Pritzker’s 2026 budget poses short-term fixes, sneaks in new “tax hike”
Gov. J.B. Pritzker’s 2026 budget includes record spending, cuts to economic development and overreliance on short-term revenue tricks—including a cleverly hidden tax hike, leaving significant work for the state to reach financial stability.
Gov. J.B. Pritzker unveiled his $55.2 billion budget for fiscal year 2026, a $15 billion increase from his $40 billion budget in 2019. While it’s encouraging he isn’t relying on new taxes, this record-high spending plan loaded with short-term revenue adjustments and revised estimates will keep Illinois’ finances on shaky ground.
For the government to live within its means, as Pritzker claims to support, the state needs responsible, long-term reforms, like capping expenditure growth, right-sizing state employee health insurance costs and reducing administrative bloat across the state’s many school districts.
Letting Illinoisans vote on a constitutional amendment to allow pension reform would stabilize future state budgets, given the projected pension contribution for fiscal year 2025 alone is about $5.1 billion less than the actuarially determined contribution required to properly fund the system and reduce debt.
In November, the Governor’s Office of Management and Budget projected a $56.3 billion budget for 2026, with estimated revenues of about $53 billion and a resulting $3 billion shortfall. Now, the proposed budget projects $1.5 billion in higher revenue and $469 million in revenue “adjustments,” enabling Gov. Pritzker to conveniently side-step difficult budgeting decisions and increase spending by $2 billion from 2025 estimates, an all-time high.
Pritzker’s proposed budget continues Illinois’ overspending problem. Its cuts to economic development and its overreliance on short-term revenue fixes over structural reforms undermine the goals to increase economic investment and avoid new tax hikes.
Below is a closer look at the notable changes in Pritzker’s 2026 budget proposal:
Revised revenue estimates and one-time adjustments
Increased base revenue projections
Pritzker’s budget proposal assumes the state will collect $1.5 billion more in revenue than originally predicted. This is not only a huge jump from estimates made just three months ago, but it also contrasts sharply from the Commission on Government Forecasting and Accountability’s findings from last month, which showed state revenue remaining flat in 2025 compared to 2024.
While Pritzker criticized “magic bean” fixes to Illinois’ budget, this last-minute revenue boost seems to have appeared like a sleight-of-hand trick. If this extra money doesn’t come through, the state will likely raise taxes despite the governor's promise not to.
Delinquent tax payment incentive program
The governor’s budget plan proposes $469 million from various one-time revenue adjustments, including $198 million from implementing a tax amnesty program similar to one in 2020. The program will enable the state to collect overdue taxes faster, without imposing penalties or extra interest on residents and businesses.
While this program will provide short-term revenue, it will not contribute to long-term fiscal stability and may even discourage tax compliance, as some could delay payments in anticipation of future amnesty opportunities.
Pause on transfer of sales tax on motor fuel purchases to the Road Fund
One-time revenue adjustments also include $171 million from delaying the final transfer of state sales tax revenue on motor fuel purchases to the Road Fund. Under the Rebuild Illinois infrastructure plan, these revenues were set to gradually shift to the Road Fund over five years, beginning in 2021.
The Road Fund supports construction and maintenance of roads, bridges and other transportation facilities. Pausing the final transfer is yet another budget gimmick, only postponing payments by a year. Pritzker has touted the need for strong infrastructure investments, yet shorting payments to this fund contradicts that commitment.
Tax hike on table games
Since table games at Illinois casinos are taxed differently than slot machines, the budget proposal assumes $100 million from aligning their tax treatment with the graduated tax structure for slot machines. The new rate doesn’t apply to Chicago, where table games are already taxed at a higher rate. Although this strategy provides a way to generate some revenue without explicitly calling it a “tax hike,” it fails to seriously address the state’s persistent financial challenges and its semantic tricks don’t change the fact that it is a tax increase.
Spending changes
To make up for the projected budget shortfall, Gov. Pritzker’s proposal contains several expenditure cuts and operational efficiencies. Two of the plan’s notable cost-saving measures include cutting health care for immigrant adults and scaling back spending on economic development in the state’s general funds budget. Across other state funds and federal funds, economic development spending is still expected to grow, which could suggest this is another gimmick to balance the budget instead of a spending cut.
Elimination of health care for immigrant adults
The proposed budget eliminates funding for the adult non-citizen health care program in 2026, cutting the $440 million allocated for it last year. However, Pritzker’s proposal includes $110 million for a new health care program for immigrant seniors, aged 65 and older. This will result in net savings of $330 million in next year’s budget.
Cuts to the Economic Development Fund
The 2026 budget proposes cutting economic development funding by $145 million. This decrease comes partly from the state’s projection of higher federal funds to supplement programs compared to the previous year.
