CHICAGO — Illinois Gov. Pat Quinn Wednesday unveiled a $53 billion fiscal 2012 budget that relies on a controversial $8.75 billion bond sale to pay off a huge backlog of bills bogging down the cash-strapped state.
Without the borrowing, Illinois could face a $10 billion deficit by the end of the fiscal year, officials said. The proposed spending plan comes a month after the state passed a 66% income tax increase that is expected to generate $6.8 billion in annual revenue.
Quinn said the new issue — which he dubbed a restructuring, as it would put on the market debt that is now owed to the state’s vendors — is necessary to avoid bringing the debt into the current budget.
“Even with our new revenues, if we do not restructure our debt it will take decades for us to return to the prompt payment cycle of a fiscally responsible government,” Quinn told lawmakers Wednesday during his budget address.
“This is not new borrowing,” he added. “With debt restructuring legislation, we have the opportunity to jump-start our economy by paying our vendors today — an immediate injection of billions into our economy.”
The borrowing proposal is expected to have a tough fight in Springfield. Republican lawmakers Tuesday pre-empted the Democratic Quinn’s budget address by holding a press conference and vowing to block the borrowing plan.
The legislature is controlled by Democrats, but the deal is likely the only budget measure that needs Republican support, since any new general obligation borrowing requires a three-fifths majority to pass. Lawmakers will debate the budget during the spring session, which adjourns in May.
“If you don’t agree with our debt restructuring plan, tell us which programs you would eliminate to pay $8.7 billion in overdue bills today,” Quinn told legislators.
The bill authorizing the borrowing, SB 3, was already defeated during a brief lame-duck session in early January.
Under the measure, the debt would be called GO restructuring bonds. They could go to pay off bills at least 60 days past due and could also be used for other operating costs. All of the authorization would have to be tapped by July 1, 2012, and must be repaid within 15 years of its issuance.
Quinn also proposed borrowing an additional $1.4 billion to raise money for renovations to state and university buildings.
The $52.7 billion all-funds budget proposal is about $1.7 billion larger than the current-year budget. The general fund budget totals $35.4 billion. No new taxes or fees are included in the plan. The biggest item in the $1 billion of spending cuts is an estimated $552 million saved by reducing Medicaid rates to providers. The state would save another $107 million by eliminating a prescription drug program and $95 million by eliminating busing for public school districts.
Illinois last year increased its borrowing by 75% over the previous year, in part to take advantage of the lower costs offered by the Build America Bond program, according to Thomson Reuters.
Its biggest deals included a $3.5 billion taxable GO transaction to pay off its 2010 pension payment and a $1.5 billion deal in December to pay off a backlog of bills.
Officials decided late Monday to postpone until next week a planned $3.7 billion taxable GO sale that will raise money to pay the 2011 pension payment. The state is also awaiting word on its appeal to a late January Illinois Appellate Court decision that invalidated the revenues that back its $31 billion capital budget.
The state last year sold $3 billion of bonds backed by those revenues and planned to price another $4 billion of bonds in two transactions set for late spring and fiscal 2012.