Drivers need not travel far to understand Illinois’ roads and bridges need work, but just try to find someone willing to pay more for those improvements and repairs at a filling station. That is, unless the filling station is in Springfield. Lawmakers in the state capital seem to be focused on only one question regarding construction spending in Illinois: how do we pay for it? The only answer they’ve come up with so far is to take more money from overtaxed drivers. Absent from the conversation are reforms to maximize the economic benefits of infrastructure spending and ensure taxpayers get value for what they already pay. There are much better ways to build up Illinois, and without gas tax or vehicle fee increases. Those ways require lawmakers to be smart about how and when they spend infrastructure dollars to get the most return for taxpayers’ investments. They require the political will to stop buying votes with pork projects. If state leaders listen to the experts and learn from other states, the following principles should guide the effort to rebuild Illinois: With details on a federal capital plan still in the works and at this point in the economic cycle, capital spending should focus on maintenance infrastructure rather than expansive new projects

Illinois should reform costly prevailing wage mandates and adopt an evidence-based, data-driven project selection process to maximize return on investment

Common-sense savings reforms coupled with dedicating revenues to transportation from legalized sports betting and sales taxes on gasoline would enable the state to fund its most needed capital projects without economically harmful tax and fee hikes on drivers Spending legislation focused on improving Illinois’ infrastructure, known as a capital bill, is a core component of Gov. J.B. Pritzker’s legislative agenda. Pritzker campaigned on a “comprehensive 21st Century Capital Bill,” including ambitious new projects such as statewide high-speed broadband. Capital or infrastructure spending in Illinois refers to how the state pays for repairs and new construction on roads, bridges, government buildings and other structures such as water treatment plants. The governor is required to present a capital plan to the General Assembly detailing available revenue from transportation-related fees and taxes, as well as a plan for how to invest them. This is separate from the general revenue or operating budget proposal that typically gets most of the attention. Illinois has not had a major new capital program since 2009, the $31 billion Illinois Jobs Now! Plan. A new plan is needed, but with all of Illinois’ fiscal challenges it cannot just be the same old plan that leans hard on taxpayers and then squanders their money. Without raising taxes, Illinois can add $10 billion in new capital spending over 10 years. Total state and local spending on infrastructure can reach nearly $28 billion if coupled with reforms and combined with existing resources and capacity reflected in the governor’s proposed fiscal year 2020 capital budget. Again, that’s without raising taxes. The first priority should be taking care of what Illinois already has. Before pursuing new projects, lawmakers should wait for federal assistance and for an economic downturn, when costs drop and the Illinois economy will most benefit from a public spending boost. Federal assistance looks increasingly more likely with President Donald Trump and Democratic leadership in Congress recently reaching an agreement in principle to pursue a $2 trillion federal infrastructure plan, according to the Wall Street Journal. Advocates of a capital bill are correct that transportation infrastructure is of critical importance to Illinois’ economy and the quality of life of its residents. But without reform and thoughtful project selection, a capital plan could easily become a vehicle for wasteful spending, political favoritism and more tax hikes that fail to provide value to Illinois residents while harming the state’s struggling economy.

