By Karen Pierog
(Reuters) - Illinois Governor Pat Quinn on Wednesday said the state must make changes to its pension system and to Medicaid this year, while also insisting that spending cuts alone will not fix the state's budget.
A financial watchdog group recently forecast that Illinois' pile of unpaid bills will quadruple to $35 billion in five years, while Moody's Investors Service cited inaction on pensions and unpaid bills last month when it cut the state's credit rating to A2, the lowest rating level among the states it rates.
"While we have downsized Illinois government more than ever before, we continue to face very difficult decisions to restore financial stability to our state," Quinn, a Democrat, said in his State of the State address to the General Assembly.
Further changes to pensions need to be "meaningful, constitutional and fair to the employees who have faithfully contributed to the system," Quinn said, adding that a pension working group would propose changes that could be enacted this year.
Illinois's unfunded public pension liability of $83 billion, along with escalating costs for Medicaid, the health-care program for the poor funded jointly by states and the U.S. government, have been major factors eroding the state's finances.
The Civic Federation, a Chicago-based government watchdog, had projected a rise in the state's bill backlog to $35 billion if the state fails to address pensions and Medicaid.
Details of the governor's plans may be revealed when he lays out his fiscal 2013 proposed budget on February 22.
In Wednesday's speech, Quinn said the state must take action beyond spending cuts.
"We must build and grow our Illinois economy like never before to keep Illinois moving forward," he said.
Quinn proposed eliminating the state's natural gas utility tax paid by businesses and residents and creating tax credits for taxpayers with children and for businesses that hire military veterans.
State Comptroller Judy Baar Topinka, a Republican, compared those ideas with "putting dessert on the table before the vegetables."
"We must get our fiscal house in order before we can even talk about more tax breaks and incentives," she said in a statement.
(Reporting By Karen Pierog; Editing by Leslie Adler)