Source: WSJ

Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state’s general-fund revenue.

The state faces one of the nation’s worst budget crises, spilled over in part from the broader national economic crunch, and its current bond ratings lag only California’s. But the confusion in the legislature indicates that serious steps to fix state finances won’t be taken until after the November elections—if then.

States in the Red

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Most states have addressed or still face gaps in their budgets totaling $196 billion for fiscal year 2010, while tax revenue declined in the final quarter of 2009 in 39 of the states for which data is available.

Illinois lawmakers have little appetite for drastic spending cuts. An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up.

The legislature may push the problem to the governor’s office by granting Mr. Quinn emergency budget powers and adjourning Friday, about three weeks earlier than usual. A bill under consideration in the state House would give Mr. Quinn greater leeway to shift money among state funds and to require agencies to set aside part of their budgets now in case of future cuts.

A state House committee on Thursday passed a cigarette-tax increase that would generate $320 million by raising the state tax from 98 cents a pack to $1.98 a pack over two years. The House also is considering authorizing a sale of expected tobacco-settlement funds, which could bring in $1.2 billion, said State Sen. Donne Trotter, a Democrat.

House Minority Leader Tom Cross called the tobacco-settlement plan “a gimmick” and said he and other Republicans oppose borrowing the pension payment. “We are having the same conversations today that we had a year ago about the need for reform,” he said.

Regardless of its final form, the budget will leave the state borrowing for short-term operations and postponing its bills.

“We are lucky in that we still can borrow,” Mr. Trotter said, noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said.

Illinois’s problems are an exaggerated version of dynamics playing out across the U.S. All states except Vermont have at least a limited requirement to balance their budgets. In practice, many states rely on one-time revenue windfalls or short-term borrowing to scrape from one fiscal year to the next.

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