CHICAGO – With the clock ticking on a scheduled Friday adjournment, Illinois lawmakers moved Thursday to wrap work up on fiscal 2014 budget bills, while gambling expansion and a fix for the state’s pension crisis are still on the table.

House and Senate Democratic leaders reached agreement earlier in the week on key funding provisions for a new $35.6 billion general fund budget that is part of an overall $62.4 billion all-funds spending plan.

The House approved key budget bills on Tuesday and the Senate began approving bills Wednesday with work expected to be completed as soon as Thursday. 

Democrats, with majorities in both houses, said stronger than expected revenues this year allow the state to restore $300 million of education cuts proposed by Gov. Pat Quinn, and they fended off higher cuts slated for human services.

Republicans decried funding levels in the budget, warning that the state could not afford what they contend is nearly $2 billion more in spending with an unpaid bill backlog that has hit $7.5 billion this year. They also warned that proposed spending levels would cement the need to make permanent a 2011 income tax hike that begins expiring in fiscal 2015.

“Clearly we’re not going in the direction that we need to go if we intend to get our bills paid and if we intend to do away with the tax increase,” said House Minority Leader  Tom Cross,  R-Oswego. The opinion was echoed in Senate debate where Republicans also rejected the budget.

The proposed budget provides $6.6 billion in education funding, holding funding for elementary, secondary and higher education steady after several years of cuts. A one-time infusion of more than $1 billion of income tax revenue in April will help bring down the current backlog of bills to about $6 billion at the close of the fiscal year.

The budget making its way through the General Assembly drops Quinn’s proposal to cap local income tax sharing payments at the fiscal 2012 level of $1.1 billion, which was harshly protested by Chicago and other local governments.

The budget does not directly fund employee raises agreed to by unions and Quinn’s administration because lawmakers are approving lump sum spending allocations to state agencies. However, it’s expected that state agencies would adjust spending to fund the raises.

House Bill 2869 making its way through the General Assembly would authorize about $2.7 billion in additional bonding authority for the final phase of the state’s ongoing $31 billion capital program. The legislation increases overall general obligation bonding for authorized projects to $49.3 billion from $47.1 billion and sales tax backed bonds to $6.2 billion from $5.7 billion. It requires a three-fifths majority.

Lawmakers approved Quinn’s proposed expansion of Medicaid under federal healthcare reform. “This bill will not only expand access to health care for the uninsured, it will also strengthen our efforts to transform Illinois’ health care sector into a wellness system that focuses on preventative services and provides better quality treatment when people do become sick,” Quinn said in a statement after passage.

Action on a solution to the state’s pension system crisis –underscored by $95 billion of unfunded liabilities for a funded ratio of just 40% that will require a $6 billion payment in the next budget – remains uncertain. The Senate and House have approved rival plans and neither has budged to date.

Senate Bill 2404, sponsored by Senate President John Cullerton, D-Chicago, passed earlier this month.  It asks employees and retirees to accept various changes in their cost-of-living calculations and other benefits in exchange for preserving state retiree health care subsidies. The plan has the backing of key state unions but a group of retired teachers have called the plan unconstitutional and threatened to sue.

A bill sponsored by House Speaker Michael Madigan, D-Chicago that passed the House has the support of Senate Republicans and local civic groups because of its greater savings. It was praised by Quinn, eager for the passage of any reforms.

The House plan imposes direct limits to cost of living increases (COLA), raises the retirement age, and phases in a 2% hike in employee contributions.  Unions have blasted it as unconstitutional. Cullerton also believes it would not withstand a legal challenge because of the state constitution’s language banning the diminishment or impairment of pension benefits.

Actuarial estimates released this week projected that the House plan would trim about $187 billion off total payments owed over the next three decades to bring the system to a fully funded level. The latest estimate on the Senate plan showed $57 billion in savings to bring the system to a 90% funded ratio.

The House plan would bring down the state’s $95 billion of unfunded liabilities by $21 billion and the Senate plan $9 billion. The House plan would cut $1.9 billion off the state’s annual payments and the Senate plan about $850 million.

Senate Republicans are pushing for a vote on the House package.

“We have consistently provided a significant number of votes for true pension reform – the highest percentage of any caucus – and hope we have the opportunity to vote on a bill that will reduce the unfunded liability, provide substantial savings to the taxpayers and stabilize the systems,” Senate Minority Leader Christine Radogno, R-Lemont said.

Senate Democratic leaders were meeting with members on Thursday to gauge their support for various reforms. They may allow a vote on the House plan but have predicted it would fail. They also may schedule a vote on bills with individual reforms passed by the House. They cut COLAs, raise retirement age, and cap pensionable salaries. Madigan pooled those individual measures along with other reforms into his larger package.

Rating agencies have warned that without action further credit deterioration is likely. The state pays steep interest rate penalties to borrow given investor concerns over its financial condition due to the size of its pension woes. It pays about 140 basis points over the Municipal Market Data’s 10-year triple-A benchmark on its GO paper.

Standard & Poor’s rates the state’s $27 billion of GOs A-minus and assigns a negative outlook, making it the lowest-rated state.

Fitch assigns an A rating to the state’s $27 billion of GO debt and has the credit on negative watch. Moody’s rates Illinois GOs A2 with a negative outlook. Investors demand steep penalties on state GO paper.

Lawmakers also continued to work on tweaks to a gambling expansion bill that would allow five new casinos, including one in Chicago.

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