Pritzker to present 8th budget as Illinois faces federal funding uncertainty

SPRINGFIELD, Ill. (Capitol News Illinois) — Gov. JB Pritzker will stand in front of the General Assembly on Wednesday in a familiar position: confronting tremendous uncertainty over the state’s financial future.

Pritzker will present his eighth budget as he seeks reelection to a rare third term and becomes a growing national presence as a possible 2028 presidential candidate and one of President Donald Trump’s loudest critics.

The Trump administration has put Illinois and other states whose leaders disagree with his vision in the crosshairs, targeting them for massive cuts to federal funding. In the last two months alone, that has included a $1 billion child care funding cut that’s temporarily been blocked by the courts and $100 million in threatened health care funding cuts.

At the same time, the economy has been shaken by Trump’s tariff policies and Congress passed a sweeping domestic policy bill, known as the One Big Beautiful Bill Act, that will alter the fiscal landscape for states across the country. That measure cuts eligibility for Medicaid and the Supplemental Nutrition Assistance Program, increases administrative costs and reduces what the state can collect in provider taxes.

The ever-changing federal funding landscape presents lawmakers and Pritzker with a murky picture of the future — one that can change as fast as the president can send a social media post or a judge can issue a restraining order.

But the state constitution requires lawmakers to pass a balanced budget, and Pritzker will outline his plan for one on Wednesday.  His annual budget address sets up months of negotiations — mostly between supermajority Democrats. They’ll try to balance their desires to fund programs while revenues — both from the feds and the state’s base sources — are projected to flatten at best.

Rep. Kam Buckner, a top House Democrat budget negotiator from Chicago, said one of the goals of this year’s budget will be to play “defense.”

“It’s hard when the biggest variable in the budget is not something that you can control,” he said, referring to federal funding. “And with this president, the volatility isn’t a possibility; it’s a given.”

Pritzker and his team have already started setting expectations for a conservative budget, telling agency leaders in memos and signaling to legislators that it will be difficult for the state to fulfill funding requests this year.

Federal impacts

The Governor’s Office of Management and Budget estimated in October that lawmakers will have to close a $2.2 billion deficit for fiscal year 2027, which begins July 1. Much of that deficit is driven by the state’s own spending exceeding projected revenue. But GOMB projected changes at the federal level are making the problem more challenging and will further exacerbate deficits in the coming years.

In the short-term, Pritzker’s budget office estimates income tax revenue for the state will be lower because of federal tax code changes and some administrative costs for food assistance programs will be required this year.

Most of the impacts of Trump’s big bill won’t be felt until FY28. But that doesn’t mean it won’t factor into this year’s process.

“You can’t ignore what is coming down the road, and so we should expect and work towards a proactive plan for next year’s gap starting now, not after May, because the gap is being driven by forces that won’t wait for the spring,” Buckner said.

Read more: Pritzker’s new budget report could set tone for conservative 2027 spending plan | Judge blocks Trump’s $10B child care funding freeze that targeted blue states, including Illinois

Dwindling federal funding is already starting to appear in the state’s balance sheets. The Commission on Government Forecasting and Accountability’s January report shows revenue was 3% lower in January compared to the same month in 2025, largely because of decreased federal funding.

Federal funding to Illinois has declined for three consecutive months, though the commission cautioned there could be a variety of reasons for that, such as the timing of payments. In any case, federal funding was 35% lower this January than last and is now down 8% for the year. Overall revenue for the year is still up 3.5%.

Economic conditions

It’s not just federal funding that presents a challenge for lawmakers — the overall health of the economy does as well. A forecast by Moody’s Analytics released last week set an ominous tone: “Illinois’ economy is in a precarious spot,” and a weak economy ultimately makes it difficult for revenue to naturally grow.

“Potential budget shortfalls in Illinois and the city of Chicago mean lawmakers may need to consider a mix of revenue enhancements and spending adjustments, measures that could ultimately stifle consumer spending,” the report said.

The forecast predicts employment will not grow or decline, and the economy will grow at a slower rate than other states because of outmigration, a shrinking tax base, and a massive long-term pension liability. Additionally, tariffs are hurting the state’s manufacturers, and rural areas are suffering from both tariffs and higher farming costs.

“Illinois has a lot at stake, given its reliance on manufacturing and logistics and its above-average exposure to foreign trade,” the report said.

Moody’s said the results of Trump’s big bill will be mixed by region, but the overall impact of the policy will be negative because it weakened social services.

More broadly, Moody’s notes an artificial intelligence bubble in the stock market could burst and trigger a recession.

