave it’ politics is not conducive to constructive lawmaking.

The highly politicized environment and the brash, expedient rush to judgment that frequently permeate this legislature when important bills are being thrust upon the members and the public must cease. The right of every member of this body to have the benefit of thoughtful, deliberative and informed decision making must be respected if the fundamental tenets of a democracy are honored. Every citizen, taxpayer and community should have an equal right to public services, regardless of whom they have chosen to elect to represent them. A crumbling, pothole laden asphalt pavement, an unsafe, slow-zoned L-track, a leaky school building roof, or an unsafe correctional facility are inanimate government obligations and can not be allowed to be fixed or ignored based on partisanship.

For several years now, I have been one of the most outspoken and active advocates of increased capital funding for our state’s transportation networks. I wish to emphatically affirm that the Illinois Chamber supports the passage of a major multi-billion dollar capital funding program. The long ignored building and maintenance needs of the state are well documented. Reasonable and rational business owners and managers find it unimaginable that the stewards of the people’s investments have consciously ignored and deferred building and maintenance obligations for nearly a decade. In the private sector capital planning is a routine component of the annual budget process. They also find the diversion of highway trust funds to non-transportation and non-construction purposes highly objectionable. They know deferred maintenance only adds to the ultimate costs.

In the face of a sluggish economy, a substantial investment in public works is the right kind of jobs stimulus that will yield positive economic returns for the workers, the communities and the state. The General Assembly needs to move forward with infrastructure investments in earnest.

I also wish to emphatically re-affirm that the Illinois Chamber of Commerce has endorsed the plans to lease the state’s lottery and to expand gambling in our state to help finance the pending capital proposal. Capital spending cannot be increased or additional bond obligations incurred without acknowledging new revenue must be raised to fund the initiatives. New revenue is required because existing sources offer little to no annual growth. Inflation in construction materials and commodity prices has greatly eroded the buying power of current revenue. The state’s road and bridge construction program is shrinking. With the exception of the Illinois Toll Highway Authority, which is not dependent upon state highway funds, there is practically no major road construction underway in Illinois. The limited funds remaining in the road fund for annual program needs are directed primarily to bridge repair and basic maintenance.

Record gasoline prices have encouraged more and more people to turn to public transportation. But with state capital funding zeroed out since Fiscal Year 2004, transit systems cannot even keep up with basic maintenance needs. The system’s aged infrastructure is not only an embarrassment, it is unsafe.

We commend the Governor, former Speaker Hastert, President Poshard, members of the Illinois Works Coalition and the members of the General Assembly for all their efforts to respond to this capital funding crisis. We have been greatly encouraged that during the last two years, transportation funding needs have finally achieved the heightened attention and political acceptance they deserve. Unfortunately, it required motorists to lose their lives due to a bridge collapse in Minnesota, the threat of CTA shutdowns and multiple pleadings by our Congressional delegation over concerns for the risk of lost federal funds to elevate this subject to priority status.

On two occasions the Illinois Senate has sent the House of Representatives proposals that represent a good start, providing significant funding increases. However, the bills are flawed. Some of the funding details are highly problematic and I could not in good conscience advise you to vote for the bills that have been presented to you. I am grateful HB 5618 and 6339 stalled so that you might entertain additional opinions and will subsequently take the opportunity to make critical improvements.

To have a sustainable transportation capital program, you should consider four points:

Restore the integrity of the Road Fund as the source of highway funding.
Increase formula funding to units of local government for road and bridge repair.
Provide an equitable formula for allocating funds among IDOT's downstate highway districts.
Create a dedicated infrastructure fund, similar to the Road Fund, for transit projects and completion of the CREATE initiatives.

Despite its sizeable funding increases for transportation, the latest Illinois Works proposal has several substantive issues that should be reconsidered, including:

New bonds, but no new revenue, for the Road Fund;
Creation of a single fund for all Illinois Works capital;
No formula funding increase for local roads.

Let me start with Point One, Restoring the Road Fund.

