CHICAGO - Faced with a staggering $4 billion backlog of bills and a looming $2 billion budget deficit, Illinois Gov. Rod Blagojevich yesterday endorsed short-term borrowing to help cut lengthy payment delays and called for additional departmental cuts, legislative authority to withhold 8% of general fund spending, and more federal aid.
The proposal, announced in a press release from the governor's office, was short of specific details and is heavily reliant on measures that need General Assembly approval. It also depends on the federal government for additional aid.
Blagojevich said he has sent a letter to congressional leaders seeking an additional $1 billion annually over the next three years for a variety of programs. They include the Low Income Home Energy Assistance Program; Special Supplemental Nutrition Program for Women, Infants, and Children; Temporary Assistance for Needy Families, and the extension of unemployment insurance benefits. He also wants a temporary increase in the Federal Medical Assistance Percentage, the U.S. share of the Medicaid health care program.
The governor said he would continue to press state agencies to reduce spending. A previous 3% cut saved $1.4 billion, according to the statement. He also will seek passage of an Emergency Budget Act that would grant the governor and other constitutional officers the authority to withhold as much as 8% in general fund spending as a buffer against revenue declines.
"Today we have more difficult decisions to make. Illinois' finances, like many other states across the nation, have felt consequences of the poor national economy," Blagojevich said in the announcement. "And like a family who has seen their income cut dramatically, we need to take fiscally responsible action to ensure the state can pay all of our bills and provide the core services that Illinoisans need."
He also endorsed a short-term note issue to help bring down the record $4 billion backlog of bills from Medicaid and other vendors. Blagojevich said his finance team is working with the state comptroller and treasurer - whose approval is needed for short term issues - on a financing. The size has not yet been determined, said budget spokesman Louis Pukelis.
Under current law, Illinois must repay notes within the same fiscal year as they are issued. Comptroller Dan Hynes last week proposed a change in debt statutes to extend that period as his office reported the $4 billion backlog. Officials are also looking at existing statutes that may permit repayment in the same calendar year, which would give the state an additional six months after the end of the fiscal year June 30 to repay the debt.
"The comptroller's office is reviewing the governor's proposal," said Hynes spokesman Alan Henry. "In the meantime, we are focused on our own plan. Comptroller Hynes has urged legislative leaders to make changes in Illinois law that would provide greater flexibility when the state borrows money and allow the state to establish a revolving line of credit to deal with the current problems."
General Assembly leaders could not immediately be reached for comment.
The projected $2 billion deficit includes $700 million of expenses not funded in the $59 billion fiscal 2009 operating budget approved by the legislature and $500 million in added pension and other costs expected this year. The state also now projects an $800 million to $1 billion shortfall in revenues this fiscal year.
Faced with rising unemployment, slowed consumer spending, and reduced business activity, the Department of Revenue said last week income taxes originally projected to grow by 1.1 % are down 4% from budget estimates. Corporate income taxes originally projected to grow 4.1% are down 14% and sales taxes originally projected to grow at a pace of 1.6% were down 3%.
Fitch Ratings and Standard & Poor's rate Illinois' $25.5 billion of general obligation debt AA, with Fitch assigning a negative outlook, while Moody's Investors Service rates the state Aa3.