Health care costs to balloon

Lawmakers could also consider taking proactive steps to absorb new health care costs and cuts set to take effect in the coming years.

Under a provision in Trump’s big bill — one that applies only to states like Illinois that expanded Medicaid eligibility under the Affordable Care Act — a 6% cap on the tax Illinois can charge health care providers will gradually be cut starting in FY28 until it reaches 3.5% in FY32.

Read more: Illinois Medicaid program faces looming funding crisis due to federal changes

When the lower cap is combined with a decline in federal aid for Medicaid, the state could lose $1.7 billion annually by FY31, according to the governor’s budget office.

The impending limits on Medicaid provider taxes will pose a significant challenge for lawmakers who will either have to find some other way to pay the state’s share of the cost or adjust the program to fit within the new fiscal constraints.

Since the federal changes do not take effect for another year, it is possible lawmakers will not feel pressure to take immediate action in the upcoming legislative session.

Current-year changes

The October GOMB report also revealed the state was on track to run a small deficit in the current fiscal year ending June 30, largely because the state’s income tax code was tied to the federal level and Congress made changes that will ultimately lower tax revenue flowing into Illinois.

In response, lawmakers decoupled the state’s tax code from the federal government in certain areas, which GOMB expects to reduce the deficit by $243 million. The state still faces a $587 million deficit because of the federal tax changes.

Pritzker has also asked several state agencies to reserve nearly $500 million in spending because of uncertainty over how revenue will shake out as federal funding remains in flux. The reserves largely focus on cost savings, such as forgoing hiring in certain agencies for the remainder of the fiscal year, reducing available grants and saving money on health insurance costs.

In the last two budgets, Pritzker and lawmakers have also relied on targeted tax increases. Though the FY26 budget ultimately amounted to a $2 billion spending increase, most discretionary spending outside core areas increased by less than 1%. Pritzker also warned lawmakers last year that if they want to increase spending for a certain program, they must come up with a corresponding cut. Pritzker has also opposed broad tax increases, such as statewide sales and income tax hikes.

Senate Republican Leader John Curran, R-Downers Grove, said at a news conference earlier this month that he expects limited spending to continue in this year’s proposal.

“You saw the rollback on the health care for working-age population for undocumented immigrants last year,” Curran said.

The Health Benefits for Immigrant Adults program was launched in 2021 and covered qualifying individuals aged 42-64 but was ended in this fiscal year’s budget because it far outstripped initial estimates.

“That was something that the governor, in his budget address, readily admitted that it was a mistake to go down that road, and the state could not afford that,” Curran said. “So I think that process already started last year. I expect that to continue this year in this budget.”

What lawmakers want

A group of progressive Democrats want to raise taxes substantially to fill gaps in the budget. The $4 billion tax package calls for taxing the appreciation of billionaires’ assets, a 10% tax on digital ads, increasing taxes on corporations’ offshore earnings, and closing loopholes in the corporate tax code.

Lawmakers said at a news conference earlier this month that the taxes are necessary because businesses and wealthy Americans have benefited from tax policies in Washington.

“If we don’t fight back with taxing the ultra-wealthy, we’re going to continue to chop services in order to balance budgets,” Sen. Karina Villa, D-West Chicago, said.

Speaking to CNI, Buckner said any new revenue must be reliable for the state beyond one year and fair to taxpayers so they “are not the default state ATM.”

“We got to create some certainty in this chaos and that means that we have to build a budget that can take a hit without passing the pain straight to families, hospitals, schools and local governments,” Buckner said.

Rep. Amy Elik, R-Godfrey, who leads budgeting for House Republicans, framed concerns about federal funding differently.

“In my opinion, it is always volatile because you are relying on another level of government with programs that they may begin or end,” Elik told Capitol News Illinois.

Elik said Republicans are worried Democrats will go to the taxpayers’ well for more money.

“They’re not even ashamed or embarrassed anymore to say we need to raise taxes,” Elik said. “And so when they’ve got so many people on board with that theory and concept, I’m very, very concerned.”

Republicans in the House have largely been shut out of budget negotiations for several years and Elik said she doesn’t expect this year will be different, adding Republicans won’t agree to vote for a budget before it is completed.

The House Democratic Women’s Caucus said in a statement they are hoping to see the governor boost funding for social services that have been cut at the federal level and are “open to potential revenue options that do not negatively or disparately impact the vulnerable populations we represent.”

(Reporting by Ben Szalinski, Capitol News Illinois)

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.

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