CHICAGO -- Illinois Gov. Jim Edgar's plan to restructure $1.5 billion of the state's outstanding debt to pay overdue Meclicaid bills hit a major snag Wednesday when Democratic leaders in the legislature announced their opposition to the plan.

Illinois House Speaker Michael Madigan, D-Chicago, said Edgar's plan is a "debt payment holiday" that would cost taxpayers at least $200 million in additional interest accordins to Steve Brown, Madigan's press secretary. Madigan formed his position on the plan after holding House committee hearings over the last month, accruing to a press release.

Edgar's plan to pay for the backlog of Medicaid bills to health care providers would retinanee outstanding state debt and defer debt service payments for two years. The plan, which would be tied to Medicaid reforms, would save the state $700 million that would be matched with federal Medicaid dollars to raise a total of $1.4 billion to pay the bills.

"The governor has offered a twoyear Medicaid plan that is full of question marks starting July 1, 1996. I don't think Illinois' credit rating can afford this gamble," Madigan said in a press release.

Madigan added that Edgar's plan to place 1.1 million of the state's 1.4 million Medicaid patients into managed care programs does not guarantee that the state will avert another Medicaid bill backlog in fiscal 1995.

The Dtmocratic opposition to Edgar's plan complicates negotiations to approve a budget for fiscal 1995, which begins July 1. In March, Edgar proposed a $31.5 billion budget that included the debt restructuring plan and other Medicaid reforms.

Brown said Democratic leaders believe that part of $650 million in anticipated fiscal 1995 revenue growth can be used to help pay for part of the Medicaid bill backlog.

In addition, Democratic leaders believe state lawmakers should prioritize needs within the fiscal 1995 budget to help eliminate part of the backlog, Brown said.

"It's a starting point," Brown said.

He noted that Madigan is "hopeful" that prioritizing expenses within the budget could generate $750 million to pay for Medicaid bills, which would be roughly equivalent to the first-year goal of Edgar's plan.

Mike Lawrence, press secretary for Edgar, said that about $340 million of the $650 million of anticipated revenue growth is already committed to court-ordered mandates and other entitlements.

Lawrence said the governor's plan is "very reasonable." Democratic leaders' approach to use part of the revenue growth for Medicaid purposes would only "make a dent" in the overall problem of overdue bills, he said.

In a press release, Dawn Clark Netsch, the Democratic candidate who will face the Republican Edgar in Illinois' Nov. 8 gubernatorial election, agreed with Democratic leaders that the state should use some new revenue growth to pay down its backlog of Medicaid bills.

Netsch called Edgar's budget a "fiscally irresponsible budget based on a bond restructuring that will lead to more unpaid bills and eventually to higher taxes."

Rating agency officials have said that Edgar's plan could work for Illinois as long as it is tied to long-term Medicaid reforms and is not just a one-time revenue measure to eliminate the state's budget problems.

The state's general obligation debt is rated AA-minus by Standard & Poor's Corp. and Aa by Moody's Investors Service.

Robert Kurtter, a vice president in state ratings at Moody's, said yesterday that the rating agency was informed of the Democratic leaders' opposition to the Edgar plan, but has not seen any details on their alternative proposal.

Kurtter said the rating agency is taking a "wait-and-see" stance to determine whether the final state budget and any Medicaid reforms "control Medicaid spending to help eliminate the state's structural financial imbalance."

Moody's will also assess whether the final budget addresses the state's "persistent financial problems," ineluding the deficit, as measured on a generally accepted accounting principles basis, Kurtter said.

Officials from Standard & Poor's could not be reached for comment.

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