Bruce Rauner (AP/Seth Perlman)

Bruce Rauner (AP/Seth Perlman)

SPRINGFIELD, Ill. (AP) — Illinois’ new Republican governor on Wednesday will pitch a plan for fixing the state’s budget mess that includes deep cuts to Medicaid and higher education and a new plan for reducing pension costs, according to three lawmakers with knowledge of the proposal.

Gov. Bruce Rauner is set to deliver his first budget address since campaigning on a pledge to reduce taxes and get state spending under control and beating a Democratic incumbent.

Three months after his election, Rauner’s budget blueprint will be among the first concrete tests of whether the first-time Republican officeholder can begin to bring the change he has promised to one of the last Democratic strongholds in the Midwest.

But keeping his promises could prove more difficult than last fall’s bitterly fought campaign. Illinois faces a budget hole of more than $6 billion next year. The state also has the nation’s worst-funded public pension system, with a shortfall of $111 billion. The bleak budget picture has led major credit agencies to give Illinois the worst credit rating of any state in the U.S.

And many of Rauner’s proposals are likely to face opposition from Democrats, who hold veto-proof majorities in both chambers of the Legislature and already are preparing to fight major cuts to social services, colleges and universities and the health insurance program for low-income and disabled people.

The three legislators, briefed on details of the plan discussed in a Tuesday meeting between Rauner and legislative leaders, told The Associated Press that the governor will recommend cutting Medicaid by $1.5 billion and reducing funding for higher education by nearly $400 million, or 31 percent. They said he’ll also propose reducing state aid to local governments and ask lawmakers to approve a new pension reform plan he says will save Illinois $2.2 billion.

The lawmakers spoke on condition of anonymity because they weren’t authorized to pre-empt Rauner’s budget address. Rauner’s spokesman declined to comment.

House Speaker Michael Madigan, a Chicago Democrat who was briefed by Rauner, said the governor warned he’s prepared to deliver some “tough medicine.”

Madigan and other Democrats want to raise Illinois’ income tax rate, which dropped on Jan. 1 from 5 percent to 3.75 percent, to avoid some spending cuts. But he said Rauner indicated he won’t propose raising taxes.

“I don’t think you can cut your way out of the problem,” Madigan said. “I think you need some additional revenue, and that’ll be my position (Wednesday).”

Rauner, a multimillionaire former private equity investor, said earlier this month he’d like to move all state workers to a 401(k)-style retirement plan, or to a less-generous pension plan lawmakers approved in 2010 for employees hired after Jan. 1, 2011.

Projected savings from any pension changes aren’t likely to be realized in the next fiscal year, however. Even if Rauner could get a bill through the Legislature, the state’s powerful labor unions – with whom Rauner has clashed repeatedly since taking office – would challenge it in court.

A Rauner administration official said Tuesday the governor will call for hiring more prison guards and spending more money on mental health care for inmates. The official spoke on condition of anonymity because the person was not authorized to speak publicly before the noon speech.

The mental health funds are aimed at meeting a federal court mandate that requires Illinois to improve its services, while the official said hiring more than 470 new prison guards would reduce overtime costs by about $10 million.

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