Regional News

Illinois Budget Imbroglio

CHICAGO - Illinois Gov. Rod Blagojevich will seek meetings with the General Assembly's leaders this week to address a projected $2.1 billion deficit in the $59 billion fiscal 2009 operating budget lawmakers approved over the weekend before adjourning.

Whether the meetings will prove fruitful is unclear as the relationship between the Democratic governor and House Speaker Michael Madigan, D-Chicago, remains strained. Madigan said over the weekend he objected to private meetings in an attempt to resolve the shortfall.

The General Assembly met a May 31 deadline to approve an operating budget - after which a three-fifths majority instead of a simple majority would be required to pass a spending plan. But lawmakers left a hole that the governor's fiscal staff estimates at $2.1 billion by passing new and reauthorized spending without approving additional revenue proposals.

The session also ended without approval of a massive $34 billion capital program pushed by Blagojevich or a $16 billion general obligation pension bond issue or $1 billion in personal and corporate tax breaks that would be funded with a first-time securitization of the state's national tobacco settlement payments.

The failure to pass a capital budget irked the governor as much as receiving an operating budget in the red and he said he would continue to press for passage of that plan in tandem with a deficit-free budget for the fiscal year that begins July 1. "I believe it's imperative we do both," Blagojevich said at a news conference yesterday.

The governor originally proposed a $25 billion program called Illinois Works earlier this year and enlisted former congressman Glenn Poshard and former U.S. House Speaker Dennis Hastert to promote the plan which has grown in recent days to $34 billion.

It relies on about $7 billion from a partial leasing of the Illinois Lottery, $800 million in upfront funds from the issuance of new gaming licenses, and $7.8 billion in new general obligation borrowing. About $6.2 billion of the bonding would be repaid with recurring gaming expansion revenues and $1.6 billion from transportation-related taxes and fees. Local and federal matching funds would make up the remainder.

The state has lacked a major infusion of capital dollars since the $12 billion Illinois Works program approved in 1999 under former Gov. George Ryan. Officials have warned that without new funding the state risks losing federal matching dollars. The plan has bipartisan support, but lawmakers differ on how to pay for the plan. While the Senate endorsed the plan, House Democrats voted to table the gaming component, effectively killing its chances to win approval in the current session.

Asked how he would proceed if talks with the leaders fail, the governor refused to say whether he would veto portions of the budget to bring it into balance or call a special session. The governor quoted state statutes as requiring the General Assembly to pass a balanced budget.

Laurence Msall, head of the local government watchdog the group the Civic Federation of Chicago which recently issued a stinging assessment of the governor's budget proposal, agreed this time with the governor yesterday. "We have a budget that is conservatively more than a $1 billion" out of whack, he said, adding that it's the General Assembly's responsibility to pass a balanced budget and without one a "constitutional crisis" could result.

The $2 billion deficit stems from increased spending of $1.2 billion - such as an additional $550 million for public schools - without passage of new revenues. The increase is about 6.7% over current spending levels. The deficit also includes a roughly $750 million shortfall in the current budget. While the House and Senate reached agreement on spending, they still differed on revenues.

The Senate, whose leader President Emil Jones, D-Chicago, is more closely aligned with the governor, did pass two measures that would have trimmed the deficit by about $950 million. They included a sweep of about $530 million in surplus revenues in non general-fund accounts. Senate Democrats also endorsed on Friday the $16 billion pension obligation bond issue that under a new amortization plan would have trimmed about $400 million off the amount needed from the general fund to cover the fiscal 2009 payment.

House leaders adjourned without voting on the revenue measures, saying they lacked sufficient support to pass and that it's the governor's job to use his veto pen to balance the budget. Democratic members contend the deficit is about $1.4 billion, but the governor's office and Republicans are using a more conservative estimate based on flat natural tax growth in the next fiscal year to reach the $2 billion figure.

The infusion of new pension borrowing would help bring the funded ratio of the system up to 75% from 62%. The current unfunded liability is $42 billion. Under the pension borrowing plan, the state would adopt a new amortization schedule, putting the system on track to reach a funded ratio by 2033 - 12 years earlier than the current plan - at an overall savings of $34 billion in contributions.

The state's chief operating officer, John Filan, reiterated his position yesterday that the unfunded liability "is the single biggest fiscal challenge" faced by the state. The state's $10 billion 2003 POB sales brought the funded ratio up from 48%. The state's $20 billion of general obligation bonds are rated Aa3 by Moody's Investors Service and AA by Fitch Ratings and Standard & Poor's. Fitch assigns a negative outlook.

Amid the late rush to pass legislation, the General Assembly approved ethics reforms aimed at curbing pay-to-play in state government. The bipartisan measure bans individuals or companies that hold or are bidding on a state contract worth at least $50,000 from making contributions to any elected state officials with power to influence the selection process. The governor yesterday didn't say whether he would sign or veto the measure. He praised it and called it a "step forward" but said he would work with lawmakers to improve it.

The reforms were passed as a federal jury is deliberating charges that the governor's former top fundraiser Antoin Rezko traded state investment business and jobs for campaign contributions while also enriching his own pockets. The governor has not been charged with any wrongdoing.

Lawmakers on Saturday also passed a new five-year hospital assessment program that would leverage an additional $640 million annually in federal Medicaid reimbursements for hospitals and $130 million for other qualified health care costs incurred by the state. The plan replaces an expiring program that hospitals have come to depend on for additional funding. It must be approved by the Federal Centers for Medicare and Medicaid.



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