CHICAGO - A gaming expansion bill - one of three funding sources for a $34 billion capital budget - failed during a special session of the Illinois House yesterday, one day after Gov. Rod Blagojevich sought to pressure lawmakers to pass the plan by vetoing $1.4 billion in spending from the fiscal 2009 operating budget.

The two-day session called by Blagojevich marked his latest failure to sway the House to pass his revenue proposals to help whittle down what his administration has estimated as a $2 billion shortfall in the $59 billion operating budget approved by lawmakers in May.

Meanwhile, House Speaker Michael Madigan, D-Chicago, said the chamber would convene on Tuesday to address the vetoes with votes likely on Wednesday, and he suggested that the governor would have to look for another source of revenue to help finance a capital plan.

"Given the conditions here in Springfield, it is my view that the proposal for the expansion of gaming is a dead issue," he said yesterday.

While supporters of the capital budget have promoted it as a means to spur economic development and new jobs, its passage also would have freed up about $320 million in the operating budget and generated an estimated $280 million in new tax revenue. The governor also sought approval to transfer about $530 million from surpluses in various non-general fund accounts.

The Senate previously approved both measures. Blagojevich this week dropped efforts to win passage of a $16 billion pension obligation issue that would have freed up another $400 million in the operating budget.

The proposed capital budget relies on about $7 billion from a partial leasing of the Illinois Lottery; $800 million in upfront funds from the issuance of three new casino gaming licenses, including $500 million from Chicago that would receive a license; and $7.8 billion in new general obligation borrowing; in addition to local and federal matching dollars. About $6.2 billion of the bonding would be repaid with recurring gaming expansion revenues and $1.6 billion from transportation-related taxes and fees.

While the bonding authorization bill remained pending before a House Committee, the chamber held a hearing on Wednesday on the gaming expansion component and on Thursday voted. Although a majority of 55 members approved it with 47 voting against it, the bill needed a super-majority of 71 to win passage.

The state has lacked a major infusion of capital dollars since the $12 billion Illinois Works program approved in 1999 and officials have warned that without new funding the state risks the loss of $9 billion in federal matching dollars. While support is strong for a capital plan, the bill before the House had received mixed reviews with even its supporters calling it flawed.

During a hearing Wednesday, Chicago chief financial officer Paul Volpe said the city opposed the bill on several fronts, including the upfront $500 million cash payment required. "We have always said we want a casino, but we need to ensure it is economically viable," Volpe told lawmakers.

While the city has long opposed such a high payment, current economic conditions make the payment level all the more unaffordable, Volpe said, citing a state commission's estimates that gaming revenues and casino admissions will continue to decline in the foreseeable future.

Before the vote Thursday, the gaming bill's chief House sponsor Robert Molaro, D-Chicago, announced his intention to vote against it. "This is a very good try at trying to get this bill done," he said, urging lawmakers to return in the coming weeks to negotiate a compromise plan.

Blagojevich has blamed Madigan for the capital bill's failure so far, accusing him of stalling it in order to push for an income tax after the fall election cycle. Madigan has denied that he would push for an income tax hike. While the two share the same party affiliation, their strained relationship continues to grow more bitter.

In announcing the vetoes Wednesday - even before any voting took place in the House - the governor said he had no choice.

"I am forced to make these vetoes because of the inability of the House of Representatives to pass the revenue needed to support the worthwhile programs funded within the budget. Because of the House's irresponsible action, the state is left with a budget that is a record $2 billion out of balance," Blagojevich said. "The Illinois Constitution is clear - the state must have a balanced budget."

The cuts slash increases for education, health care, transportation, recreation, and social service programs, although he did not provide any more details.

Lawmakers yesterday said they still hoped to pass a capital budget in the coming months, but given the hostile atmosphere at the Capitol, it's unclear how that goal can be accomplished, as many lawmakers said they don't trust the governor to fairly administer a capital works program.

In an attempt to quell trust issues, Blagojevich agreed to limits on the governor's discretionary portion of the bill, the establishment of a formula for the statewide distribution of funds, and an initial limit on bonding of $2.5 billion.

The latest capital program was crafted by a former congressmen, Dennis Hastert, a Republican speaker of the House, and Democrat Glenn Poshard, who is president of Southern Illinois University.

"Nearly $9 billion is on table and those funds are much needed to repair Illinois' infrastructure," Hastert said of federal matching funds. "We can't leave those funds, and the 700,000 jobs Illinois Works creates and retains, on the table. If we don't pass this bill now, Illinois taxpayers will simply lose the money they've paid into the trust fund. That's just wrong. We need to pass a capital bill now."

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.