Deputy governor warns state has limited ability to increase spending
By BEN SZALINSKI
Capitol News Illinois
bszalinski@capitolnewsillinois.com
Article Summary
Illinois’ new budget offices lowered revenue projections for the upcoming fiscal year on Wednesday, citing growing economic uncertainty.
The news comes as lawmakers are looking to finalize the fiscal year 2027 budget with less than three weeks left in the legislative session.
Deputy Gov. Andy Manar warned the revisions show the state has little room for new spending beyond what Gov. JB Pritzker proposed in February.
Rising unemployment could limit growth in personal income taxes while rising prices are making consumers more cautious, which could lead to lower sales tax collections.
This summary was written by the reporters and editors who worked on this story.
SPRINGFIELD — Growing pessimism over the direction of the global economy is leading budget analysts for the governor’s office and Illinois’ legislature to temper revenue expectations less than three weeks before lawmakers are set to finalize a new budget.
Both the governor’s budget office and the General Assembly’s Commission on Government Forecasting and Accountability revised revenue projections for the current year and fiscal year 2027 down by less than 1%. While the change is small and generally keeps budget talks on track, it’s a sign that confidence in the economy is waning.
Deputy Gov. Andy Manar, who leads budgeting for Gov. JB Pritzker, said in a statement “the revised revenue estimates show that the overall fiscal picture in Illinois has substantially remained the same since February, heading into the final weeks of this legislative session.”
But he said it also “underscores the state’s need to remain focused on fiscal discipline as the entire country is forced to continue to grapple with economic and geopolitical uncertainty that the Trump Administration is creating.”
The forecasters revised estimates downward after S&P Global’s April economic forecast came in less optimistic than the January report that was used to craft Pritzker’s budget. GDP is now expected to grow 2.1% in 2026 compared to 2.3% that was forecast in January.
Citing the ongoing war in Iran, S&P increased the likelihood of its downside scenario, which would include higher energy prices and declining consumer demand.
It all leaves Manar with a warning for lawmakers, including many Democrats who have sought spending increases.
“The latest estimates shows that our ability to increase spending beyond the Governor’s introduced levels is limited,” he said.
Estimate reductions
Pritzker’s budget office decreased its FY27 revenue projection by $173 million to $55.9 billion. The change leaves projected revenue $149 million short of the spending Pritzker proposed — provided lawmakers approve the measures Pritzker proposed in February to bring $728 million in new revenue. That includes a tax on social media companies based on how many users they have in Illinois. The other funds would come from adjustments to caps on operating loss deductions and table and electronic gambling games.
The reduction is a small amount in the context of the massive state budget but underscores how little flexibility lawmakers have in crafting a budget to take effect July 1.
COGFA revised its FY27 projection down by $190 million to $55.3 billion. That doesn’t include Pritzker’s proposed revenues, meaning COGFA’s estimate is actually about $180 million more optimistic than the governor’s office.
COGFA notes that sales tax collections have slowed in recent months in the state, causing them to lower expectations by $67 million for the upcoming year. A state law passed last year to plug holes in public transit agencies’ budgets also requires that the state appropriate more sales tax revenue from motor fuel sales to public transportation, reducing the total amount of sales tax revenue available for General Fund spending.
"I’m hearing from the retail industry, in fact just in the past quarter, sales are down – prices remain high, but actual volumes are down,” Sen. Mark Walker, D-Arlington Heights, said. “I looked at everyone’s forecast for next year’s sales tax – I still think they’re optimistic and so I would be concerned.”
Year-over-year inflation rose to 3.8% in April, according to the U.S. Department of Labor, which is the highest rate in three years. COGFA Revenue Manager Eric Noggle acknowledged there is a lot of uncertainty surrounding sales tax revenue as prices rise and consumers adapt.
"As prices rise, as inflation goes up, you’re going to bring in more sales tax revenue,” he said. “But if there’s fewer products being purchased, that’s going to start to offset.”
COGFA is monitoring changes to employment levels that could impact how much the state receives from personal income taxes. Unemployment has been on the rise in Illinois, hitting 5.1% in March, according to the Department of Employment Security. S&P’s April forecast expects unemployment will peak in early 2027, rather than in early 2026 as was expected when Pritzker introduced his budget.
"It’s not what you really want to see when you’re thinking about personal income tax growth,” Noggle said. “The saving grace that we’ve seen though is wages have been up.”
Amnesty tax revenue the state used to balance the FY26 budget is also not expected to continue in FY27, Department of Revenue Director David Harris told a Senate committee on Wednesday. He said that brought in about $250 million to the general revenue fund this year.
Lower expectations for transfers to the General Fund caused the largest decrease in COGFA’s expectations for the upcoming budget, in large part because the state expects to pay more in income tax refunds. Federal funding is also projected to decrease.
But with interest rates no longer expected to decrease soon, COGFA expects other revenue sources will collectively perform $133 million better than previously expected thanks to more revenue from interest. Sen. Rachel Ventura, D-Joliet, also met the news cautiously.
"Since it’s our job to have a sustainable budget moving forward, when I see a bunch of shifting, weakening numbers, and only one holding up the fort, I don’t like to put all my eggs in one basket,” Ventura said.
The impact of high gas prices remains a wild card.
"There’s a lot of uncertainty and we can’t pretend otherwise; we’re just going to have to take it day by day,” Department of Revenue Chief Economist Rubina Hafeez said.
Alignment on current year expectations
Revenue has outperformed expectations in the current fiscal year. The budget lawmakers approved last year was expected to bring in $55.1 billion in new revenue, but the governor’s office now estimates that will land at $55.7 billion with COGFA even more bullish at $55.9 billion.
Most of that has been driven by better-than-expected personal income tax revenue, which is up 4.2% through April so far in FY26.
But even though sales tax receipts have been up 4% so far this year, COGFA sees signs of that slowing. The source has increased by only 2.1% since January and the commission now expects the state will receive $64 million less than expected in its March forecast. The governor’s office made a similar revision.
Lawmakers are expected to pass a budget on May 31.
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.
