Pritzker signs $55.1B state budget reliant on $700M of new taxes

SPRINGFIELD, Ill. (Capitol News Illinois) – Gov. JB Pritzker signed Illinois’ fiscal year 2026 budget into law Monday, taking shots at President Donald Trump’s budget management to defend hard choices state lawmakers were forced to make this year.

The $55.1 billion spending plan set to take effect July 1 is the largest in state history and is supported by $55.3 billion in anticipated revenue, including more than $700 million in new taxes and more than $500 million in one-time revenues.

Democrats approved the budget shortly before midnight on May 31 with only a handful of Democrats opposing it and all Republicans unanimously voting against it.

The budget’s passage came after months of discussion about closing an initially projected $3 billion deficit and growing concerns about Trump’s treatment of state funding in Washington. Pritzker, a possible 2028 presidential candidate, used Monday’s budget signing ceremony in Chicago as an opportunity to draw a contrast between his and Trump’s budgets.

“While the Trump administration goes on Fox News lying about being fiscally responsible, Illinois is showing a better way: Balancing the budget while maintaining the programs that most people rely on,” Pritzker said.

“Congress is about to pass a federal budget that has one of the largest budget deficits ever in a year without a war or a pandemic. By contrast, Illinois is balancing its budget and prudently improving its fiscal condition,” he said.

Pritzker and other Democratic leaders acknowledged that crafting the FY26 budget was challenging but continues to make investments Democrats believe are priorities. Discretionary spending will increase by less than 1% in FY26, Pritzker said. Despite the minimal increase, the FY26 budget still spends about $2 billion more than FY25.

Democrats “ace the challenges and uncertainty head on, and the result is a budget that is truly balanced with no gimmicks,” House Speaker Chris Welch, D-Hillside, said.

But that’s not how Republicans view the budget’s fund sweeps and delayed transfers that free up hundreds of millions of dollars that can be used in FY26.

“This approach sets Illinois up for failure by FY27 and continues a pattern of short-term thinking,” House Minority Leader Tony McCombie, R-Savanna, said in a statement.

Senate Minority Leader John Curran, R-Downers Grove, condemned lawmakers for failing to deliver significant tax cuts since Pritzker took office in 2019 when Illinois’ budget totaled about $40 billion.

“You know it’s a bad budget when it’s based on nearly $1 billion in tax increases and enhancements,” he said in a statement.

The governor also used his broad authority to reduce a pair of technical errors in the budget. The changes lower spending by $161.2 million from what lawmakers passed.

Tax increases on tobacco and vape products, businesses

The tax plan will raise $709 million in new revenue through what House Majority Leader Robyn Gabel, D-Evanston, characterized as “smart new sources of revenue.” They include new taxes on businesses, sports betting and tobacco and vape products, according to a list provided by the Senate Democratic caucus.

The budget will not raise personal income, corporate income or sales taxes after Pritzker told reporters that he will veto any budget containing “broad-based” tax increases just days before the bill passed.

The largest sum of new taxes – $336 million – are on businesses outside of Illinois that lawmakers call “leveling the playing field” and will require businesses to pay more income tax to the state on their profits.

Consumers will face new taxes on specific items, including taxes on tobacco, vaping and other nicotine products, which are increasing to 45% to raise $50 million. An existing telecommunications tax will also rise from 7% to 8.65% and raise $49 million to fund the statewide 988 hotline.

A new tax on sports bets will charge betting sites 25 cents for the first 20 million wagers and 50 cents for each bet following that. It’s projected to raise $36 million. Sports betting sites FanDuel and DraftKings have both announced they will implement 50-cent transaction fees on Illinois customers in response to the tax.

Short-term rentals will have to begin paying the state’s hotel operator’s tax. The charge is already applied to hotels in the state, and Airbnb already pays it voluntarily, but more companies like Vrbo will now be required to pay the tax expected to raise an additional $10 million.

A pair of tax amnesty programs are expected to raise $228 million. Those programs are meant to incentivize taxpayers to pay overdue taxes.

Fund sweeps, delayed transfers free up more for spending

The budget deploys a series of tactics designed to free up more money for spending in the general fund in FY26 without repeating as a revenue source for the following year’s budget.

It suspends the monthly transfer to the “rainy day” fund for one year, freeing up $45 million for general fund use. Pritzker has taken pride in the fund’s increase in recent years as it’s grown to a balance of $2.3 billion, up from less than $60,000 when he took office. The fund is still estimated to grow by $161 million from interest and contributions from other funds in FY26.

The state will also pause the final transfer of motor fuel sales tax revenue to the road fund in order to free up $171 million. That scheduled transfer was set in motion by the state’s 2019 infrastructure plan, with the sales tax supporting bond debt taken out to complete road and bridge projects. This year was to be the final year of incremental transfers that took place over the past five years.

The budget package also establishes a new $100 million BRIDGE fund that the governor can tap into “in the event of unanticipated delays in or failures of revenues.” The measure, an apparent nod to the uncertainty of federal funding amid ongoing congressional budget negotiations, will come from money swept from 57 different funds.

