CHICAGO — Illinois Gov. Rod Blagojevich yesterday outlined $1.5 billion in possible budget cuts he intends to make if the House fails to approve by July 9 a revenue package - including a $34 billion capital budget and a plan to sell $16 billion in pension bonds - to help balance the fiscal 2009 budget.

The Senate approved the measures in a revenue package before adjourning late last month, but the House approved a $59 billion spending plan for the fiscal year that begins July 1 without acting on the package, leaving a roughly $2 billion hole in the budget.

The revenue measures include authorization to capture about $530 million in revenues from various non-general fund accounts and approval to sell $16 billion in general obligation pension bonds. The pension financing would enable the state to avoid spending about $400 million in the current budget because it would restructure its existing pension payment schedule.

The revenue plan further relies on passage of a capital budget that would free up about $320 million in the operating budget earmarked for capital projects and generate an estimated $280 million in new tax and fees for the operating budget.

The relationship between the Democratic governor and Democratic Speaker Michael Madigan has grown increasingly hostile. Madigan previously said it is up to the governor to balance the budget because he lacks sufficient votes to pass the revenue plans.

Blagojevich attempted to lob the budget issue back into Madigan's court yesterday with his announcement of looming steep cuts.

"As I've said before, the budget sent to me fails to meet the constitutional requirement that spending be matched by funding to pay for it, and it jeopardizes the state's ability to meet core responsibilities like teaching our children, providing health care, and protecting the public," Blagojevich said.

If the House does not pass the revenues needed, the governor said he would use his veto pen to cut $110 million in education funding, $260 million in social service spending, $257 million for economic development and transit, $106 million for seniors and veterans and more than $600 million on health care in addition to other reductions. The cuts would impact staffing levels throughout state government agencies. The governor said he prefers the cuts to vetoing the entire budget.

Support is strong for a capital budget, but differences remain among lawmakers on how to pay for it. 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 new gaming licenses, $7.8 billion in new general obligation borrowing, and 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. The state has lacked a major infusion of capital dollars since the $12 billion Illinois Works program approved in 1999 and congressional officials have warned that without new funding the state risks the loss of federal matching dollars.

Support for the pension borrowing plan is more tenuous with Republicans and some House Democrats are also opposed to it. The proposal calls for the restructuring of the 50-year payment schedule approved in 1995, increasing future year payments while trimming about $400 million off the fiscal 2009 payment.

The infusion into the pension system of the funds raised through a new pension borrowing would help bring the funded ratio of the system up to 75% from 62%. The current unfunded liability is $42 billion.

The governor has promoted the pension plan as one that would ultimately trim 12 years off the time needed to reach a 90% funded ratio. Blagojevich said the pension plan overall would result in a savings of $34 billion in contributions.

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