CHICAGO — Illinois Gov. Pat Quinn on Thursday announced plans to shutter seven state facilities and lay off 1,900 employees to save $313 million, blaming the action on lawmakers’ failure to approve adequate funding in the $33 billion fiscal 2012 general fund budget to fully support state spending.“These are very serious actions today,” Quinn said at a news conference. “We have to act now. … We have to act responsibly” before the money allocated for the facilities in the budget runs out.  The governor’s action puts pressure on lawmakers who will return to work next month for their annual fall veto session to uphold $376 million in vetoes Quinn made to the budget in late June, when he reluctantly signed the plan that was $2 billion short of what he wanted. If upheld, Quinn said the General Assembly could reallocate those funds to avert the closures and layoffs. The other option that the governor favors would be for the General Assembly to increase allocated spending in the budget. “It’s time for a rendezvous with reality” for lawmakers, Quinn said. “They cannot run away from what they did in the spring.” The facilities slated for closure provide mental health service and assistance for those with developmental disabilities along with one prison.Though the budget fell short of what Quinn proposed, he signed it to avoid a fight that would have ensued with Republicans. Any delay would have required a three-fifths majority, forcing compromises to win Republican votes. Quinn is a Democrat and the party holds a majority in the General Assembly.Early in the year, Quinn won legislative support for an income tax hike that is expected to generate about $6.8 billion annually, but lawmakers refused to go along with a plan to issue bonds to cover a portion of the state’s $8 billion backlog of bills that was carried into the new fiscal year July 1. The state’s backlog now stands at $3.8 billion, according the Illinois comptroller’s office. After a series of downgrades, Illinois’ GO bonds are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings. The state paid a penalty to borrow last year, given the headlines over its woes. The so-called Illinois penalty also continues to affect local issuers, even those with no exposure to the state’s delayed payments, who must pay an additional 20 to 50 basis points to borrow. The state is planning $2 billion to $3 billion of new issuance this year to fund capital projects.Quinn was hit on several fronts for his announcement. Sen. Matt Murphy, R-Palatine, said while he supports the idea of cutting, he questioned Quinn’s ability to manage a budget and suggested he was punishing lawmakers who opposed his proposals by shuttering facilities in their districts. Union leaders contend the moves violate existing agreements and are expected to challenge them. Senate President John Cullerton, D-Chicago, said he has long planned to “revisit the shortcomings of the budget” in the veto session. A veteran portfolio manager slammed the governor’s comments and said they might offset strides made this year to improve the state’s image in the investment community and lower its borrowing cost. “He’s announcing that the state is going to run out of money. That’s ridiculous,” said Michael Brooks, a senior portfolio manager at Bernstein Global Wealth Management who was in Chicago Thursday to make a presentation on how states like Illinois are addressing their fiscal woes and the impact on investors. “This is all designed to exert pressure on the Legislature to gain support to go out and borrow for operating expenses,” he said. Quinn said Thursday he remains behind his “restructuring” plan to borrow billions to pay down bills. Brooks said the spread early this year of 250 basis points between five-year Illinois paper and triple-A rated debt has narrowed to 145 basis points in recognition of the state’s move to increase its income tax.   “The way to keep your interest rates low is not to announce that you are going to run out of money,” said Brooks, whose funds hold a small amount of Illinois GO and sales-tax-backed paper. “If he scares the market enough with these kinds of absurd disclosures, that could send spreads up to where they were.”Meanwhile, the latest review from the Commission on Government Forecasting and Accountability’s revenue manager, Jim Muschinske, shows an increase of $223 million for August due to income tax growth, which has offset the drop in federal funding and stronger sales tax collections. Base revenues are up by $409 million for the first two months of the fiscal year.CHICAGO — Illinois Gov. Pat Quinn on Thursday announced plans to shutter seven state facilities and lay off 1,900 employees to save $313 million, blaming the action on lawmakers’ failure to approve adequate funding in the $33 billion fiscal 2012 general fund budget to fully support state spending.

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.