CHICAGO - While a new budget took center stage, Illinois lawmakers also capped their recent session with an expansion of infrastructure programs and passage of an overhaul for some Chicago pensions.

The budget deferred tough decisions about revenue and spending, but lawmakers approved a $1.1 billion bond-financed transportation package and expanded the state's clean water initiative by $1 billion to include wastewater and flood control projects.

Earlier in the session, they approved the overhaul of two of Chicago's four pension funds, to stabilize the municipal and laborers' pension funds through cuts and higher payments.

Lawmakers left on the table a proposal to fix Cook County's pension funds.

Gov. Pat Quinn has not said whether he would sign the Chicago package, which would drive up city property taxes. No formal legislation was ever introduced dealing with Chicago's police and fire funds or for most local government public safety funds.

The public safety pension issue is pressing as governments face higher payments by 2016 due to past legislation designed to put the funds on a path toward near full funding. Chicago is facing a $600 million payment spike for its two public safety funds.

In the final hours of the session, the General Assembly did send to Quinn's desk an extension of the emergency services phone surcharge which allows Chicago to raise its levy.

Lawmakers also sent to Quinn's desk legislation placing on the November ballot a non-binding question asking voters whether the state constitution should be amended to impose a 3% surcharge on income of more than $1 billion.

Lawmakers left on the table a major expansion of gambling that would have permitted a handful of new casinos, including one in Chicago. They also did not vote on a measure that would have strengthened investor interest in the proposed Illiana toll road by providing a priority guarantee that the state would dip into transportation funds to cover investor payments.

Facing a November general election, Quinn and fellow Democratic lawmakers who control the General Assembly sought to highlight the session's accomplishments even as they acknowledged the $35.7 billion general fund budget won't fully cover growing state expenses.

"There's a serious problem with balancing the books, we've suffered with that over several years," said House Speaker Michael Madigan, D-Chicago, noting that lawmakers want to provide sufficient services but that requires adequate revenues. "That's the difficult balancing act."

The fiscal 2015 budget largely holds current spending levels steady. It relies on one-time fiscal maneuvers like $650 million in borrowing from non-general fund accounts, delays $380 million in payments for state employee group health insurance and earmarks no funds toward the state's bill backlog, which is expected to rise. Lawmakers also raised revenue estimates by $200 million.

Such budget one-shots helped contribute to the state's credit deterioration, but lawmakers turned to those fiscal maneuvers after House members refused to support Quinn's proposal to make permanent a temporary 2011 income tax hike that expires at the end of December.

The House also rejected a budget that cut spending levels deeply. The final plan relies on a series of non-recurring revenues including inter-fund borrowing and payment delays to make up for an impending loss of nearly $2 billion in income tax revenue for fiscal 2015 after the temporary tax increases roll off the books. About $4 billion will be lost in fiscal 2016.

"The General Assembly sent me an incomplete budget that does not pay down the bills but instead postpones the tough decisions," Quinn said in a statement.

But he also sought to highlight accomplishments: "While we have much more work to do on the budget, I thank members of General Assembly for their work on these many issues during the legislative session," Quinn said. "Let's keep Illinois moving forward."

Quinn faces Republican challenger Bruce Rauner, who opposes an extension of the expiring tax rates, but has not released a detailed plan on the how the state should make up for the lost income tax revenue. He called the spending plan approved by lawmakers a "phony budget."

After the regular session closes, most legislation requires a two-thirds vote instead of a simple majority. The higher threshold is required during a fall veto session. After Jan. 1, during a lame duck session, the requirement drops back down to a simple majority. That's when lawmakers are expected to revisit the tax issue, or look at other potential sources of revenue and spending levels.

The budget plan is not expected to sit well with investors or rating agencies. Analysts have warned that to stabilize the state's battered credit, it must adopt a budget that deals with the expiring tax rates without reversing recent fiscal progress, including the drop in its overdue bill backlog. The state is rated at the low single-A level. Two rating agencies assign Illinois a negative outlook and Standard & Poor's assigns a "developing" outlook.

The new budget could also hurt Illinois' strides toward shrinking its interest rate penalties following passage of pension reforms in December and again this year after Quinn announced his backing for making the higher income tax rates permanent.

Lawmakers approved House Bill 3794 to authorize a $1.1 billion bond-financed transportation package. The package taps into revenues that are becoming available as debt issued under the $12 billion 1999 Illinois FIRST capital program is repaid.

Vehicle registration and title transfer fees and alcohol taxes were raised to finance the original borrowing. The package earmarks $1 billion for road and bridge projects and $100 million for local government street repairs. Transportation Secretary Ann Schneider said the new spending would mostly go to "shovel ready" projects in the state's five-year transportation program.

On the 9-1-1 legislation, the special statewide tax on phones to fund emergency services was set to expire this summer. Under the legislation approved by lawmakers, Chicago can raise the city's levy by 56% on wired lines and wireless phones.

The current city levy would rise to $3.90 from $2.50. The hike could generate $50 million more annually. The city has said it would use funds to cover emergency services improvements, but the legislation does not ban other uses.

Emanuel did not answer questions Monday about whether the tax revenue might allow the city to stave off or reduce a property tax hike to fund higher pension payments. The city, however, does subsidize its office of emergency management with general fund revenues of about $40 million annually and the additional surcharge revenue could free up those funds for other uses.

Lawmakers gave final approval to placing an advisory referendum on the November ballot asking voters whether a 3% income tax surcharge should be imposed on income of more than $1 billion. Madigan pushed the measure through after dropping a referendum that would have sought a binding constitutional amendment. The surcharge would generate about $1 billion annually to go toward education funding. Quinn said he would sign the bill.

Lawmakers did not vote on a proposal to make coverage of required payments a top priority over other projects should Illiana toll road revenues fall short. The legislation would have the project's priority guarantee come behind only debt service on general obligation bonds. The pledge was portrayed as a form of credit enhancement aimed at lowering the project's overall costs.

"We look forward to continuing our dialogue and partnership with the General Assembly, as well as all other interested stakeholders, on solutions to advance a project that's key to Illinois competing in the global economy," the Department of Transportation said in a statement.

Indiana and Illinois recently finalized a development pact for the proposed Illiana Corridor toll road that commits Illinois to up to a $250 million contribution.

Both states are eyeing separate public-private partnerships using an availability payment structure. The initial "conceptual" estimate for the road is up to $1.5 billion. Some transportation planning groups have panned the project as unneeded and a potential drain on state dollars.

A proposed expansion of gambling that would have permitted a handful of new casinos including one in Chicago died. The sponsor said he needs to build support from Quinn and Chicago Mayor Rahm Emanuel and must resolve disputes over revenue sharing with local communities.

Lawmakers also expanded by $1 billion the state's Clean Water Initiative and made stormwater management and flood control projects eligible for low-cost loans. It's unclear how much borrowing through the Illinois Finance Authority that may trigger.

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.