CHICAGO — After vetoing $376 million in spending approved by lawmakers, Illinois Gov. Pat Quinn late Thursday signed into law a $32.99 billion budget for fiscal 2012 that carries over more than $8 billion of unpaid obligations into the new fiscal year.
Quinn signed the budget just hours before the start of the new fiscal year. Even though the plan lawmakers sent him was $2 billion under what he proposed to spend in the new fiscal year, He cut $276 million from Medicaid, $89 million for school transportation, and $11 million that goes to support regional school superintendents.
The governor said he also found $336 million in duplicate appropriations, largely for debt service, that he used his veto pen to fix.
“Line by line, I have carefully examined the budget passed by the General Assembly and identified areas for improvement and reduction. I also re-prioritized government spending to protect our state’s core principles,” Quinn said in a statement. “With these reductions, I am implementing smart efficiencies that support Illinois on its continuing path to fiscal and economic recovery.”
The school bus cut leaves funding for that program at fiscal 2011 levels and comes on top of $150 million in reductions to general school aid in the budget. Quinn had originally criticized the budget approved by lawmakers as “unfinished” because of the school funding cuts and unpaid bills.
The Democratic governor had sought a school aid increase of $260 million and had lobbied for a borrowing plan to address the bill backlog. Quinn’s original budget proposal relied on issuing $8.7 billion of debt to “restructure” the overdue bills and he has since floated several smaller versions.
Democrats hold a majority in the General Assembly, but a three-fifths majority is needed to approve new bonding authority and Republicans remain steadfast against any new borrowing without deeper spending cuts.
Comptroller Judy Baar Topinka’s office said last week the state remains on pace to close out fiscal 2011 with $8.3 billion in unaddressed obligations. The figure includes $4.5 billion in unpaid bills, another $1.2 billion in fiscal 2011 bills that are expected to arrive in the next few months, $1.2 billion for state employee health insurance, $850 million for corporate tax refunds, and $750 million to repay interfund borrowing.
The series of budget-related bills Quinn signed included legislation that extends the state’s lapse period during which it may pay down fiscal 2011 bills to Dec. 31 from Aug. 31. The state took similar action last year as it faced a similar backlog.
The budget authorizes $4.6 billion in pension payments from the general fund. Illinois has borrowed to cover most of its payments owed in fiscal 2010 and 2011. A total of $6.2 billion will go to cover both pension obligations and repayment of pension-related borrowing.
The state initially faced a roughly $15 billion deficit going into the next fiscal year, but an income tax increase approved in January erased about half of the red ink.
Quinn also signed an $18 billion fiscal 2012 capital re-appropriation bill. The projects are tied to the state’s long-term $31 billion public works program but annual spending authorization is required. Lawmakers failed to pass the bill before adjourning in May in a dispute over $430 million in added spending tacked on by the Senate. Lawmakers returned for a special session last week and approved the bill after the Senate dropped the extra spending.
Illinois is tentatively planning on the sale of $2 billion to $3 billion of general obligation bonds in fiscal 2012 to support projects in the capital program but the timing, size, and structure of the sales depend on several factors.
“We have to look at our cash on hand and the timing of our needs,” debt manager John Sinsheimer said last week. The state also is awaiting an Illinois Supreme Court decision on whether the $31 billion capital plan violates the state’s single-subject clause. If the court upholds a lower court ruling overturning the program, lawmakers would need to rewrite the legislation before any new bonding is undertaken.
After a series of downgrades due to the state’s growing obligations and liquidity crisis, Illinois’ GO bonds are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.
Investors penalized the state last year for its fiscal woes with higher interest rates. While the income tax eased some concerns, investors have said the state needs to do more to bring spending in line with revenues and shore up its pensions. It has $75.7 billion of unfunded pension liabilities, with a funded ratio of just 45.4%.
The fate of a massive expansion of gambling approved in late May remains unclear. In past comments, Quinn has called the package excessive but stopped short of saying he would veto it. The legislation allows for casinos in Chicago, Danville, Rockford, Park City, and a site that has not yet been selected.
The legislation’s sponsors said the expansion would generate $1.5 billion in up-front licensing fees for state coffers and then $500 million annually in new tax revenue and would create thousands of jobs. Using a parliamentary maneuver, Senate President John Cullerton, D-Chicago, has not yet sent the bill to Quinn, allowing more time for a possible compromise.
Lawmakers could try to override any of Quinn’s vetoes during their annual fall session.