State user fee revenue to the Road Fund for IDOT peaked in FY2002 and is currently about $100 million less than it was in that year. State funds invested in highway capital have dropped from $1.3 billion in FY2002 to less than $500 million in FY2008. Despite these facts, the new capital proposal in its current form adds not one cent to the Road Fund. Rather, it proposes $4 billion in new highway bonds, to be paid for out of current Road Fund revenues. That is not feasible unless you cut IDOT's FY2009-2014 highway program by $700 million as Governor Blagojevich proposed earlier this spring, or you bond IDOT maintenance operations (like pothole patching, snowplowing, etc.). Bonding operations is like taking out a mortgage to pay for having the grass cut this summer -- payments would last far longer than the benefit received from the bonded activity. This is not a rational approach and should be neither condoned nor pursued.

Creating a single fund for all Illinois Works Capital is not in the best interests of transportation projects.

None of the new capital funding – not even the proceeds from the bonds paid for out of the Road Fund – goes into a dedicated fund for transportation capital. Not for roads and bridges, nor for public transit. Further, proceeds from the new highway bonds would be blended into an all-encompassing IL Works capital fund, rather than set aside in a dedicated highway account. The net effect will be to use highway user fee revenue to service debt on non-highway projects. This is certainly a likely consequence in year one when gambling receipts will be slow to arrive. The long-term impact could be limiting on transportation projects for, without a dedicated fund, multi-year transportation projects would compete with the expediency of a popular short cycle education or water project. It could be severe as IDOT has traditionally been able to plan, manage and make commitments to projects over a multi-year period. This multi-year cycle has allowed IDOT to move projects more smoothly from planning through construction, avoiding expensive starts and stops due to funding uncertainties. It has allowed IDOT to cash flow its construction program, which adds more projects to the program. It has proven to be an efficient and cost effective management process that would be jeopardized in the project competitive construct set forth in the pending bill.

Developing a highway project from planning, through engineering and environmental approvals, land acquisition, utility adjustments, contract plans and finally construction is a complex process which can take years. To make this process work in the most orderly and cost-efficient way, Illinois and most other states have established a separate Road Fund, with a dedicated revenue stream that is ongoing, stable and predictable. But rather than strengthening Illinois' Road Fund, the current capital proposal starts to disassemble it. To ensure a sustainable highway capital program, we urge you to restore integrity to the Road Fund. Cease diversions from the Road Fund and, if not infused with new or increased dedicated user fees, establish a new transfer from the General Revenue Fund that provides an adequate, predictable, ongoing revenue stream to the Road Fund. Presumably, this would be a guaranteed portion of the new revenues attributable to expanded gaming.

Point Two, Increase formula funds for local roads and bridges.

About 55% of the state motor fuel tax currently is distributed to counties, municipalities and road districts through a statutory formula. The motor fuel tax is a flat gallonage tax driven by the number of gallons sold and not by the price per gallon. MFT revenues grow slowly -- less than 2% per year since 2000, with future revenues likely to dip due to lower gas consumption in the face of record gas prices. Maintenance costs on local roads since 2000 have grown by 75%, resulting in a 35% drop in MFT purchasing power for locals. The current capital proposal does not address the cost/revenue squeeze faced by local governments. It designates a significant amount, $1.25 billion, for a two-year grant program to local governments. However, under a grant program there is no guarantee that all or even most local governments will share in the funding. It provides no formula funding increase for basic road and bridge repair. The proposal provides no permanent assistance for the 35% reduction in MFT purchasing power experienced by local governments since 2000. As with state roads, local roads require ongoing, stable and predictable revenue. To address local needs, the revenue stream transferred to the Road Fund must be large enough to fund an increase in formula funds for local roads and bridges. A short-term grant program is not an acceptable alternative to a substantial annual increase in funds to a guaranteed distribution formula.

Point Three, Provide equitable state highway funding distribution.

