Illinois’ budget on track for deficit as new federal policies create
challenges
[October 11, 2025]
By Ben Szalinski
SPRINGFIELD — Illinois is on track to run a more than $200 million
deficit just three months into the current fiscal year, according to the
Governor’s Office of Management and Budget.
If nothing changes, the deficit is on pace to grow to $2.2 billion when
fiscal year 2027 begins next July.
GOMB released its annual report on Thursday, which includes a five-year
projection for state spending and revenue rates. The report provides an
annual early look at the direction of state finances, though longer-term
windows are notoriously hard to accurately project. In past years,
deficits have been considerably lower than the opening-round projections
of the annual GOMB report.
This year’s report shows lower-than-expected corporate tax revenue,
federal tax law changes and economic volatility are driving a $267
million deficit in the fiscal year 2026 budget.
Overall revenue is projected to decrease $449 million from the amount
anticipated last May, to a total of $54.8 billion. Lawmakers originally
expected $55.3 billion in revenue while they appropriated $55.1 billion
in spending.
GOMB noted some revenue sources are on pace to grow this year, but
uncertainty over tariffs and dwindling consumer spending is keeping
corporate tax returns down. The One Big Beautiful Bill Act — the
domestic policy plan President Donald Trump signed in July — also
included several corporate tax breaks that are set to reduce tax revenue
to the state.
An Illinois Department of Revenue analysis found the federal tax policy
changes could reduce FY26 revenue by $830 million. Many states like
Illinois tie portions of their corporate tax collections to the federal
tax code to make it easier for the state to administer the tax and
easier for businesses to file them.
GOMB is recommending the state decouple from certain parts of the
federal tax code. If that happens, the $267 million shortfall should
largely be avoided, according to GOMB.
House Speaker Chris Welch, D-Hillside, told Capitol News Illinois
lawmakers are already exploring that option for action in the fall veto
session.
Gov. JB Pritzker also signed an executive order last month directing
certain state agencies to reserve 4% of FY26 general fund appropriations
and identify other ways to reduce spending or create efficiencies. The
state also has a $100 million fund it can tap into to cover gaps this
year.
Pritzker’s order triggered some criticism from Republicans, who said
they were sounding the alarm on budget pressures even before Trump was
elected. Last year’s GOMB report, released before Trump’s election,
showed lawmakers faced a $3 billion deficit in FY26 that was eventually
closed, including with the help of $700 million in new taxes.
Senate President Don Harmon, D-Oak Park, defended Democrats’ budgeting
strategy in an interview with Capitol News Illinois.
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Storm clouds overlook the Illinois Capitol in Springfield in 2024.
(Capitol News Illinois photo by Andrew Adams)
“You can’t predict the unpredictable,” Harmon said. “If we were sitting
around navel gazing trying to figure out what the folks in Washington
might do, we still wouldn’t have a budget. We did the best we could with
the information we had.”
Future years become more challenging
Budgeting will become even more challenging for lawmakers in next year’s
spring session as the projected deficit climbs to $2.2 billion.
GOMB’s projections are based on current law, meaning they reflect the
reality if lawmakers make no spending cuts or raise no new revenue.
Even so, GOMB warns “the ability to fund new programs will be severely
limited,” sending an early message to advocates and lawmakers seeking
new or increased state spending that their requests might not be
answered.
The report projects FY31 will see a $5.3 billion deficit, in part
because of federal policy changes that require states to cover a greater
portion of social programs.
Beginning next October, states will have to cover half of administrative
costs for the Supplemental Nutrition Assistance Program, rather than
25%, and start covering a portion of benefits in October 2027. States
like Illinois with a higher error rate on SNAP payments will have to
cover a greater portion of benefits. Illinois’ current error rate would
put it on track to pay $705 million for benefits when the new policy
takes effect.
Medicaid cuts at the federal level also significantly increase pressure
on Illinois’ budget, especially beginning in FY28. GOMB projects health
care provider taxes the state uses to support Medicaid will
substantially decline between FY28 and FY32. GOMB estimates the state
will see federal Medicaid funding decline by $2.8 billion by FY31 unless
Congress restores it or the state provides its own funding.
The Medicaid changes will cost the state between $1.7 billion and $4.5
billion in FY31, according to GOMB. The exact total depends on how much
the state increases spending to fill gaps Congress left in the program.
The Trump administration is also broadly cutting federal grants for
other programs outside the state’s general fund budget, though GOMB did
not have an estimate for how much.
“GOMB expects the state to have a very limited ability to replace lost
federal funding for these specialized state grants and no funding to
replace lost grants made directly to local governments and community
organizations,” the report said.
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coverage to hundreds of news outlets statewide. It is funded primarily
by the Illinois Press Foundation and the Robert R. McCormick Foundation. |
