Pritzker proposes record-setting $56 billion budget

Spending proposal features $1 billion in updated revenue assumptions, $589 million in tax and fee hikes and $139 million in fund sweeps.

Gov. J.B. Pritzker outlined his latest spending proposal, increasing state spending to more than $56 billion for the first time in history, despite originally projecting a $2.2 billion shortfall for the coming fiscal year.

The proposed budget is $879 million higher than what the fiscal year 2026 budget is expected to spend. In order to finance that new spending, the Governor is relying on an additional $1 billion in updated revenue assumptions, $589 million in new tax hikes, and $139 million in fund sweeps.

Revenue Changes

$1 billion in upward revisions to revenues

The $1 billion in unexpected revenue comes from updates to preliminary estimates that the Governor’s Office of Management and Budget projected as recently as October. Relying on the updated revenue outlook to balance the budget is a big risk – budget projections frequently fail to reliably estimate revenues, often being off by billions of dollars. Using unreliable revenue projections to balance the budget opens taxpayers to risk of future tax hikes, spending cuts, or both if revenues fail to meet the higher projections.

$269 million corporate tax hike from capping Net Operating Losses

The largest tax hike in the budget is the extension of Illinois’ cap on net operating losses, which will hike corporate income taxes for companies recently losing money by $269 million in the 2027 fiscal year.

Illinois enacted the current cap on net operating losses beginning in the 2021 tax year to avoid large declines in corporate income tax revenue, as many companies began losing money during the pandemic.

That cap is set to expire at the end of the 2026 tax year. Rather than allowing the cap to sunset as scheduled, the governor has proposed to keep adjusting and extending the cap – allowing companies to deduct up to 20% of their current year income in 2027, and increasing it up to 80% over the next three fiscal years.

Net operating loss provisions are an important part of the state’s tax code that ensure businesses are treated fairly when it comes to taxation, regardless of changes in their profitability. Capping these provisions can lead to companies paying far higher effective tax rates than the state’s statutory corporate income tax rate. Because of this, every state tax code and the federal tax code contain net operating loss provisions.

Only two other states – Pennsylvania and New Hampshire – place caps on the amount of losses a business can claim. This burden would be atop Illinois’ corporate income tax rate, the second-highest in the nation.

$200 million in social media fees

The next largest revenue increase will come from a new fee for social media companies with large user bases. The governor is proposing a new fee ranging from $0.10 per Illinois user per month up to $0.50 per Illinois user per month, depending on the number of users each platform has. The governor’s office is projecting that the new fee will generate $200 million in additional revenue. While the governor is attempting to ban companies from passing on this cost to consumers, Illinoisans will ultimately bear the burden of the new fees in the form of higher prices.

$120 million in casino tax hikes

The governor has also proposed increasing taxes on table games at Illinois’ casinos outside of Chicago. The proposal would increase tax rates for table games, which currently range from 15% to 20%, to 15% to 50%. In total, the tax change is expected to cost casinos an additional $120 million in taxes next fiscal year.

$139 million in fund sweeps

Another method for raising revenue in this year’s budget is $139 million in proposed fund sweeps. The governor is suggesting to transfer $79 million worth of sales tax receipts from the sale of candy, soft drinks, and grooming products from the Capital Projects Fund to the general funds during fiscal year 2027.

This one-time measure is not a reliable source of revenue to solve long-term fiscal issues and takes money from the capital fund that is supposed to finance infrastructure projects.

Another $60 million will be taken from the Local Government Distributive Fund by lowering revenue sharing rates with local governments from 6.47% to 6.23% of individual income tax collections. Lawmakers have previously already lowered the revenue sharing rate from 10% in fiscal year 2012.

While lowering the revenue sharing will add more revenue to state funds, it will also put pressure on local governments which are primarily funded via property taxes. Sweeping funds from the LGDF runs the risk of raising property taxes on Illinoisans who already pay the highest property tax rates in the nation.

Spending Increases

$305 million for education

$305 million in spending increases for the Illinois State Board of Education pursuant to the state’s Evidence Based Funding Formula. However, the budget also continues to remove funding from the Property Tax Relief Grant previously awarded to school districts. The 2026 budget discontinued this program, as does the 2027 budget proposal, which would provide state dollars to school districts to offset property tax increases.

$269 million in additional spending with the Centers for Medicare and Medicaid Services

The governor is also projecting an additional $269 million in medical expenditures related to the Centers for Medicare and Medicaid Services. However, no detailed breakdown of the spending was immediately available. It is likely that the increased expenditures are associated with increased Medicaid costs as enrollment has expanded.

$192 million increase in pension spending

While Pritzker has recently advocated for changes to Illinois pension funding plan, his 2027 budget proposal keeps the current funding schedule in place and makes the fully statutorily required pension contribution, which requires the state to increase spending by $192 million next fiscal year. However, the state’s current pension expenditures remain woefully below what the plans’ own actuaries say is needed to pay for the system.

The total 2027 pension appropriations will be more than $5 billion short of what the actuarially determined contribution would be. Without making the full pension payment, Illinois’ budget is inherently imbalanced, despite the governor’s claim.

Illinois continues to lose residents to neighboring states with lower taxes and stronger growth. Businesses face uncertainty and higher costs. Property taxes remain crushingly high. This budget proposal offers no reprieve from the status quo. Rather than relying on risky revenue assumptions, imposing nearly three-quarters of a billion dollars in new revenue measures and nearly $900 million in new spending, lawmakers should prioritize structural budget reforms that would provide long-term fiscal stability

Until Springfield addresses the root causes of Illinois’ fiscal instability, taxpayers will remain stuck in a cycle of higher costs and disappointing results. Pritzker’s latest budget proposal is not a turnaround plan. It’s a continuation of the policies that have kept Illinois lagging behind.