CHICAGO - Illinois Gov. Pat Quinn has signed a $33.7 billion general fund spending plan for fiscal 2013 that cuts discretionary spending by $1.4 billion, closes and consolidates dozens of state facilities, and provides $1.3 billion to begin chipping away at up to $9 billion of fiscal 2012 obligations.

"The budget cuts spending, it pays bills, it reforms Medicaid," Quinn said on Saturday after signing the plan that covers the fiscal year that began Sunday. The plan incorporates a $2.7 billion Medicaid restructuring previously signed by Quinn.

Quinn, a Democrat, used the weekend budget signing to again press lawmakers on the urgency of tackling pension reforms. He hoped the General Assembly's accomplishments in paying down some bills and cutting Medicaid spending sent a message to rating agencies about the seriousness of state efforts to stabilize its fiscal house, but called a pension overhaul the remaining piece. "I think that signal needs to be sent as soon as possible," he said of action on pensions.

While discretionary spending under Quinn's control is down to $23.9 billion from $25.3 billion in fiscal 2012, the overall budget is up by about $700 million due in large part to increasing pension payments.

The state's statutorily required pension payment for fiscal 2013 totals $5.2 billion, up more than $1 billion over the previous year and up from $1.8 billion in fiscal 2008. The state is struggling with $82.9 billion of unfunded pension liabilities, representing a funded ratio of just 43%.

Rising pension costs divert funding from core state services like education, public safety and health care, Quinn warned. "We cannot continue on the path that we are on," he said.

Quinn and legislative leaders have held two meetings since the General Assembly adjourned in late May without acting on a reform package.

The governor and his fellow Democrats had mapped out a reform proposal that cut cost-of-living increases and phased in a shift in paying for suburban and downstate teacher pensions to local districts from state coffers. Republicans opposed the latter.

The budget earmarks about $1.3 billion in funding to help pay down fiscal 2012 obligations. On Friday, Comptroller Judy Baar Topinka's office said the tally of unpaid vouchers includes $3.9 billion of general fund bills, $2 billion in Medicaid vouchers, $1.1 billion owed for employee health insurance, $500 million for corporate tax refunds and $300 million in state agency and non-general fund bills. The office expects up to $1 billion in additional invoices to come in by a deadline of Aug. 31.

"We continue to make steady progress on paying these bills that have been created over decades of fiscal mismanagement," Quinn spokeswoman Kelly Kraft said, blaming the state's inability to fully cover its obligations on the actions of past administrations and lawmakers.

The clock is ticking, with Standard & Poor's intending to decide on whether to change its negative outlook on the state's A-plus general obligation rating before the end of the year. Analysts said they would act after a "review of the fiscal 2013 enacted budget and the state's progress, if any, on addressing its significant pension liabilities and associated cost pressures."

The legislative session's accomplishments included the Medicaid overhaul and a restructuring of retiree health care benefits that could save the state about $250 million annually and help reduce its $33 billion unfunded liability for other post-employment benefits.

Lawmakers also approved $1.6 billion in borrowing to support transportation and transit projects.
Moody's Investors Service rates Illinois' GOs A2 with a stable outlook. Fitch Ratings assigns an A and a stable outlook.

The state's budget and liquidity woes have resulted in interest rate penalties that also impact most state-based borrowers, especially those who rely on state aid payments, which are subject to chronic delays.

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