When combined with the tax amnesty program, the fund sweeps and delayed transfers add up to at least $544 million of one-time revenue in this year’s state budget that will not be available in FY27.

Health and Human Services

The most notable change to health care funding is the elimination of the Health Benefits for Immigrant Adults, or HBIA, program that provided certain low-income noncitizens between ages 42 and 64 with state health care benefits akin to Medicaid. Eliminating the program saves the state $330 million, but the $110 million Health Benefits for Immigrant Seniors, or HBIS, remains in place.

“This was part of the challenge that we had to address,” Pritzker said. “It was a program that had been growing significantly in cost. I do believe that everybody should have health care. I also know that we have to live within our means in the state of Illinois.”

HBIA’s elimination comes after a recent audit found the two programs have cost the state at least $1.6 billion since their inception, far exceeding original estimates for the program. Last year, the state put new guardrails in place to limit enrollment into the programs and reduce costs through co-pays and other measures.

HBIA’s elimination also comes as Congress debates a domestic policy plan that could reduce reimbursements to states that provide health care benefits to noncitizens.

In anticipation of broader reductions to health care and Medicaid reimbursements to the state, Illinois lawmakers also increased spending on other health care and social service programs:

$40 million for Federally Qualified Health Centers. These centers could provide care for people who lose coverage under HBIA turn.
$18 million from the General Revenue Fund for five safety-net hospitals in the state’s Medicaid managed care program. Another $100 million from Fund for Illinois’ Future will go to support the Medicaid managed care program at 12 other safety net hospitals.
$60 million for administrative expenses for the Supplemental Nutrition Assistance Program. That’s a $20 million increase from FY25 as Congress has proposed requiring states to cover half of administrative costs.
$263.7 million for HOME Illinois, a program created to reduce homelessness in Illinois. Housing advocates calculated that between Home Illinois and other housing line items, the budget includes $354 million in funding. That’s about a $14.6 million decrease from a year ago, which marks about double of what Pritzker proposed cutting in homelessness funding in February.
An 80-cent hourly wage increase for direct service professionals who service individuals with intellectual and developmental disabilities in community care settings. However, overall flat funding for the program means 305 positions in the program will be eliminated, according to the They Deserve More coalition. Community Care Program workers at the Illinois Department on Aging will receive a 75-cent hourly wage increase.
A new $25 million Prescription Drug Affordability Fund to support certain pharmacies in Illinois in competition against larger pharmacy benefit managers.
$15 million for the Medical Debt Relief Pilot Program that purchases medical debt from patients at a fraction of the total debt.
A $4 million increase for the Department of Children and Family Services aimed at hiring 100 additional staff members.
A child tax credit created in 2024 at 20% of the Earned Income Tax Credit will double to 40%.

Education

The state’s evidence-based funding model for K-12 schools calls for $350 million in additional funding each year, with a portion of that going to a property tax relief fund and the rest directly to schools. The proposed budget fully funds the K-12 education increase at $307 million but does not add $43 million in property tax relief funds.

Funding for higher education operational expenses is only going up 1%. Pritzker had proposed 3%. Democrat budget leaders have said the spending plan includes ways to increase funding by an additional 2% if there are significant cuts in federal funding for higher education, however.

The budget also includes:

A $10 million increase to the Monetary Award Program grants for lower-income college students.

$8 million for a minority teacher scholarship program.

$2.9 million for the state’s Common App initiative to make it easier for high school students to apply to Illinois colleges and universities at one time.

$212 million for Pritzker’s Smart Start early childhood education program.

$21.7 million for the newly created Department of Early Childhood

Others spending areas

Part of the budget package created a new Tier 2 reserve fund that can be accessed if there are violations of what’s known as the federal “safe harbor” law. Lawmakers appropriated $75 million for the fund this year, in line with Pritzker’s proposal. Broader reform to Tier 2 was not considered this spring.

“With this fix going into effect, we’re protecting our taxpayers and state workers from future shortfalls that could cost the state much more,” Pritzker said.

Attorney General Kwame Raoul is receiving a $15.7 million general fund increase as his office engages in a growing number of lawsuits against the Trump administration. Raoul told lawmakers he needs more attorneys to handle the cases and a generally growing workload in his office. However, because of declining revenue in other funds, total funding for the office largely remains flat in FY26.

The budget sent to Pritzker included a 5% pay raise for state lawmakers, to $98,304. State law sets the pay for legislators to increase annually with inflation, and lawmakers took no action to stop it from occurring in FY26.

The budget also includes:

$500 million for the Department of Central Management Services and Department of Commerce and Economic Opportunity for the Surplus to Success program to prepare idle state properties for economic development.

$17.9 million for the Department of Financial and Professional Regulation to implement a new licensing system

$40 million for immigrant Welcoming Centers

$6.2 billion for Department of Transportation construction projects, including $4.5 billion for roads and bridges.

(Reporting by Ben Szalinkski, 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.

Pritzker signs $55.1B state budget reliant on $700M of new taxes

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