NEW YORK (CNNMoney) -- A month after Illinois lawmakers approved a massive tax hike, Gov. Pat Quinn unveiled Wednesday a $35.4 billion budget that depends on state lawmakers approving $8.7 billion in new borrowing largely to clear a towering stack of unpaid bills.
The budget, which increases spending by $1.7 billion from the previous year and closes a $13 billion gap, slashes programs for the elderly, the poor and the disabled, but leaves education funding largely untouched. No layoffs of state workers are suggested.
I don't think experience really matters for a president. My point is that you can't really use his own words from 4 years ago against him.
1.20.2009 - The end of one error, and the beginning of another
The state of Illinois faces at least $83 billion in unfunded liability between its five pension systems, and is on track to spend more on its government pensions than on education by 2016, a new study released by Governor Pat Quinn’s office says.
The state budget office conducted the study based on a “district-by-district analysis” if the state does not enact comprehensive pension reform, the governor said in a statement. Governor Quinn released the study a few days after calling a special session dedicated to pension reform on August 17.
Illinois faces severe underfunding in its pension system. It reported a funded ratio of 43.4%, way below the 80% considered healthy. Based on fiscal 2010 data, Illinois had the lowest funded ratio of any state, according to a June 2012 report by the Pew Center on the States.
Among states, Illinois stands out for setting aside a huge 12% of its annual budget just for its chronically underfunded pension.
Credit rating agencies have threatened to lower the state's rating unless lawmakers ease the strain on the budget.
Illinois' structural deficit along with its huge unfunded pension liability have led to credit downgrades, with Illinois rated in the low one-letter A grades by Moody's Investors Service, the lowest level among states it rates.
Meanwhile, Illinois joins New York, California and Maryland in having the highest state tax rates in the country. Illinois was dinged last year for boosting its taxes 67%.
Illinois' GO bonds are cut to A from A+ by S&P, which also maintains its negative outlook. "The downgrade reflects the state's weak pension funding levels and lack of action on reforms ... (It) also reflects continued financial weakness despite significant measures ... to improve structural budget performance."
Illinois broke federal securities laws and "misled investors" in misstating the true health of the state's depleted pension funds between 2005 and early 2009, the Securities and Exchange Commission announced Monday.
The finding of securities fraud doesn't subject Illinois to any fines or penalties, but it amounts to another fiscal black eye for a state burdened by the worst bond rating in the country and completely underwater by inaction in solving its $96 billion pension crisis.
The SEC finding, the second such action against a state, focuses mostly on misstatements linked to $2.2 billion worth of bond offerings issued during impeached ex-Gov. Rod Blagojevich's administration. New Jersey was cited in 2010 for similar disclosure failures regarding pension underfunding in its bond offerings.
"Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system," Canellos said.
In particular, the agency hit the state for misleading investors about the impact in 2006 and 2007 of "pension holidays" -- a happy-sounding budgetary misnomer used at the time to describe deeply diminished pension payments -- on the state retirement systems' overall health.
"I am proud to note that the Illinois Senate Republican caucus was the first to sound the alarm in 2005 and call for the SEC investigation," Radogno said. "Our work to expose these deceptive practices led to corrective action and improved disclosure."
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