CHICAGO - Illinois' legislative leaders yesterday called a special session for July 14 to address budget matters as the state entered the new fiscal year without a spending plan following Gov. Pat Quinn's decision to veto portions of a bare-bones budget approved in May and leave the rest unsigned.

Quinn yesterday announced his vetoes related to funding of social service programs. He left the remainder of the budget unsigned so the state does not have a formal spending plan in place for the fiscal year that began Wednesday.

His action tosses the ball back to lawmakers, who have so far resisted the freshman governor's pressure to raise income taxes to generate new revenue and avoid what he has warned would be devastating cuts to the state's social services network.

Lawmakers adjourned their regular spring session at the end of May, approving a budget that funded state government at a 50% level of what Quinn had proposed as part of his $52.9 billion operating budget. The Democratic governor has warned that the plan leaves the state with a $9 billion deficit.

Lawmakers had been meeting this week in a special session, but left Tuesday without voting on a balanced budget plan. Quinn yesterday said the state would continue to provide essential services but noted the limited ability to pay vendors and grantees. Without a budget, the state could also not pay employees in mid-July.

"We are working toward and are hopeful that a full, fair, and balanced budget will be enacted and will allow the state to pay its vendors and grantees for the services they perform," Quinn said in a statement. "We thank our citizens, vendors, and grantees for their service and patience during these trying times."

Before the governor announced his action, Senate President John Cullerton and House Speaker Michael Madigan, both Chicago Democrats, announced the July 14 special session.

"The purposes of the special session shall be to take action on any vetoes, amendatory vetoes, or reduction vetoes by the governor of legislation related to the budget for fiscal year 2010 and to consider any legislation, pending or otherwise, related in any way to the budget," the announcement read.

In other budget-related action, the Senate rejected a plan on Tuesday to issue $2.2 billion of five-year pension-related bonds to cover a portion of the state's $4 billion pension payment owed in the current fiscal year. The deficit financing would have freed up funds for social services spending.

The House approved the legislation and Senate approval had been expected. Several senators said the governor pulled the plug on the proposal he had submitted over concerns that it might hurt his efforts to win legislative support for his income tax increase.

Without a balanced budget in place, the state has put any immediate borrowing plans on hold. Officials had planned on selling $1.25 billion of cash-flow certificates before the end of the month to ease payment delays and close out the fiscal year in the black. The certificates would not be repaid until later in the new fiscal year.

Bondholders would receive any payments due in the absence of a budget under a "continuing appropriation" under state law that directs the treasurer and comptroller to transfer the funds needed to make debt service payments.

Rating analysts are watching the outcome of the budget mess closely. Moody's Investors Service in April lowered the state's long-term GO rating on $19 billion of debt one notch to A1. Fitch Ratings rates the state AA-minus but has it on negative watch. Standard & Poor's downgraded the credit in March to AA-minus.

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