CHICAGO - Illinois Gov. Pat Quinn yesterday outlined a grim picture that would result from deep spending cuts under a "doomsday" budget scenario if lawmakers don't approve his proposed $52.9 billion operating budget that relies on an unpopular income tax increase to help wipe out a $12 billion deficit.
"The battle for the soul of our state will take place in the next two weeks. The people of the state of Illinois do not want the governor or legislature to postpone making tough decisions or tough choices," Quinn told Chicago's political and business elite at a City Club of Chicago luncheon yesterday. "We don't want to have deep, mean-spirited cuts."
The governor's warnings come as the General Assembly moves into the final two scheduled weeks of the regular session. His income-tax increase is floundering and talk of relying more heavily on spending cuts is escalating. Quinn called such an approach to balancing the budget "slash and burn" and during his speech and in a letter appealing to Illinois citizens warned that a "cuts only" approach would force him to trim spending by 37%.
Such reductions would result in 14,300 public school teachers being laid off to save $1.5 billion ; 400,000 college students losing scholarship aid to save $554 million; and 650,000 people losing health care benefits to save $1.2 billion. In addition, 271,000 seniors would stop receiving various services to save $368 million; veterans would see a drop in their services; nearly 1,000 troopers would be laid off; and 6,000 prisoners would be freed from prison early.
People with disabilities would see a $769 million cut in their services. Aid to local governments would be trimmed by $1 billion. An additional $1 billion in cuts have not yet been identified to bring total savings to about $7.5 billion. The state also expects to receive about $4.1 billion from the federal stimulus in the current fiscal year that runs through June 30 and fiscal 2010 that can go to help cover the operating costs.
The increased revenues from the income tax increase also would be needed to help repay $1 billion of notes sold last week and an additional $1.25 billion planned for next month. Proceeds are helping to clear out a backlog of overdue bills and help balance the current budget. The certificates don't mature until the next fiscal year.
Quinn's budget relies on an additional $2.9 billion from a 50% increase in individual income tax rate to 4.5% from 3% and $350 million from an increase in the corporate income tax. His plan increases the personal exemption to help lower- and middle-class residents and yesterday he said he would sweeten the proposal by providing a more generous earned income tax credit and property tax relief, in hopes of winning more legislative support.
The budget also relies on restructuring about $2.2 billion in debt to save $530 million; cutting about $2.5 billion off the $4 billion scheduled pension payment; requiring workers to take four unpaid furlough days; and transferring $580 million from non-general fund accounts along with federal stimulus payments. With the state facing a $73 billion unfunded pension liability, Quinn has proposed a two-tiered pension system with new employees receiving fewer benefits to help reduce that burden.
In addition to the restructuring bonds, the budget includes authorization to sell up to $12 billion of pension GOs if market conditions are favorable. It also proposes about $1.1 billion of GOs be sold to help pay for capital projects if lawmakers approve a capital budget.
Quinn reiterated his support for a permanent income tax in response to a question posed by former Gov. James R. Thompson, who ran the state during the last deep recession in the early 1980s. Thompson has suggested that a temporary income tax might offer a more palatable solution to lawmakers. Only with a permanent increase "can we have a sound revenue structure" that addresses the state's structural deficit, Quinn said.
During his address, Quinn also pushed lawmakers to pass his two other top priorities - a $30 billion, partially bond-financed capital budget, and ethics reforms, including campaign finance limits. Support is strong for action on both fronts. Quinn is pushing reforms proposed by a commission he named while still lieutenant governor. He became governor after the General Assembly removed his predecessor Rod Blagojevich following his December arrest on pay-to-play and other federal corruption charges.
Lawmakers are close to reaching a funding agreement for a capital program after a six-year drought in new bonding authorization. Funding to raise a projected $1.1 billion in annual revenue would come from raising license and car title fees, liquor taxes, allowing online lottery ticket sales, and legalizing video poker machines. Some road fund diversions would also end.
It's unclear how much borrowing would be included in the package and how much of the funding would come from pay-as-you-go financing and local matching funds. Quinn's original capital budget unveiled with the operating budget in March relied on $8.6 billion of borrowing.
Fitch Ratings rates the state's $19 billion of GO debt AA-minus, on negative watch. Moody's Investors Service rates the state A1, following a downgrade last month. Standard & Poor's rates the state AA-minus following a March downgrade.
