CHICAGO — Illinois Gov. Pat Quinn warned the state faces its worst “financial calamity” ever and said he would push for tax code reforms that raise revenue in a “fair way” in his state of the state address yesterday.

Quinn defended his management of the finances he inherited early last year after lawmakers ousted former Gov. Rod Blagojevich following his arrest on corruption charges. Facing a $12 billion deficit, Quinn said borrowing and other one-time measures that helped balance the state’s $54 billion fiscal 2010 budget provided the best means to maintain human services spending.

“I think we must be a decent state,” the governor said, supporting health care and human services spending. To do that he relied on “strategic borrowing when necessary” in order to get the state through a tough time. The state last week sold $3.5 billion of bonds to cover pension payments.

Quinn said solutions to Illinois’ ongoing budget deficit would involve spending cuts and efficiencies, strategic borrowing, accessing more federal funding, and enhancing revenue, but he offered no specific details.

Quinn — who faces Comptroller Dan Hynes in the Democratic primary race for governor — last year pushed for a 50% income tax increase. Yesterday he called for reforming the state’s tax code, but offered no additional specifics, saying he wanted “to find a fair way to raise tax revenue from a fair tax code” that would provide relief for lower income earners.

Quinn praised lawmakers for passing a measure that will allow Illinois to issue $250 million of bonds to leverage additional federal funds and down a backlog of Medicaid bills. While the bill passed the House, but is still pending in the Senate. The state has $5.1 billion in unpaid bills and Hynes recently rejected Quinn’s proposal to issue $500 million of general obligation certificates for cash-flow purposes. Such cash-flow issues must be approved by the state’s treasurer and comptroller.

The bonding authorization approved by lawmakers would fall under Illinois’ Healthcare Provider Relief Fund program, which was enacted to leverage additional Medicaid funds through a tax on hospital revenues. The bonds must be sold in the current fiscal year and repaid within one year after their issuance.

Quinn also used the occasion to tout his accomplishments, including passage of new ethics rules and a $31 billion capital program that he said would create more than 439,000 jobs over the next six years. He pledged to promote job growth through construction.

“I want to be the building governor. I want to build more things across our state, more good things, than any other governor,” he told lawmakers.

Illinois has suffered a round of rating downgrades, with analysts citing as factors the liquidity crisis, the state’s overall poor economic performance, its reliance on non-recurring revenues to deal with a $12 billion deficit going into fiscal 2010 last spring, and its ongoing structural budget deficit. The state faces an estimated $12 billion deficit again that must be addressed in the fiscal 2011 budget Quinn will unveil in the coming months.

Lawmakers began a new session this week, but they won’t again return again to the capital until after the Feb. 2 primary. Meanwhile, the state faces a record bill backlog and the looming repayment of $2.25 billion of cash-flow notes.

Revenue for the fiscal year to date continues to falter. Corporate income taxes fell 16.3%, sales taxes are down 12.6%, and individual income taxes are down 7.6% over figures for the same time last year. The state’s mammoth unfunded pension liability of $79 billion is another negative burden putting pressure on Quinn and lawmakers to take up reforms this year.

Fitch Ratings rates the state A and has it on negative watch, Moody’s Investors Service rates it A2 with a negative outlook. Standard & Poor’s rates it A-plus with a negative outlook.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.