Actual spending on these programs has historically fallen short, with 2025 expenditures estimated to be more than $1.7 billion below the enacted budget, and federal funds falling $800 million short. With federal spending expected to slow under the new administration, these programs may face financial problems and struggle to create significant outcomes. Combined with lower general funds appropriations, this could mean reduced investments into economic development overall.
Increased spending
Despite its cost-saving measures, slight increases in revenue estimates and Pritzker’s claims of “hard sacrifices and moderated spending,” the 2026 budget proposal will increase expenditures beyond last year’s budget by $2.1 billion. This will bring the general funds expenditure to $55.2 billion, a new record for the largest budget in state history.
The largest spending categories in the proposed budget are human services at $11.97 billion, PreK-12 education at $11.21 billion, pensions at $10.65 billion and health care $9.36 billion. The largest increase proposed in 2026 will go to pensions, while group health insurance costs are growing the fastest, which are growing much faster than other items in the general funds budget, partly due to the record-setting AFSCME contract approved in 2023.
Under the state’s evidence-based funding formula, PreK-12 education spending will increase by $308 million. This is an increase of $2.9 billion since Pritzker was elected, despite lower total school enrollment. This expenditure increase has also had almost negligible impacts on student outcomes with SAT scores constantly falling over the past eight years. Proficiency levels for 3rd to 8th graders still lag pre-covid levels in math.
Pension funding challenges
Pensions will continue to strain the Illinois budget in 2026, consuming over 19% of the state’s general fund. Illinois’ pension contributions still remain far below the level actuaries deem necessary to make a substantial dent in the state’s pension debt. Payments across all funds are $5.1 billion short of actuarially determined contributions, according to the Commission on Government Forecasting and Accountability.
Illinois already has one of the worst funded pension systems in the nation, with $143.7 billion in unfunded liability. Illinois funded ratio stands at only 46% for its five statewide pension systems. Experts warn pensions with funding ratios below 60% are deeply troubled and plans with funding ratios below 40% are likely to be past the point of no return.
Pritzker also proposed “Tier 2 Social Security Wage Base Adjustments” which are projected to cost the state an additional $78 million in 2026, according to his budget. While lawmakers are currently discussing the need for benefit changes to Tier 2 pensions to comply with Safe Harbor laws, no actuarial testing has proven that any members of Tier 2 pensions are in violation of Social Security Administration requirements that would require these changes to be made.
Budget stabilization fund below target
Billions in federal money and stronger-than-expected recovery in revenues after the pandemic allowed Illinois to rebuild its budget stabilization fund from practically nothing in 2019. However, the fund’s balance will remain insufficient in 2026. As of February 2025, there is $2.25 billion in the budget stabilization fund, placing Illinois second to last in the number of days these rainy-day savings could cover state expenses.
The proposed budget only adds $154 million, only enough to keep the state running for less than 16 days under the $55.2 billion general funds budget. Even Comptroller Susana Mendoza’s own target of 7.5%, or $4.14 billion, would not be enough, covering just over 27 days of state spending.
Experts with the Government Finance Officers Association recommend having enough in reserve to run the state for 60 days. That would require about $9.2 billion in 2026, meaning Illinois would need to nearly quadruple its rainy-day fund to have adequate savings on hand.
Conclusion
Pritzker’s proposed budget includes measures to address immediate fiscal needs, but it ultimately falls short in laying the groundwork for long-term financial stability. From reliance on one-time revenue adjustments to the ongoing strain from underfunded pensions and a dangerously low rainy-day fund, with this budget Illinois’ enduring financial challenges will persist. The governor’s increased spending and proposed cuts to economic development contradict his emphasis on fiscal prudence and economic investment in his budget address.
To control government spending without compromising essential services, the state must implement additional responsible budgeting measures. Realigning health care costs for public employees, who currently pay health insurance costs at half the rate of the private sector, would save the state over $900 million annually. Consolidating Illinois’ school districts and cutting administrative waste, could also save the state more than $226 million without affecting classroom funding.
Utilizing a spending cap linking growth in state expenditures to inflation and eventually to the 10-year average growth rate of the economy would alleviate Illinois’ fundamental problem of spending more than taxpayers’ can realistically afford. Continuous overspending means Illinois will face frequent budget shortfalls and perpetual calls for tax hikes.
Gov. Pritzker’s 2026 budget proposal also continues to leave Illinois’ pension crisis unaddressed. State lawmakers should pursue a constitutional amendment allowing for pension reform, which would secure retirees' benefits, stabilize the budget, and ease financial pressures on businesses and residents. A “hold harmless” pension reform plan, similar to the Illinois Policy Institute’s proposal based on bipartisan 2013 reforms, could help eliminate unfunded pension liabilities while ensuring retirement security.
These aren’t “magic bean” fixes but common-sense strategies to facilitate sustainability and prosperity for Illinois.