Virtually all parts of state government would be forced to cut spending under a budget outline approved by the Illinois House. The measure requires cutting Medicaid by $2.7 billion, or about 14 percent. Spending on services from schools to prisons would fall by about $900 million. The House approved it 91-16 yesterday. Now it goes to the state Senate. The measure calls for paying about $1.3 billion in overdue bills, or about 16 percent of the backlog. It also increases the state's annual contribution to government retirement systems. Democratic Rep.