The case for patience and restraint in infrastructure spending Many advocates for a capital bill in Illinois argue in favor of tens of billions of dollars in new spending, including expensive new projects. In a 2018 email to the Civic Federation, a Chicago-based think tank, the Illinois Department of Transportation, or IDOT, argued for a $1.7 billion annual increase in maintenance infrastructure spending and a $2.25 billion annual increase for new projects. IDOT’s figures suggest a capital plan of nearly $40 billion over a typical 10-year period for bond repayment. Similarly, the Metropolitan Planning Council has argued for $43 billion in spending over 10 years. Commonly, those arguing in favor of the most expansive capital plans – along with tax and fee hikes to fund them – stand to benefit financially. This includes IDOT, the International Union of Operating Engineers Local 150, whose members would work on roads and other projects, and Build Up Illinois, a coalition of hospitals, schools, colleges and labor unions who benefit from building construction. However, expert research does not support the idea that expansive new construction will substantially benefit Illinois’ economy right now. And lawmakers must ensure that a capital plan does not become a bloated and politically motivated handout to self-interested lobbyists. Illinois should focus on maintenance infrastructure rather than new construction In most cases, maintenance infrastructure has a better economic return on investment compared to spending on new projects, according to peer-reviewed academic economics literature.1 The reason is that maintenance infrastructure – such as repairs and upkeep on existing roads, bridges, airports and dams – prevents damage to private-sector investments and therefore increases the firms’ return on capital investment. For example, a trucking company is likely to make more productive use of a new fleet of trucks if they do not have to regularly repair damage from potholes. Economist Jeffrey Dorfman, writing for Forbes, argued the next federal infrastructure plan should include no new infrastructure at all. Dorfman argues a focus on improvements and repairs limits the risk of politicians wasting money on unnecessary projects that have a poor return on investment. Even proponents of new project spending acknowledge the case is stronger for maintenance infrastructure, as seen in a recent forum hosted by the Hutchins Center, a project of the non-partisan research Brookings Institution. Larry Summers, Harvard economist and former economics advisor to Presidents Barack Obama and Bill Clinton, argued that there is an “overwhelming case” for expanded spending on maintenance infrastructure while acknowledging the case for new projects was “more speculative.” Another Harvard economist, Ed Glaeser, argued in the forum that maintenance infrastructure has a higher return on investment in large part because projects will naturally be focused on infrastructure that is most used by the public and therefore in the most need of repair, echoing comments by Dorfman in Forbes. However, political forces push new projects that get more press and attention. As Glaeser put it, “Nobody ever named a maintenance project…” To deliver value for Illinois residents and drivers, lawmakers must resist the urge to fund a wish list of new projects. They must focus on a more limited plan to repair existing roads, bridges and facilities. Illinois should not go it alone in the 11th year of an economic expansion The federal government has historically been an important partner in major state and local capital planning. The federal government funded 86% of state and local capital spending from 2005 to 2014, according to the Mercatus Center at George Mason University. Additionally, the federal government typically matches state spending on interstate highways at a rate of 90% and on other roads and highways at 80%. With President Trump and congressional Democrats working together on a potential $2 trillion federal infrastructure plan, Illinois lawmakers should wait until those details are finalized. They should not pursue more expansive infrastructure spending on their own that includes new projects, rather than maintenance. By exercising patience, lawmakers can maximize federal matching grants so less of the burden is borne by Illinois’ financially strapped state and local governments, as well as the overburdened taxpayers who fund them. While details of the federal plan are still not final, the Trump administration has suggested prioritizing federal matching grants for states that create new dedicated revenue streams for capital spending. Federal transportation advocacy groups, including Transportation for America, have long suggested a federal matching grant formula that prioritizes maintenance costs. Illinois lawmakers risk leaving federal matching dollars on the table by acting now. By limiting state action to more modest maintenance spending that’s within the state’s current capacity, lawmakers give the state more flexibility to structure additional capital spending in the future. Additionally, economics literature suggests now is the wrong time for Illinois to advance expansive new capital spending. Peer-reviewed academic research has found that economic stimulus benefits are maximized when governments spend on capital improvements during a recession or financial crisis, when private-sector demand in the economy is low. Government spending is less likely to crowd out private investment during such downturns.2 The U.S. economy is in the 11th year of an economic expansion, and the National Highway Construction Cost Index, which measures the cost of building projects, is at its highest level since 2008. Cross-national economics research has also found that government spending stimulates economies less when debt burdens are high. It may even have a negative return on investment in high-debt countries.3 High debt burdens combined with new spending send a signal to residents and businesses that taxes will be higher in the future, crowding out private sector investments. Illinois’ debt burden at $50,800 per taxpayer is the third-highest in the nation, according to Truth in Accounting. Illinois must invest in maintenance infrastructure now to prevent damage to roads and bridges that could be more costly to repair in the long run, as well as to prevent harm to Illinois motorists. The case for more expansive capital spending would be stronger during an economic downturn, when Illinois has made necessary spending reforms to reduce its debt burden, and when the federal government has finalized its own capital program.

