CHICAGO — Illinois Gov. Pat Quinn Wednesday will unveil a proposed fiscal 2011 budget that cuts spending and calls for new deficit borrowing to help trim a $13 billion deficit, but a gaping hole will remain unless lawmakers approve revenue increases, Quinn aides said Tuesday.

The budget anticipates raising $4.7 billion through a strategic note borrowing that could include a mix of tax-exempt issuance and internal fund borrowing. “It’s very important that the state use our borrowing tools,” said budget director David Vaught at a budget briefing. A specific plan won’t be proposed in the budget, but Vaught said it’s anticipated that any bonding would extend beyond the five-year maturity schedule used on the state’s $3.5 billion note issue sold to fund fiscal 2010 pension payments.

Vaught stressed, however, that the state will need to address its structural deficit to fend off another round of ratings downgrades.

“The bond rating agencies and investors want us to get our house in order” by balancing the state’s operating budget and enacting pension reforms, he said. “It’s very important we be able to access the capital markets,” as further downgrades would drive up borrowing costs.

The proposed plan will cut deeply into education funding, scaling back funding for kindergarten through 12th grade education and state universities by $1.3 billion. The budget will cut $325 million in health care spending. Human services programs face $276 million in cuts.

Local governments’ share of state income taxes will drop to 7% from 10%, adding $300 million to the state’s general fund. The budget anticipates legislative adoption of pension reforms, cutting benefits for new employees, to generate $300 million in savings in fiscal 2011. The state also anticipates saving $203 million in personnel costs by imposing furlough days and other employee concessions.

The general fund portion of the budget will total $27.4 billion, down about $600 million from fiscal 2010. Increased pension costs of $600 million and increased debt service costs would bring total general fund expenditures to $32.1 billion. The state would likely have to push off bill payments, as it did in fiscal 2010, or use some other one-time measure to balance its books if legislators do not support tax increases.

The budget anticipates Congress will keep intact its 62% reimbursement rate for Medicaid that expires later this year. Officials said the budget is built on “five pillars” that include job creation, spending cuts, strategic borrowing, federal help, and increased revenues.

The budget proposal outlined Tuesday does not include a tax increase, but Quinn will provide details in his budget address Wednesday details of those he hopes the General Assembly will adopt. Lawmakers last year rejected Quinn’s proposal to raise the state’s flat income tax rate to 4.5% from 3%.

The state’s $23 billion of outstanding GOs are rated A by Fitch Ratings, which has the credit on negative watch; A2 by Moody’s Investors Service, which assigns a negative outlook; and A-plus by Standard & Poor’s, which also assigns a negative outlook.

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