CHICAGO - Indiana lawmakers reached agreement on a new balanced budget, averting a government shutdown, while Illinois Gov. Pat Quinn vowed to keep lawmakers through the summer to reach a balanced budget and Ohio lawmakers bought themselves an additional seven days by passing a temporary spending plan.
The Democratic-controlled Indiana House yesterday approved a compromise $27.8 billion spending plan, with the Republican-controlled Senate expected to approve it later in the day. The state had been taking measures yesterday for a possible shutdown - the first in more than a century - if the vote failed.
While some states allow for operations to continue at previously approved spending levels or until new paychecks must go out, most government operations with the exception of public safety and other essential services would grind to a halt. Indiana's personnel director told 31,000 employees if no budget was in place, they should remain at home unless they are directed otherwise.
Lawmakers have been meeting in a special session called by Republican Gov. Mitch Daniels since June 11 after they failed during their regular session to adopt a balanced budget for the next fiscal biennium. Daniels and Republican leaders won their effort to keep $1 billion of the state's $1.3 billion in reserves intact while Democrats won increased education funding
Lawmakers are still at odds over a plan to dismantle the capital improvement board in Indianapolis, merge it with another agency, and raise local tourism taxes to address a $47 million deficit. The agency manages local arenas and the convention center.
The state, which does not issue traditional general obligation bonds, carries issuer ratings of Aa1 from Moody's Investors Service, AAA from Standard & Poor's, and AA from Fitch Ratings. The state has $3 billion of tax-supported debt.
In Ohio, lawmakers decided their differences on a $54 billion, two-year spending plan could not be bridged ahead of the midnight deadline, so instead they approved a seven-day budget that allows the state to remain open for business and pay its bills.
The Republican-controlled Senate approved the plan on Monday and the Democratic-controlled House approved it yesterday. It marked the first time in 18 years the Ohio legislature has failed to adopt a budget ahead of the fiscal year.
Republicans have so far refused to endorse Democratic Gov. Ted Strickland's proposal to raise an additional $933 million annually by expanding gaming to allow video slot machines at the state's seven horseracing tracks. They want the change to go before voters. Strickland recently unveiled the measure as part of a plan to address an up to $3.2 billion deficit in the next budget based on revised revenue estimates.
The has called on Senate Republicans to come up with a counterproposal.
"I look forward to hearing from the Senate what other source of revenue, or what additional cuts, they will suggest," he said in a statement. He is expected to sign the temporary budget.
Fitch recently downgraded Ohio's $6.8 billion of GO debt to AA, Moody's downgraded the credit to Aa2, and Standard & Poor's rates the state AA-plus.
Illinois lawmakers have made some progress on measures aimed at resolving a remaining $9 billion budget deficit but no agreement is near on an income tax increase being pushed by Gov. Pat Quinn.
The General Assembly in May approved a bare-bones budget that funded state operations for six months, but Quinn has not signed it, saying he was waiting for a balanced, roughly $53 billion 12-year budget.
In an address yesterday to a joint session, the governor said he would veto a budget that is not balanced or cuts too deeply, though he opened the door to another $1 billion in cuts. He said he would keep lawmakers in session to reach an agreement.
Quinn has signed legislation allowing the state to refinance about $2 billion of debt, saving about $600 million in the next fiscal year. Also, the House on Monday approved issuing $2.2 billion of five-year pension-related GO notes to cover a portion of the $4 billion pension payment for fiscal 2010, freeing up general fund revenue to avert cuts in social services funding and layoffs.
The Senate was expected to approve it yesterday. Republicans are pushing for greater spending cuts and reforms before agreeing to any income tax increase and some Democrats also remain opposed. Democrats control both chambers.
Lawmakers and Quinn could agree to a temporary spending plan. If not, government operations likely would continue functioning without disruption until around the middle of the month. That's when new authorization would be needed to pay state employees.
Bondholders would receive any payments due in the absence of a budget under a "continuing appropriation" under state law that directs the treasurer and comptroller to transfer the funds needed to make debt service payments.
Moody's lowered Illinois' GO rating on $19 billion of debt one notch in April to A1. Fitch rates the state AA-minus but has it on negative watch. Standard & Poor's downgraded the credit in March to AA-minus.
