CHICAGO — Illinois Gov. Pat Quinn Thursday signed a fiscal 2011 budget that deals with the state’s $12 billion deficit through $1.4 billion in cuts, borrowing and other one-time maneuvers and leaves $6 billion of bills unpaid.

The general fund budget signed by Quinn for the fiscal year that began yesterday totals $24.9 billion, down from the fiscal 2010 level of $26.3 billion. It is part of an overall $50 billion all-funds budget. The Democratic governor took a month to sign the budget as his administration reviewed potential cuts.

General Assembly members refused to act on spending reductions or an income tax increase proposed by Quinn in the budget they approved in late May, instead handing him special emergency powers to reduce appropriations.

“Today I’m making tough budget choices to move our state forward. I wanted to preserve as many jobs as possible and keep our economic recovery going,” Quinn said at a new conference where he appeared with his top aides, including budget director David Vaught. “The budget I’ve signed today is designed to accelerate the recovery not get in its way.”

Quinn and Vaught declared the operating budget was balanced, even if it leaves $6 billion in bills unpaid. Structurally, the state will face an ongoing deficit due to the one-time revenues used to cover recurring expenses.

Quinn trimmed $241 million from public K-12 education, $100 million from higher education and $312 million from human services programs. He also signed an executive order that directs state agencies to cut travel and overtime expenses. About $900 million in cuts have not yet been identified.

“We cannot do this in a chain-saw manner,” he said.

In addition to the cuts and the delay in paying $6 billion of bills, the budget relies on the transfer of about $1 billion from various non-general fund accounts. It also includes the issuance of $1.3 billion in short-term general obligation certificates for liquidity purposes, while more than $1 billion is expected from a bond sale securitizing a portion of the state’s share of the 1998 tobacco settlement. Illinois must pay off the $6 billion in backlogged bills by the end of 2010.

It remains unclear how the state can afford to cover its $3.7 billion pension fund payment. The House approved issuing bonds to cover the payment, but the plan lacked sufficient support in the Senate. Quinn continues to press the Senate to return to work to pass the financing, but he said Thursday he doesn’t expect any revenue-raising action from the General Assembly until after the November election.

The budget also counts on at least $700 million of enhanced federal matching Medicaid funds that have not yet been approved by Congress. An extension of the special funding was in the jobs bills Congress failed to approve last month.

Vaught blamed legislative gridlock for a rash of rating downgrades for Illinois and warned that the state may not be able to prevent further credit rating action until the gridlock lifts. Vaught claimed the state had prevented more drastic downgrades through the pension reform legislation approved in the spring and by passing a $31 billion capital budget with new and increased revenue streams to support state borrowing.

Analysts have attributed the downgrades to a series of factors, including the structural deficit, rising debt, liquidity struggles, and a growing pension fund burden. Analysts have attributed their most recent actions to lawmakers’ refusal to tackle Illinois’ fiscal and liquidity crisis, instead relying on one-shots to manage through the last two fiscal years.

Fitch Ratings and Moody’s Investors Service recently downgraded the state’s $25.7 billion of GO debt. Fitch lowered Illinois’ rating to A from A-plus and assigned a negative outlook. Moody’s downgraded the credit to A1 from Aa3 and assigned a stable outlook. Standard & Poor’s affirmed the state’s A-plus, which is on negative watch. Only California among the states is rated lower.

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