Illinois missing out on big savings
Adopting a state spending cap could help combat a mounting fiscal crisis.
Illinois faces massive projected deficits, threatening the state’s long term fiscal health.
The Governor’s Office of Management and Budget projects state budget deficits totaling nearly $21 billion during the next five years, with expenditures projected to grow nearly 20% and revenues only 11%.
These estimates could be off by billions of dollars because of the impact of federal changes, such as reductions to federal benefits programs. Still, the forecast sets the stage for lawmakers to raise taxes to make up for the difference.
Rather than do that, the state should implement long-term saving measures, such as a spending cap.
Under such a cap, annual spending cannot increase more than the 10-year average growth of the state’s nominal gross domestic product. That way, increases in spending are tied to growth in the tax base, which could mean limited tax increases.
When spending is restrained, the government can lower taxes while balancing the budget, especially when the economy grows. It’s a simple, sustainable way to responsibly increase spending without constantly asking taxpayers to pay more.
Illinois’ net operating costs — spending on areas such as education, health care and human services that lawmakers directly control — have significantly outpaced economic growth. From fiscal years 2019 to 2026, these costs increased by over 46% while Illinois’ nominal GDP grew 33%. Fiscal 2026 spending would have been roughly $5.4 billion lower than current levels if they had grown in line with the state’s economy since 2019.
The spending growth has already pushed the budget out of balance and is a large contributor to the state’s projected deficit. This growth does not include obligations such as pensions, debt service and group health insurance, which are largely driven by past commitments and require separate structural reform.
The simplest way for lawmakers to ensure responsible spending is to adopt a statutory spending cap to tie budgets to economic growth. The cap would reflect the state’s 10-year average nominal GDP growth, currently about 4% per year because of elevated post-pandemic inflation. Historically, that average has been closer to 3%.
A spending cap is necessary. If one were enacted this year, Illinoisans could potentially spend $17 billion less in fiscal years 2028 to 2031. That money could go toward pension debt or pro-growth projects.
Other reforms could include economic impact studies of regulation and reducing high taxes. These measures and others are discussed in our report Illinois Forward 2027.