Updated 02/22/12 – 7 p.m.

SPRINGFIELD, Ill. (CBS) — In presenting his 2012 budget plan Wednesday, Gov. Pat Quinn said the state’s Medicaid is on the brink of collapse.

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Quinn also said the state cannot afford its pension obligations as they are currently structured.

As CBS 2 Chief Correspondent Jay Levine reports, the governor’s address was a bitter pill to swallow; not interrupted even once for applause. It received only a groan from lawmakers when he told them not to plan on going home this summer until pension and Medicaid reforms are addressed.

“This budget contains truths that may not be what you want to hear,” Quinn told lawmakers.

The governor said previously that he would propose Medicaid cuts of $2.7 billion. In his budget speech Wednesday, Quinn did not specify how this would be achieved, but he appointed a group of state lawmakers to a Medicaid Working Group to reform the program.

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“We must insure that there will be a Medicaid program in Illinois,” Quinn said, noting that the Civic Federation has warned that the state could end up with $21 billion in unpaid Medicaid bills if there is no fundamental reform to the program.

The state’s Medicaid program is used by 2.7 million people in Illinois, and is “on the brink of collapse,” Quinn said.

Last year’s Medicaid appropriation by the Illinois General Assembly fell $1.9 billion short of what the program actually cost, Quinn said.

“Illinois is the only state that intentionally kicks its current Medicaid bills into future fiscal years,” Quinn said. “We cannot allow this to continue.”

Mounting pension costs also have been squeezing every other part of state government, with the state’s vault – still buried deep in the basement beneath State Treasurer Dan Rutherford’s office – now empty. It’s not just because it’s largely ceremonial now, holding unclaimed items, but because, after pension payments, there’s less and less money left for anything else. The state also has billions in unpaid bills that are continuing to pile up.

Quinn blamed previous governors and state legislators for failing to contribute the proper amount into the pension system. He pointed out that some lawmakers awarded taxpayer health insurance benefits to themselves.

“This lack of fiscal accountability has cost us dearly today,” Quinn said.

Republican Illinois State Comptroller Judy Baar Topinka said, “Until you do pensions, until you do Medicaid, then the whole thing falls apart.”

In his budget address to the General Assembly, the governor said, “This year’s General Revenue Fund payment for public pensions is $5.2 billion; triple what it cost in fiscal year 2008.

Quinn, seeking bipartisan support, gave a task force two months to come up with a plan to reform pensions. Rutherford, a Republican, said he called the governor and offered to help.

“If you’re currently working now, what you have accrued is there. It’s the rest of the time you have in the system,” Rutherford said.

Illinois Senate President John Cullerton (D-Chicago) said, “I’m optimistic that we can get a solution.”

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He said he believes current employees’ pension benefits can be altered to lower the cost for the state.

“I know that they can be. We just have to get an agreement from (labor unions) and we have to do it in a constitutional way,” Cullerton said.

One stumbling block to pension reform has long been that the Illinois Constitution mandates pension benefits for government employees “shall not be diminished or impaired.”

Some have argued that that means once pension benefits are set for current employees, they can never be changed. Others have argued it simply means pension changes cannot be applied retroactively.

Of course, everyone knows nothing gets done in Springfield, without House Speaker Mike Madigan (D-Chicago) who can be a little tough to pin down. CBS 2 found him in a back hallway on Wednesday, where he admitted dealing with current employees’ spiraling pension costs is a priority.

“That’s the type of question you have to address,” he said.

Asked if there will be meaningful pension reform in Illinois by the end of the year, Cullerton said, “I would say we have an excellent chance of doing that.”

Pension reform could be a major breakthrough if it happens and, if it does, it could be Quinn’s legacy. The question is, how would it happen?

Sources said lawmakers and others believe it will be much easier to get state employees to agree to contribute more toward their pensions, rather than getting them to agree to smaller benefits down the road.

Quinn’s budget plan also calls for closing more than four dozen state facilities. But the residents and patients at some of those facilities will be vastly better off, according to the governor.

Quinn said improving the quality of life for people who suffer from mental illness or have developmental disabilities should mean moving them “from costly institutions to supportive community settings.”

“Illinois lags behind the rest of the nation in the utilization of person-centered, community-based care,” Quinn said.

Two centers for the developmentally disabled will close, both of them downstate – the Jacksonville Developmental Center, and the Murray Developmental Center in Centralia. Also, as Quinn has announced previously, the Tinley Park Mental Health Center and a mental institution in Rockford will close.

Two prisons – The Tamms Supermax facility and the women’s prison in Dwight, will also close. Two prisons – The Tamms Supermax facility and the women’s prison in Dwight, will also close. Six halfway houses – Crossroads Chicago, West Side Chicago, Decatur, Aurora, Peoria and Carbondale – will also close.

The state Department of Human Services will consolidate 24 local offices, and the Illinois State Police will reduce their 20 communication centers to just four and consolidate a forensics lab in downstate Carbondale with new one in Belleville, among other consolidations.

But Quinn emphasized that there are two obligations that he will not cut in the budget – education, and care for veterans.

Staff will be increased at the state’s four veterans’ homes, and as Quinn said in his State of the State Address last month, he is planning an investment in classroom infrastructure – including modern laboratories, digital books, high-speed Internet access and new school buildings – which he says will create numerous jobs.

Education funding will be expanded across the board, both for college students who help college students who are now finding themselves mired in student loan debts, and to assist families with early childhood education, because after all, “you only get to be a 4-year-ol d once.”

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The governor also advised doing away with tax loopholes that he says are costing the state tens of millions of dollars in revenue. He said , for one example, that when oil companies claim their offshore oil derricks are in other countries, Illinois doesn’t get any jobs, but loses $75 million per year in its treasury.