SPRINGFIELD, Illinois (Reuters) - Illinois Governor Pat Quinn presented on Wednesday what he called the most difficult budget in the state's history, saying he was slashing spending on programs such as education to pay the skyrocketing costs of public pensions.
Democrat Quinn, the most unpopular governor in the nation according to one polling firm, proposed a "balanced" operating budget of $35.6 billion in revenue and spending in the fiscal year starting July 1, up just over 3 percent from fiscal 2013.
All of the increased state revenue in fiscal 2014 would be gobbled up by an $929 million increase in pension costs for state workers such as teachers, bringing the cost of pensions to nearly one in every five dollars, according to the budget.
Illinois faces a fiscal crisis with the worst funded state pension system in the nation and the lowest debt rating among the states analyzed by major agencies Moody's Investors Service and Standard & Poor's.
A task force headed by Former Federal Reserve Board Chairman Paul Volcker last October said Illinois also uses opaque budgeting practices that mask the true extent of problems.
Quinn called his budget "balanced and honest."
"There are no gimmicks or fake numbers in this budget," Quinn said in a speech to the state legislature.
But John Tillman, chief executive of the free-market Illinois Policy Institute, said that was an illusion.
"None of the governor's (Quinn's) budgets is balanced or ends with a surplus. All of them had deficits," he said.
Quinn's budget documents showed it would be balanced only by continuing to delay the payment of billions of dollars in bills owed to vendors doing business with the state. The delays have created hardship for services ranging from hospitals to ambulance companies and dentists.
No other state systematically uses the late payment of bills to hospitals, social service agencies and others to the extent that Illinois does to balance its budget, according to the National Conference of State Legislatures.
Quinn set a goal of paying off some $2 billion of the state's backlog of unpaid bills during fiscal 2014, but provided few details of how this would be done.
The Illinois Constitution's balanced budget requirement only stipulates that expenditures not exceed estimated revenue, leaving the door open to the use of unrealistic revenue assumptions and chronic under funding of programs.
Reaction to Quinn's budget was mostly skeptical with many lawmakers and special interest groups, including powerful Democratic House Speaker Michael Madigan, calling into question key assumptions underlying the numbers.
Madigan said the Illinois House of Representatives would not agree to the governor's revenue level and would stick to a cap some $500 million lower at $35 billion.
"We are not going to go over that cap. It will be a difference with the governor," Madigan told a public television station after the budget speech.
Lawrence Msall, president of the government finance watchdog Civic Federation, said Quinn's budget lacked a specific plan to resolve the pension problem.
"There are no roads out of the fiscal crisis except through pension reform," Msall said.
Quinn's proposals to cut education funding to deal with rising pension costs, particularly for teachers, and to suspend corporate tax breaks to raise revenue to pay more bills also drew resistance.
The Illinois Chamber of Commerce blasted as "offensive" his proposals to close business tax breaks.
"It is astounding that Governor Quinn speaks of improving Illinois' business climate and growing jobs while once again seeking to raise corporate taxes by nearly half a billion dollars," the business lobby group said in a statement.
Quinn repeated on Wednesday what he told the legislature last month in his state-of-the-state address - lawmakers must act to rein in the ballooning pension costs.
A coalition of labor unions said it supported ending business tax breaks, but opposed pension cuts.
"It is misguided to blame the modest pensions earned by teachers, police, caregivers and other public employees for harmful cuts to education and essential public services," said the "We Are One" union coalition formed to fight pension cuts.
The Illinois House soundly rejected last week harsh pension measures proposed by Madigan that would have eliminated annual cost of living increases for retired workers, increased the retirement age to 67 and forced workers to contribute 5 percent more to the cost of their pensions.
"I think the time is arrived we start voting on these questions," said Madigan, who added that he proposed the tough measures to underscore to lawmakers the gravity of the situation.
Madigan said he would offer new proposals in the Illinois House on Thursday that would cap the amount an individual can receive in pension payments.
(Reporting By Greg McCune. Editing by Andre Grenon)