Illinois Governor Pat Quinn will ask lawmakers next month to authorize an $8.75 billion bond sale to pay at least $6 billion in overdue bills.
“Once the revenue comes in, it will begin to bring in more money to address our backlog,” said Kelly Kraft, a spokeswoman for Quinn, in a telephone interview today.
The borrowing plan revives a proposal that died amid the passage of a package of bills in the waning hours of the legislative session. The Legislature approved a 67 percent increase in the personal-income tax and a 46 percent boost in the corporate income tax, both aimed at plugging a budget hole of at least $13 billion. Quinn signed the measure today, according to a news release. Lawmakers are to return to Springfield in February.
Illinois and other U.S. states confront deficits totaling $140 billion in the next fiscal year, according to a Dec. 16 report from the Center on Budget and Policy Priorities, a Washington research group.
Quinn’s proposal increases the pressure on Illinois to show investors that its efforts to restore financial stability will not consist solely of raising taxes and borrowing, one portfolio manager said.
“It still shows that they’re not really focused on the expenditure side yet and focused more on borrowing and tax increases,” said Duane McAllister of M&I Investment Management in Milwaukee.
“If tax increases and borrowing are going to be the ongoing solution, they really have not solved their fundamental problem,” McAllister said in a telephone interview.
Debt and Taxes
The legislature approved a $4.1 billion borrowing authorization yesterday to make this fiscal year’s payment into underfunded state pensions.
The state House, during the session’s final hours, defeated a borrowing bill designed to eliminate the backlog of invoices, which is at least five months old.
Standard & Poor’s and Fitch Ratings said that they would examine the budget package’s impact on the state’s credit. S&P rates Illinois A+, its fifth-highest investment level, two steps above California, which gets the lowest rating for any state’s general-obligation debt.
John Sinsheimer, the Illinois director of capital markets, is meeting with rating-agency officials today in New York, Kraft said.
Stopping the Flow
The fiscal package includes what Senate President John Cullerton called “an unprecedented spending cap.” The first year will limit spending to a 10 percent increase that will include an estimated $4.5 billion payment into the state’s retirement systems.
Spending in the next three years will be limited to an annual increase of 2 percent, Cullerton said.
Some Republicans were skeptical.
Illinois Comptroller Judy Baar Topinka said the tax increase will enable the legislature “to maintain its runaway spending in the short term without addressing the long-term fiscal crisis facing our state,” Topinka, a Republican, said in a statement released by her office.
Topinka, a Republican elected in November, said the tax action “ensures that Illinois will dig itself deeper into its fiscal hole.”
The failure of lawmakers to approve the borrowing this week left a chasm in the budget-balancing plan because revenue from the increased personal-income tax will not cover the accumulating bills.
Money reaped by raising the rate to 5 percent from 3 percent is first dedicated to debt-service and payroll, Kraft said. There is not enough money from the tax increase to pay all vendors, which is why the borrowing is needed, Kraft said.
Quinn told reporters Wednesday that the state has an obligation to promptly pay vendors.
“Part of that job is getting Illinois state government off the mat so it is paying employers and businesses the billions of dollars they’re owed,” Quinn said. “And by doing that we’re going to have a better economy.”