CHICAGO — Illinois Gov. Pat Quinn was sworn into office for his first full term Monday, with the clock ticking on a budget deal being pushed by Democratic leaders in the final days of a lame-duck session to raise taxes and borrow more than $12 billion to tackle a looming $15 billion deficit.

The plan — which remained fluid Monday and was expected to be scaled back by Democratic leaders in order to raise the needed votes — calls for an increase in the state’s personal income, corporate, and cigarette taxes to raise new revenue, $8.5 billion in borrowing to pay off bills, and $3.7 billion in bonding to cover the state’s fiscal 2011 pension payments.

The state is grappling with a deficit of up to $15 billion going into fiscal 2012, which begins July 1, and a backlog of bills that could reach more than $8 billion.

The new General Assembly is sworn in Wednesday afternoon, after which the Democratic majorities in both the Senate and House will shrink and lame-duck lawmakers of both parties who might be willing to support an income tax increase to ease the state’s fiscal crisis will be gone.

Quinn made no direct mention of the tax deal during his inaugural speech, but he called for unity in dealing with the state’s challenges and he predicted a budget plan would be enacted quickly to addresses the state’s fiscal crisis.

“We also must deal with a fiscal crisis and I’m here to say that we will pay our bills, we will stabilize our budget, we will strengthen our economy, and we will do that very, very soon,” he said in his 30-minute address. “I believe we can enact very quickly a sound budget, a balanced budget that pays the bills of the state of Illinois.”

Quinn was elected to his first full term in November. He was the state’s lieutenant governor in early 2009 when then-Gov. Rod Blagojevich was removed from office through impeachment following his arrest on federal corruption charges.

During her inaugural address, new state Comptroller Judy Baar Topinka, a Republican who had previously held the treasurer’s office, issued a similar call for unity, as the state faces an $8 billion backlog of bills in fiscal 2011.

“Both parties for a very, very long time have helped dig this ditch. We’re all responsible. And since we all dug, it’s time that we got together to find the courage, the will and the civility to pull ourselves out of that ditch and make Illinois great again,” she said.

Talk of unity remained just that Monday as Republicans were firm against the Democratic budget plan and its backers struggled to raise the votes needed to pass it. Under the plan unveiled late Thursday, the income tax would rise to 5.25 % from 3% for four years. after which it would drop to 3.75%. The corporate rate would increase to 8.4% from 4.8% for four years and then fall to about 6%. The tax on cigarettes would rise by $1.

The income tax increase would raise $6.2 billion annually for the first four years and the corporate tax increase another $1 billion, while the cigarette tax would generate $377 million annually. The new revenue would go for education funding, property tax relief, addressing the state’s structural deficit, and repaying $8.5 billion of new borrowing to pay off bills.

The latest version of the plan floated Monday scales the individual rate increase down to a range of between 4.75% and 5% and the corporate rate increase down to 7%, according to sources. Leaders were expected to push for a vote Tuesday.  It was unclear how much borrowing was included in the revised plan.

The original deal also limited new spending. Quinn last year suggested he would veto any increase that raised the income tax by more than 1%.

Investor eyes remain fixed on Illinois. The state paid a yield penalty on its bonds of as much as 200 basis points last year due to the headlines circulated over its rating downgrades, its mounting unfunded pension liabilities, and growing debt load. Its credit default swap rate early last week was the highest among states at 335 basis points.

Spreads in secondary trading and the CDS market rallied by about 25 basis points Friday after news of the tentative Democratic deal circulated with little additional movement seen on Monday, according to Thomas Spalding, senior investment officer at Nuveen Investments.

Spalding believes the movement wasn’t driven by details of the tax and borrowing plan but by the news that lawmakers were finally honing in on the state’s fiscal crisis after enacting one-time maneuvers to deal with the deficit over the last two years.

“At least lawmakers are talking and something has been proposed,” he said.

Investors, especially conservative ones, are looking at the state to do more, however, than just pass tax increases. Like rating agencies, they want to see the state rein in costs and address its $62.4 billion unfunded pension liability to achieve long-term fiscal stability that could weather future recessions. “There has to be a commitment to reduce spending,” Spalding said.

“Just raising taxes to balance the budget does not offer evidence of lasting long-term fiscal stability,” said Richard Ciccarone, chief research officer at McDonnell Investment Management LLC. A plan that limits spending and addresses pension liabilities could help improve the affordability of the state’s access to the municipal market.

Ciccarone also warned that the state needs to proceed cautiously in imposing higher taxes so as “not to diminish the strength of its economic base over the long-term.”

The Washington-based Tax Foundation said the state would drop in ranking to 35th from 23rd in its state business tax climate index if the tax plan was enacted. The state’s flat tax rate does not incorporate a separate 2.5% property replacement tax imposed on corporate income which drives up the current 4.8% flat rate to about 7.3%.

Under the Democratic proposal, the combined local-state corporate rate would rise to 10.9%, the highest in the country. “The plan would severely impact Illinois’s attractiveness to business and individuals,” the foundation wrote.

Moody’s Investors Service rates Illinois’ $25 billion of general obligation bonds A1 with a negative outlook. Fitch Ratings rates them A with a negative outlook. Standard & Poor’s rates the state A-plus, but has it on CreditWatch with negative implications.

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