Limiting political influence, easing costly mandates will ensure a good return on investment There are credible concerns that Pritzker’s administration hopes to trade capital projects for votes on his plan to scrap Illinois’ constitutionally protected flat tax and make way for a state income tax hike. Not only is it wrong to hold infrastructure spending hostage to force through an economically harmful tax hike, but taxpayers will get far less value from a capital bill if projects are selected for political reasons rather than based on a neutral cost-benefit analysis. Before adopting a capital bill, lawmakers should implement controls to ensure spending goes first to needed projects. They should make reforms to ensure the money is spent as efficiently as possible. Data-driven project selection, not pork As recently reported by the Chicago Tribune, capital projects in Illinois are often used as a political vote-buying mechanism to earn support for unrelated legislation. By “bringing home the bacon,” lawmakers hope to earn support for reelection, which is where the term ‘pork barrel spending’ comes from. Improvements or new construction for buildings, roads and bridges in lawmaker districts are highly visible to voters and likely to be rewarded. When politics determines capital spending, projects can be granted or withheld by party leaders as leverage for support on controversial issues that might not otherwise pass. The Chicago Tribune reported that state Rep. Jay Hoffman, D-Swansea, recently acknowledged this form of horse trading explicitly, saying, “A capital bill is helpful for people being able to take votes so they can show that these (other) votes were worth it for their district.” Hoffman is assistant House leader under House Speaker Michael Madigan and a former House Transportation Committee chairman. Even without a comprehensive capital plan, pork projects are commonplace in the Prairie State. The Illinois Policy Institute identified $27 million of pork-barrel spending projects in the fiscal year 2019 state spending plan, including $10 million for the privately owned Uptown Theater in Chicago. The last major new capital plan, Illinois Jobs Now!, included wasteful projects such as $670,000 for copper-plated doors and $500,000 for chandeliers and sculptures, both for the Illinois Capitol building in Springfield. To prevent political influence over capital spending and to ensure a good return on investment for taxpayers, Illinois should adopt a comprehensive capital improvement plan that includes a data-driven cost benefit analysis. The Civic Federation, a Chicago-based think tank, has long advocated for such a system in Illinois. According to the Government Finance Officers Association, best practices in capital planning include multi-year evaluations of funding capacity, ongoing monitoring and oversight provisions, and significant commitments to maintenance infrastructure. Lawmakers should look to adopt a system similar to Virginia’s Smart Scale for project selection. State law requires Virginia to use an “objective and quantifiable” prioritization process for project selection that takes into account the cost and benefits of infrastructure spending. Factors include congestion mitigation, safety, accessibility, economic development and effects on the environment. The Smart Scale then assigns a specific score to each proposed project and ranks them relative to other potential projects. Jeffery C. Southard, executive vice president of the Virginia Transportation Construction Alliance, argued in an article published by the Richmond Times-Dispatch that the Smart Scale has improved Virginia’s allocation of infrastructure dollars and enhanced the “quality of life for all Virginians.” Ideally, Illinois should apply this data-driven project selection to all construction, not just for transportation projects as in Virginia. However, transportation infrastructure should be prioritized. Vertical construction projects should be funded only if lack of action poses an imminent threat to state residents and employees, or if inaction would cause an interruption in core government systems. The harm of structurally unsound bridges or badly damaged roads far outweighs the fact that carpeting in the Thompson Center is held together with duct tape, for example. Adopting such a system in Illinois would maximize return on investment as well as transparency, to give residents more faith that politics are not driving project selection. If politicians continued to select projects for political reasons after adopting a Smart Scale, residents across Illinois would better see when they misused infrastructure dollars. Reforming or eliminating prevailing wage mandates Illinois’ prevailing wage law, which mandates industry-specific minimum wages for public construction that vary by county, drives up the cost of construction for taxpayers. In practice, prevailing wage rates are determined by local collective bargaining agreements negotiated by private sector unions.4 On average, labor costs account for 20 to 30 percent of the total cost for construction projects and the average prevailing wage rate in Illinois is 40% higher than the average wage for private construction jobs in the same area. Fully repealing Illinois’ prevailing wage law and allowing true competitive bidding on construction projects would save taxpayers an average of 10% on public construction costs. This reform would enable each dollar Illinois spends on infrastructure to go farther. Short of full repeal, lawmakers could give taxpayers more for their money by adopting thresholds for when prevailing wage mandates apply. Of the 27 states with this type of public construction labor mandate, Illinois is one of only eight that apply the law to all construction regardless of size and cost. For example, Connecticut’s prevailing wage law only kicks in if a project’s cost exceeds $400,000 for new construction or $100,000 for remodeling. Adopting thresholds for prevailing wage would enable local governments in Illinois to competitively bid smaller construction projects such as additions to schools or minor road work. They could contract services for the lowest possible cost. Full repeal would maximize spending efficiency even more.

