CHICAGO – The constitutional amendment Illinois voters passed Tuesday to put transportation-related revenues in a lockbox was labeled by Moody's Investors Service as a negative credit factor for the state.
The amendment bans transportation related revenues from being diverted to cover other non-transportation related spending, a move supporters argued is needed to safeguard the funds from use to balance budgets.
"The so-called 'Transportation Taxes and Fees Lockbox Amendment' is credit negative because it cuts off the state's ability to draw on about $3 billion of annual transportation revenue that could otherwise help address fiscal pressure from pension contribution demands and reduced income taxes," Moody's wrote in its credit outlook this week. Moody's rates the state's general obligation bonds Baa2 with a negative outlook.
The lockbox amendment stipulates that revenue collected from the use of motor vehicles, registration fees, or from transportation infrastructure such as highway tolls must be spent for transportation purposes.
Transportation related revenues generate significant funds for the state with $1.3 billion raised annually from a 19 cent-per-gallon tax on gasoline and 21.5-cent-per-gallon tax on diesel fuel. Numerous vehicle registration and other fees raised approximately $1.9 billion.
The $3.2 billion of fuel taxes and transportation fees combined accounted for about 6% of the state's own-source revenue. In addition, the state had $1.1 billion in highway tolls, bringing total transportation revenues subject to the new amendment restrictions to $4.3 billion.
Much of the funding, including toll-backed revenue, already is allocated toward transportation expenses and toll revenues must go to repay debt or operations and maintenance.
The state's income tax generates about $20.8 billion annually and its sales tax $9.9 billion.
The state's cash flow is precarious as it grapples with an annual income tax revenue decline of about $5 billion since January 2015 when a temporary tax increase partially expired while pension contributions are up almost $1 billion, analyst Ted Hampton noted. That's driven the state's bill backlog up to nearly $10 billion.
"The amendment means the state will lose its ability to tap transportation funds to ease budgetary pressures," Moody's said. "The amendment also means that, as the state contemplates how to raise general operating revenue in the future, it will not be able to consider using new transportation-related taxes." The state's expiring $31 billion capital program relied on some transportation-related tax increases.
The state's flexibility to draw from those revenues to deal with budget gaps fueled supporters' arguments. Supporters, who included labor and other groups that stand to benefit financially from project spending, warned that $6.8 billion has been swept from the state's road fund between 2002 and 2015.
Opponents countered that the issue isn't as simple as laid out by the backers and expressed concerns over how the amendment would stymie local and state fiscal flexibility.
"Limiting access to transportation-related revenues such as motor fuel taxes and motorist user fees could put additional strain on the state's general operating resources, consisting mainly of income taxes and sales taxes, and similarly affect local governments," the Chicago Civic Federation wrote in a review of the subject.
The Chicago Metropolitan Agency for Planning warned that the impact on state and local bonding programs that draw from transportation funds is unclear.
Critics of the proposal cite state data showing a more modest level of diversions from the state's key transportation accounts of $520 million between 2004 and 2015, including $350 million in fiscal 2015 that was part of a record $1.3 billion sweep of various state accounts to help erase a deficit.
The discrepancy is due to differing definitions of what counts as a diversion. Chicago officials have also expressed concerns over the lack of clarity on how its spending of motor fuel taxes would be impacted.
