CHICAGO - Illinois has launched a request for proposals process for law firms, financial advisers and underwriters interested in working on a surge of debt issuance planned in the coming two years if lawmakers can break an impasse over how to balance the state's operating budget.
Lawmakers return to work tomorrow for a special session called late last week by Gov. Pat Quinn as he tries to advance efforts to reach a budget agreement with the General Assembly's leaders. Quinn wants lawmakers to approve on Wednesday a two-year, temporary 50% increase in the income tax.
He originally sought a permanent one to help address a $12 billion deficit in his proposed fiscal 2010 budget, which totaled $52.9 billion, but revised it due to opposition. Before adjourning at the end of May, the Senate passed a larger, permanent increase while the House rejected any increase, leaving the state with a budget that provides funding to cover only six months of operations.
Although lawmakers approved a nearly $30 billion capital program that relies in part on new general obligation and sales tax borrowing, Quinn has refused to sign it until a sound operating plan is in place. He has warned that without a tax hike, deep cuts of at least $9 billion are in store that would decimate the state's social services network and result in 10,000 state layoffs.
"There is still much to be done," Quinn said in a statement announcing the session. "We must find a way to work together and solve the greatest financial calamity our state has ever confronted."
Legal, financial advisory and underwriting firms interested in working with the state on general obligation, sales-tax backed Build Illinois, and certificate deals through June 30, 2011, have until 10 A.M. Central Time on July 2 to submit their proposals.
Illinois typically undertakes a new RFP process every two years. The state two years ago also sought proposals on potential lease and public-private partnership transactions. The new proposals do not.
When signed by Quinn, the capital budget would spur $3.6 billion of borrowing over roughly the next two years. Additional authorization of around $5 billion would be sought to support the program in future years with other funding coming from federal grants and local matching dollars.
Lawmakers also signed off on Quinn's proposal to help eliminate the deficit by restructuring $2.2 billion of debt, pushing off near-term debt service payments to future years.
Without a balanced budget enacted, the Democratic governor's aides have suspended any plans to enter the capital markets for capital project or cash-flow purposes. That decision has left on hold a $1.25 billion cash flow certificate issue that the state expected to sell before the close of the fiscal year June 30 to help pay down overdue bills and balance the current budget.
The financing was part of a $2.25 billion deficit financing plan that called for the certificates to be repaid in the next fiscal year. The state sold the first piece, for $1 billion, in April.
It's unclear barring any weekend developments as to whether lawmakers can break their impasse and act this week. The Senate and House are controlled by Democrats but not all Democrats are on board with the tax hike and House Speaker Michael Madigan and Senate President John Cullerton have said Republican votes are needed to pass one.
After the close of the regular session, a three-fifths vote is needed to approve legislation, so Republicans hold more power. "We want to see progress on curtailing spending and on Medicaid reforms before we turn to taxpayers," said Patty Schuh, a spokeswoman for Senate GOP.
The odds that lawmakers will act on other measures outlined in Quinn's special session proclamation - including a restructuring of the state pension systems, ethics reforms and voter recall of the governor - are also questionable.
The prospects for addressing capital budget changes needed to fund pending projects are more favorable. Legislative leaders had intended to reconvene the chambers on Tuesday to correct technical problems with the so-called mini-capital program approved earlier in the session that provides $3 billion in state funding for "shovel-ready" projects.
The appropriations for the projects were reappropriated in the larger capital bill and Quinn has not yet signed it. The final capital budget implementation bill approved by the Senate also was not returned to the House properly for a vote.
Other problems also loom for the larger capital program as sources said Quinn aides have acknowledged a proposed liquor tax increase might violate the state constitution's uniformity clause because beer and hard cider are taxed differently under the proposal.
The program relies on increased liquor taxes and raising fees for car titles, registration fees, driver's license fees, and fines. It also relies on the legalization of video gaming, the sale of lottery tickets online and the hiring of a private manager for the lottery. Groups that represent industries affected by the proposed tax hikes have raised legal questions over several of the revenue streams.
Rating agency analysts are watching the outcome of the budget mess closely. Moody's Investors Service lowered the state's long-term GO credit on $19 billion of debt one notch in April, to A1. Fitch Ratings rates the state AA-minus but has the credit on negative watch. Standard & Poor's downgraded the credit in March to AA-minus. The state's liquidity crisis and delayed payments are also impacting other credits as analysts cited the Regional Transportation Authority of Illinois' exposure to the state's cash crunch in recent downgrades.