Illinois residents don’t want tax- and fee-hikes on drivers – they’re right to be wary Who opposes an increase in taxes and fees on drivers? The vast majority of Illinois residents. A poll commissioned by AAA from January to February 2019 found that 74% of Illinois residents would be unwilling to pay more in taxes and fees, and an equal 74% don’t believe Illinois uses current infrastructure dollars appropriately. Another notable finding of that poll is that while only 27% of Illinoisans believe the state’s infrastructure is good or excellent, 47% believe it is “fair” and just 26% consider it to be poor or terrible. Michigan residents rank their infrastructure significantly worse – 60% poor or terrible, just 13% good or excellent – despite the state’s higher effective gas tax rate of 44.13 cents per gallon. A key lesson for lawmakers is that more infrastructure spending does not always mean better infrastructure quality. How you spend money is often more important than how much you spend. “An almost inverse relationship exists between the resources that state governments take in and how effectively they build and maintain infrastructure,” Steven Malanga, a senior fellow at the Manhattan Institute, recently argued in the City Journal. Comparisons of data from the Tax Foundation’s gas tax rankings and infrastructure quality rankings show the argument has merit. There is no statistically significant relationship between a state’s total gas tax per gallon and its rankings on the U.S. News and World Report’s Infrastructure Rankings or 24/7 Wall Street’s States that Are Falling Apart report. In fact, while the correlation is not strong enough to be statistically significant, there is actually a negative relationship between high gas taxes and infrastructure upkeep.5 That means states with higher gas taxes are actually “falling apart” slightly more, on average. Pennsylvania, the state with the highest total gas tax, ranks 29th in terms of infrastructure quality, according to U.S News. It has the fourth worst state of disrepair, according to 24/7 Wall Street. Illinoisans are all too familiar with seeing their infrastructure dollars wasted and misspent. In 2017, a federal investigation into hundreds of “staff assistant” hires made at the Illinois Department of Transportation found the agency had for years been doling out patronage jobs to politically connected applicants. The agency pushed candidates through the application process with “‘little or no regard’ for actual hiring need, or whether the candidate was qualified for the job,” according to the Chicago Tribune. And in September 2018, the Daily Herald reported the board chair of the Illinois State Toll Highway Authority awarded a number of six-figure positions to political allies. The agency had also contracted with firms staffed by officials’ relatives and former political associates to the tune of hundreds of millions of dollars. Finally, Illinoisans are used to seeing hundreds of millions of dollars in infrastructure revenues diverted annually to prop up politicians’ overspending. From fiscal year 2002 to fiscal year 2015, Illinois politicians swept $6.8 billion from transportation funds to pay for other expenses. This led to voters approving a “Lockbox Amendment” in 2016 with nearly 79% of the vote. The lockbox means taxes and fees collected from transportation sources can only be used for transportation-related spending, such as a capital bill. This reform may give Prairie State residents some confidence their gas tax dollars will not be squandered. Still, the case for tax- and fee-hikes on drivers will remain weak until reforms are enacted to maximize each dollar spent and until patronage scandals become a thing of the past.