While IDOT's highway district 1 (which covers the six counties of northeast Illinois) receives a set percentage of highway program funding, there is no similar percentage for allocating program funds among the eight downstate districts. We believe that all portions of the state deserve decent roads and bridges. To achieve this goal, a significant portion of the downstate highway program -- we recommend two-thirds -- should be allocated among the districts by a formula using highway factors: lane miles, bridges, and traffic volume.

And Point Four, Create a dedicated infrastructure fund.

Finally, we urge you to create a separate fund, with an ongoing revenue transfer, for transit capital projects. Like highway projects, transit projects can take years to move from planning to construction and would benefit greatly from a predictable, ongoing dedicated revenue stream. Further, a dedicated infrastructure fund could finance more projects for fewer dollars through an appropriate mix of pay-as-you-go and bonded projects. An ongoing dedicated revenue stream could end the inefficient feast or famine cycles under which state funding has gone from robust to zero once bonds were depleted. Rather, a modest level of pay-as-you-go projects could continue, even after the bonds were gone, which would ensure some funding for system maintenance. Finally, this fund should cover the state’s $100 million annual share of the costs attributed to CREATE, the multi-year freight rail and transit corridor projects underway in Cook County to address bottlenecks, commuter inconvenience, air quality, grade separations and speed.

Summary

Illinois' capital needs are sizeable and well documented. The Transportation for Illinois Coalition that I co-chair has previously provided you with recommendations for minimum levels of funds required to adequately support the various needs of the state’s transportation systems. Those recommendations remain valid.

I appreciate the hard work that has brought us to this point. The pending capital plan has much to commend it, but there are still critical improvements to be made. We urge you to make the transportation capital plan sustainable: first, through providing increased revenues to the Road Fund that are predictable, ongoing and adequate to support state highway improvements as well as to support increased formula funds for locals; and second, through establishing a separate infrastructure fund for transit with predictable, ongoing and adequate revenues. Finally, we recommend adopting a distribution formula for a significant portion of the downstate highway program.

Finally, I would observe that for all of the important contribution the Illinois First public works program of nearly a decade ago brought to the state the overriding legacy of the $12 billion program that has stayed in the media and public’s mind was the insertion of questionable “pork projects” that still haunt us to this day. Perhaps it is that legacy that has contributed to the fact it has taken nearly a decade to bring forth a new capital bill. Sadly, a decade of pent-up expectations also raises the haunting specter of another round of questionable expenditures based solely on greed and political opportunity. I suggest to you that by trying to satisfy too many interests this bill has become too big to pass the “reality” test.

The pending capital program is THREE TIMES larger than that approved for Illinois First. The mere fact that HB 5618 was hi-jacked at the eleventh hour and emerged with an additional unspecified bloat in excess of a billion dollars should have set off alarms.

Even though construction related companies that are my members starving for work and many face collapse, even though tens of thousands of union workers are starving for work and even though communities throughout our state are desperate for projects this is not an acceptable excuse to put on blinders and abandon the public interest for government accountability.

Initially, the capital proposal was pursued to deal with Illinois’ long neglected capital needs. Now we hear the capital plan is essential to satisfying the short comings of the operating budget. This is wrongheaded thinking. A capital bill should not be used as a bailout for operating budget issues.

Given the state’s on going dance with scandals and questionable spending practices, I caution you to be more deliberative and patient with the possibility of passing a bill that perhaps represents an even bigger legacy of poor lawmaking that could adversely impact future General Assemblies when the next capital bill comes along, whenever that might be. Personally, I think it should come sooner than later. Indeed, I think you should start on it immediately.

I leave you with the suggestion and recommendation that this General Assembly resolve to begin a new approach to capital funding by taking on only a portion of the capital needs planning each year or every other year. Take up transportation one year, education the next, state facilities the following year, economic development and such in subsequent years. I recommend the General Assembly move towards a program similar to that which is used by the US Congress where every four or five years the members know which topic will be up for review and reauthorization. The obvious lesson should be that trying to satisfy all of the state’s many capital needs once every decade is a poor substitute to an informed, open, deliberative and collaborative process that seeks solutions for the best interest of all the citizens and all the regions of the state.

Thank you for this opportunity to present our concerns.