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Legislative Action Special Section


Debt record set with new bonding




By MICHAEL D. KLEMENS



Lawmakers boosted state debt by record amounts to record levels this spring. All told legislators authorized $3.6 billion in new debt that state taxpayers will be responsible for repaying. And even Gov. James R. Thompson vetoes some of the new borrowing, the boom will stand at record levels.

New borrowing that lawmakers approved includes:

  • General obligation bonds for capital facilities to do such things as put roofs on state buildings, buy land for parks and build new prisons, boosted by $506.7 million. The breakdown for these increased bond authorizations:
  • higher education
    corrections
    conservation
    mental health
    state agencies
    water resources
    libraries
    + $151.4 million
    + 87.6 million
    + 114.5 million
    + 39.0 million
    + 83.5 million
    + 13.4 million
    + 17.3 million
  • Build Illinois bonding authority, raised by $704 million to pay for Navy Pier improvements, sewer plants and university science facilities.
  • Civic center bonding authority, increased by $98.5 million for 20 civic centers.
  • State-supported bonds for the Regional Transportation Authority (RTA), boosted by $500 million for capital projects.
  • Transportation Series B bonds that pay for mass transit projects statewide, increased by $316 million.
  • Transportation Series A bonds that are used for highway construction statewide, upped by $1 billion.
  • A new program to insulate and reduce aircraft noise in Cook County schools, a $25 million bond authorization.
  • A new program to construct county or multi-county jails and juvenile detention centers, a $175 million item.
  • A new program to aid construction of small group homes for the mentally ill, a $75 million issue.
  • Creation of a fund for school districts in financial difficulty, a $50 million program.
  • A new classification of debt instrument — certificates of participation — for purchasing office buildings that the state now leases, a $125 million item.

The total new debt for which taxpayers will be responsible is $3.6 billion. That is the largest increase in indebtedness that lawmakers have ever incurred, surpassing even 1985 when Build Illinois was created. "I've never seen anything like it, not in Illinois," says Jim Ofcarcik, manager of the debt analysis unit of the General Assembly's Economic and Fiscal Commission.

Some of the bond obligations included money to repay them. The gasoline tax increases will easily cover the $1 billion increase in highway bonds. The $125 million borrowed to buy the leased buildings will be covered by what would have been paid in leases. And surcharges on court fines will cover the $175 million in county jail bonds.

Some debt service amounts are fixed in law as passed by the General Assembly. The new $704 million in Build Illinois bonds will be repaid with an increased diversion of sales tax money. The amount of sales tax collections used for debt service on Build Illinois bonds will increase from 2.2 percent to 3.8 percent. By 1994 that will reduce sales tax receipts to the general funds by $62 million.

The repayment plan for the new $500 million in RTA strategic capital improvement bonds is similar, but more complicated. Those bonds will also be repaid with sales tax money, but this is sales tax money that would otherwise have gone to the Road Fund. By 1997 when all $500 million in bonds have been sold, the transfer will be $55 million per year. The Road Fund is protected by placing a cap on spending from it by the secretary of state and State Police, who use the money for motor vehicle licensing and road patrols, respectively. In return those two agencies will tap the general funds for higher revenues.

Although lawmakers raised taxes by almost $1 billion, most of the new money was earmarked for purposes other than debt service. The $800 million to be raised by the income tax is already committed to property tax deductions, schools and local governments. The $13 million to be raised by the real estate transfer tax will be spent for affordable housing programs. That leaves $115 million — $90 million from the cigarette tax and $25 million from the new sales tax on computer software —to cover debt service.

Like its residents, Illinois must be careful to avoid taking on too much debt. Robert L. Mandeville, director of the Bureau of the Budget, says that the 1989 increase in borrowing is not excessive. Part of the impact will be eased by selling the bonds over a period of years. The $1 billion in new highway bonds, for example, will be evenly spread over five years. And Mandeville says that by borrowing to bring sewage treatment plants into compliance with federal law, Illinois is ahead of other states.

One measure of a state's debt load is how much of its annual spending is for principal and interest payments on bonds. For Illinois the bond repayments stand just under 4 percent of General Revenue Fund and Road Fund spending. That percentage will hold steady or decline, because the gasoline and income tax increases will boost total spending, Mandeville says. An advisory group of bankers and corporate executives has concluded that Illinois could support $700 million annually in bond sales, twice what Illinois has historically spent. "That frankly shocked me," Mandeville says.

Nor does Ofcarcik suggest that the debt service is excessive: "To see a large increase in bonding authority is not alarming per se." Ofcarcik says he agrees that Illinois needs to invest more in its roads, bridges and buildings, but he thinks there should be more planning and setting of priorities. "It's whoever can get the votes rather than this project is more important than that."

Whether projects are selected carefully or carelessly, paying off the bonds will take money that could be used for other things. The new debt that lawmakers authorized this year will limit spending options elsewhere. □


August & September 1989 | Illinois Issues | 43



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