CHICAGO (Reuters) - Plans by Illinois Governor Pat Quinn to close seven state facilities and lay off more than 1,900 workers violate the state's agreement with an employee union, an arbitrator ruled on Monday.

Edwin Benn, the arbitrator, cited a 2010 agreement between Illinois and the American Federation of State, County and Municipal Employees Council 31 that prohibits the state from laying off unionized employees until July 1, 2012, when fiscal 2013 begins. Under that deal, the union agreed to $400 million in concessions in return for a guarantee of no lay-offs through the end of fiscal 2012, the ruling stated.

The arbitrator said the state was liable for wages and benefits lost by the 1,680 unionized workers targeted for lay-offs.

Quinn, a Democrat, unveiled the plan in September. It called for the closure of seven mental health and correctional facilities, which the governor said was needed to keep the current state budget from running out of money.

Quinn blamed the Democrat-controlled Legislature for sending him a $33 billion general funds budget for fiscal 2012that locks in spending levels for state agencies but did not appropriate enough money to keep some state services operating.

"This order is unequivocal. Governor Quinn should rescind all threatened lay-offs and closures," said AFSCME Council 31 Executive Director Henry Bayer in a statement.

"Failure to do so will not only harm the vital public services state employees provide, it will expose the state to significant damages for lost wages, benefits and other costs incurred as a result of the governor's irresponsible actions," he added.

Quinn's office said it will fight the arbitrator's ruling in court, which would have jurisdiction over constitutional and statutory aspects of the dispute.

"The actions taken by the administration last month are necessary to manage a budget that underfunded the operational and personnel lines in a number of state agencies," said a statement from Quinn's office. "This ruling does not change the fact that the money to run all these facilities for the entire year was not appropriated by the General Assembly. You can't spend money you don't have."

State lawmakers will be back for an abbreviated session later this month, when they could address budget matters.

Benn in July ruled that the state was required to hike workers' pay by 2 percent in fiscal 2012 after Quinn nixed $75 million in raises, contending the budget did not appropriate the money.

The cash-strapped state still owes billions of dollars for bills and other obligations incurred in fiscal 2011 despite a hike in income tax rates in January.

(Reporting by Karen Pierog; Editing by Chizu Nomiyama)

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