By Bill McMorris   Illinois Statehouse News

CHICAGO — In a Great Recession that has seen billions of taxpayer dollars pumped to keep companies afloat, Illinois Gov. Pat Quinn has two words for anyone talking bailout for the state: No thanks.

Brie Callahan, spokeswoman for the governor's office, said Quinn would turn down all offers of federal bailout if the state finds itself out of cash.

"We believe that the states have an obligation to pay their bills and to meet the demands they have put upon themselves," she said. "We don't want any federal assistance in terms of bankruptcy."

Republicans in the U.S. Senate are considering several proposals that would allow state governments to declare bankruptcy in the event of fiscal collapse.

States, unlike local governments and corporations, are unable to declare bankruptcy. This could pose problems for state governments trying to maintain current services, while paying vendors for services already rendered and making pension payments for retirees. Illinois fell behind on each in 2010.

In June, the state's five pension systems began liquidating about 10 percent of assets per month to make payments to retirees. These checks generally come from current tax revenue, rather than the funds, which are meant to cover long-term costs. Bill Atwood, executive director of the State Board of Investments, which oversees three of the pension systems, said the state's inability to pay cost the funds dearly in 2010.

“You’re going to have lost opportunity costs. We transferred out $340, $350 million [in 2010] and the market’s been very favorable,” Atwood said. “So not only have we lost the $350 million, we’ve lost the return potential of $350 million. It’s a real drain on the portfolio.”

The state also faces $6 billion in unpaid bills since the 2011 fiscal year began in July. In December, the Quinn administration was forced to borrow and issue bonds to help pay off several billion in unpaid bills from the previous fiscal year.

The recently approved 67-percent personal income tax hike is expected to generate $6.8 billion annually. But that's a drop in the bucket in the face of a projected $15-billion budget deficit and an  unfunded pension liability of at least $80 billion.

The worst-case scenario could see Illinois defaulting on current debts and turning to the federal government for a bailout, which is what Republicans in the U.S. Senate, led by Minority Leader Mitch McConnell, R-KY, are trying to avoid.

Bankruptcy measures would allow states to renegotiate contracts protected in state constitutions, such as pension benefits to retirees. As it stands, states cannot renege on such benefits, even when facing fiscal uncertainty. This has produced conflict between states and retirees. Colorado, Minnesota and South Dakota are being sued in federal court by retirees for trying to amend the benefit system.

Illinois, the state Forbes Magazine dubbed the most indebted state in the country, has a direct interest in the proposals making rounds in the U.S. Senate.

This was news to freshman Sen. Mark Kirk, a Republican elected in 2010.

"I don't know of any bills," Kirk said, outside Chicago's Ronald Reagan Centennial celebration on Saturday. 

Kirk has been kept out of the loop by party leaders in Washington. He serves on the Senate Appropriations Subcommittee on Military Construction and Veterans Affairs, and subcommittees for  Department of State and Foreign Operations; Financial Services; Transportation, Housing and Urban Development; and Labor, Health, Human Services and Education.

Quinn is not interested in federal help or retracting benefits.

"One thing we're pushing for right now at the state level is a debt restructuring plan that would allow us to pay our bills right now," Callahan said. "The plan that Gov. Quinn has been pushing for is to get Illinois' financial house in order."

Illinois senior Senate member, Democrat Dick Durbin, did not return calls for comment.