April 7, 2014
The Transportation for Illinois Coalition (TFIC), a broad-based group of businesses, labor, local governments, and others, recently released a proposal to reform transportation funding in Illinois. The proposal seeks to generate an additional $1.8 billion annually to support both pay-as-you-go spending and bonding. It would direct 80 percent of new revenues to road, bridge, and airport improvements, with the remaining 20 percent to be dedicated to transit improvements in northeastern Illinois; if implemented, it would be the first-ever dedicated source of capital funding for mass transit in the state. The new road and bridge funding would be split between the state system (60 percent) and the local system (40 percent).
The proposal's additional revenues would come from raising new fees and redirecting existing revenues to the transportation system. New fees totaling $917 million would include:
- $304 million by increasing the state motor fuel tax (MFT) on gasoline by 4 cents and on diesel by 7 cents
- $225 million from increasing motor vehicle registration fees
- $208 million from expanding the state sales tax base to include vehicle-related services such as auto repair, car washes, and oil changes, and directing this portion of state sales tax revenue to transportation
- $180 million from what the proposal refers to as an "ethanol tax credit."
However, the larger portion of revenue, $970 million, would come from redirecting revenues that currently are used in other budget areas to the transportation system:
- $800 million from reallocating state sales tax revenues generated from motor fuel sales
- $117 million from various sources now accruing to the General Revenue Fund (e.g., certificate of title fees, personalized license plate fees, delinquent vehicle registrations, etc.)
- $53 million from various sources now used for certain government support services (e.g., transfers from MFT revenues to the Vehicle Inspection Fund)
While the TFIC proposal is a bold attempt to reform and increase transportation funding in Illinois, a number of policy issues are unaddressed. For one, directing $970 million in current revenue sources to the transportation system would create a substantial gap in the state's general revenue budget. Failing to replace these lost revenues will severely affect the State's ability to fund various programs such as education, environmental protection, or healthcare and human services.
GO TO 2040 recommends an 8-cent increase to the MFT and indexing the rate to an inflationary measure. Although CMAP supports an increase in the MFT, the TFIC proposal would not keep pace with rising costs for funding transportation. In its current form, the proposal does not include indexing the existing or increased MFT to inflation. Without doing so, one-time increases in the MFT and diesel tax will only account for growth in construction costs for 7 years and 10 years, respectively, assuming a 3 percent inflation rate.
The TFIC proposal does not advocate for moving towards performance-based funding, a key policy recommendation in GO TO 2040. CMAP urges state legislators to move away from the arbitrary "55/45 split" formula for allocating funds towards a more data-driven approach. Doing so promotes a more effective, transparent, and accountable approach to allocating scarce funds.
This proposal marks a significant shift from last year's TFIC proposal, which recommended eliminating the state MFT and replacing it with a wholesale tax on fuel. As discussed in a past Policy Update, although CMAP was interested in many of the innovative aspects of the proposal, we expressed some concerns with the approach. The current proposal moves away from that approach and relies more closely on traditional user fees.
As the Illinois Jobs Now! program comes to a close, this proposal presents an opportunity for Illinois to rethink the way it allocates transportation funds. While the proposal partially incorporates several GO TO 2040 priorities, there is still more that could be done. Adopted in May 2013, CMAP's principles for a new state capital program further detail the necessary reforms to state transportation funding. Further, GO TO 2040 supports other innovative approaches to transportation funding – such as congestion pricing, raising and indexing the MFT, implementing value capture, and finding a long-term replacement for the MFT – that might require or benefit from state legislation.
CMAP will monitor this proposal and will remain engaged in the broader conversation about transportation funding in Illinois.