CHICAGO — Ohio Gov. Ted Strickland this week warned he would call a special session over the holidays if legislators are not able to fill an $850 million hole in the state's two-year budget by the end of the week.

The legislature passed a $52 billion 2010-2011 budget in July but a subsequent state Supreme Court ruling that a key gaming revenue source is subject to voter referendum left the budget $850 million short.

The Republican-controlled Senate yesterday was poised late afternoon to introduce a package of cuts to eliminate the deficit.

The Democrat-led House in November passed a measure would fill the gap by having the state postpone a planned income tax cut for two years. Proposed by Strickland, a Democrat, the measure would delay a 4.2% decrease in the state income tax rate, the final installment of a five-year, 21% reduction in the tax rate proposed by former Republican Gov. Bob Taft in 2005.

Strickland has said the measure would raise $844 million over the biennium. If the tax cut delay is not implemented by Dec. 31, the state loses the power to stop it, and the governor has said he would be forced to cut up to $600 million — or 15% — of higher education spending to fill the gap.

But Senate GOP leaders have so far refused to vote on the tax delay measure, saying they favor spending cuts. If introduced, a budget-cutting package would require the two chambers to head into conference committee to hammer out their differences.

Strickland Tuesday said he would use his executive authority to force lawmakers to return next week — including on Christmas day — to work if they don't resolve the problem by the end of the week.

"I would hope that would not be necessary, but I think we should," Strickland of holding a Christmas session. "This is really important to the future of our state, and it's more important than any individual member's personal schedule."

Ohio, like most states, continues to grapple with a weak economy, and is one of a handful of states that plans to issue debt to stimulate economic activity, according to a report released yesterday by Standard & Poor's entitled "2009 State Debt Review: Significant Challenges Lie Ahead."

Voters in November approved the issuance of $200 million of general obligation bonds, part of Strickland's $1.2 billion economic stimulus plan.

For the first time this year, Ohio has moved to restructure some of its outstanding debt in order to achieve some budget relief, analysts noted in the report. The state plans to refund its bonds — without pushing out the final maturities on the debt — to shift about $736 million of debt payments in fiscal year 2010 and 2011 to future fiscal years.

Strickland's gaming proposal, which would have installed up to 17,500 video lottery terminals at the state's horseracing tracks, will be delayed at least one year due to the Supreme Court ruling. The governor has said he had asked the courts to rule on whether the Ohio Lottery has the authority to install lottery machines without legislative approval.

Standard & Poor's rates the state AA-plus with a negative outlook. Moody's Investors Service also maintains a negative outlook with a rating of Aa2. Fitch Ratings rates the state AA with a stable outlook.

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