* Pensions will eat up $5.2 billion
* Budget allocates $1.3 billion to pay bills
* Governor seeks more funding for children
By Karen Pierog
CHICAGO, June 30 (Reuters) - Illinois Governor Pat Quinn said on Saturday he signed a $33.7 billion budget for fiscal 2013 after vetoing spending for prisons that he plans to close.
Quinn said public pensions, which lawmakers have so far failed to reform, will eat up $5.2 billion of the fiscal 2013 budget, compared to $1.8 billion in fiscal 2008.
"We simply can't afford this. The squeeze is on," Quinn said, vowing to have "meeting after meeting" with lawmakers to get a deal on pension reform in the future.
The Democratic governor said he also planned to work with lawmakers later this year to reallocate the vetoed prison funding to the Department of Children and Family Services, which lawmakers cut by $50 million.
He said he was choosing vulnerable children over "outdated, half-full facilities."
Quinn said the new spending plan, which aims to save $82 million through the closure and consolidation of 57 state facilities, makes progress on fixing Illinois' ailing finances by cutting spending, paying bills and reforming Medicaid, the state and federally funded healthcare program for the poor.
The budget for the fiscal year that begins on Sunday allocates $1.3 billion to the payment of overdue bills, according to Quinn.
Illinois will end fiscal 2012 on Saturday with about $8 billion in bills owed for Medicaid and other services, as well as for corporate tax refunds and employee health insurance, State Comptroller Judy Baar Topinka's office estimated.
MEDICAID REFORMED, NOT PENSIONS
Quinn earlier this year called on lawmakers to pass reforms to Medicaid and employee pensions to stop the two from consuming even more than their current 39 percent of state general fund spending.
Illinois' Democrat-controlled General Assembly approved a package of bills to reduce Medicaid spending by $2.7 billion, but failed to agree on a plan to ease Illinois' $83 billion unfunded pension liability, one of the largest among the states.
While reforms continue to be studied by legislative leaders and the governor's office, House Republican Leader Tom Cross on Friday said he planned to convene a meeting of his chamber's Pensions Investments Committee in the coming weeks to examine how recently approved accounting standards will effect the state's pension liability.
"According to the Pew Center on the States, Illinois has the worst funded pension plan in the nation and the new (Governmental Accounting Standards Board) standards will exacerbate the unfunded liability," Cross wrote in a letter to Democratic House Speaker Michael Madigan.
He said some experts have speculated the new standards could push Illinois' $83 billion unfunded liability up by as much as $40 billion.