CHICAGO — Illinois lawmakers should keep tax reform that raises new revenue on the table to stabilize state finances because a $7 billion structural deficit looms even with a new income-tax increase in place, a local fiscal review group warned Friday.

The Center for Tax and Budget Accountability praised state lawmakers for their approval earlier this year of a personal and corporate income tax increase that is expected to raise more than $7 billion annually, but warned it’s not enough.

Gov. Pat Quinn’s proposed fiscal 2012 budget doesn’t fund about $1.28 billion in spending and leaves the state with a structural deficit of more than $7 billion that is equal to nearly 22% of general fund revenues.

“The increase in the state’s income tax rates that passed in January constituted real progress in constructing a modern and sustainable revenue system — but clearly more work needs to be done,” the center wrote in an analysis of Quinn’s proposed budget that was released Friday at a symposium.

Before passage of the income tax hike, the state faced a $16 billion deficit going into fiscal 2012 which begins July 1, the center reports.

The tax increase will generate nearly $3 billion in the current fiscal year, bringing the deficit down to $13 billion. Officials now expect to collect $33.9 billion in revenues in the next fiscal year, but the budget calls for spending of $35.2 billion, leaving Illinois with a $1.3 billion operating deficit.

In addition to some cuts, Quinn has proposed borrowing $8.75 billion to pay off overdue bills.

The borrowing would eliminate most of the fiscal 2012 operating deficit, but still leaves the state with an ongoing $7 billion mismatch in recurring revenues and operating costs in future years.

Both Democrats and Republicans have resisted Quinn’s push to approve the bond issue. It may be called up in the Senate for a vote this week where lawmakers say it will fail.

The center took issue with Quinn’s characterization of the borrowing plan as a “restructuring” of existing debts. Only about $5.45 billion would actually go to pay off a backlog of debts, while another $1 billion would cover operations, and $400 million would cover debt service on the issue.

The remainder would be deposited in various state accounts.

The center supports borrowing to pay off bills, but considers its use for current expenses a poor maneuver.

“The CTBA has consistently cautioned that using debt to pay for current operating costs is not sustainable. The only responsible way to fund operational services is with recurring, current tax revenue, raised in a fair, responsive, stable and efficient manner,” the report reads.

The group also believes the borrowing plan’s 14-year repayment term is too long and backloaded.

Other options to address the deficit aside from Quinn’s borrowing proposal include spending cuts, the continued deferral of bills into the next fiscal year, or raising new revenues.

The center believes tax reform that includes new revenues should be part of the state’s solution as it contends Illinois remains a low-tax state and current spending on education and human services is lean.

“It is imperative that, among the other policy alternatives decision makers consider for resolving fiscal problems, comprehensive tax reform — particularly revenue generating reforms like expanding the sales tax base and taxing at least some retirement income, and fairness reforms that would make the tax system more progressive — remain on the table,” the report reads.

Illinois’ GOs are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.

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