Illinois to withhold nearly $500M in spending, citing federal uncertainty

Gov. JB Pritzker’s office plans to hold back nearly $500 million in spending for the current fiscal year as the state faces uncertainty over the economy and federal funding.

The reserves make up less than 1% of the state’s budget and largely focus on cost savings such as forgoing hiring in certain agencies for the rest of the fiscal year, which ends June 30.

Pritzker had directed agencies to “identify immediate spending reductions, including efficiencies that will result in reduced spending” in a September executive order.

Alexis Sturm, Pritzker’s budget director, said in a memo to the state’s agency directors that the reserves aim to provide cushion for challenging budget years ahead.

“We expect that most agencies will not see their funding requests fulfilled — and continued fiscal management in Fiscal Year 2026 will help ensure the ability of the State Agencies to face the challenges expected over the next few years,” Sturm said in the letter. “Prioritizing and limiting hiring and other operational expenditures will be key.”

In total, the reserves target $482 million in fiscal year 2026.

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While Pritzker’s September order directed the agencies to identify ways to reserve 4% of fiscal year 2026 General Fund appropriations, those announced Thursday amounted to less than 1% of the $55.1 billion budget.

A senior administration official told Capitol News Illinois the 4% goal was designed to be a target for agencies, rather than a mandate. The official stressed that the agencies cannot cut spending as the funds are appropriated by the legislature, but agencies can keep funds in reserve.

The executive order was specifically in response to the One Big Beautiful Bill Act, officially known as H.R. 1, that President Donald Trump signed last July. The law made significant changes to tax policies, health care coverage and how much funding states will receive from the federal government for social service programs. Pritzker’s budget office estimated in October the law will cost Illinois billions in the coming years.

What’s changing

Most of the reserves were earmarked for health care and human services.

Pritzker’s administration also does not plan to release $29.5 million in funding for higher education that was already reserved in the budget.

Sturm’s memo noted another $10.3 million in reserves through grant reductions and other measures at the Department of Commerce and Economic Opportunity, as well as environment and culture agencies like the Department of Agriculture and the Illinois Arts Council.

The state will also limit overtime and travel expenses, and leave vacancies unfilled at certain agencies. Another $50 million would come from group health insurance savings.

Major spending areas such as K-12 education and pensions are not subject to the September executive order or the recently announced reserves.

Pritzker is set to deliver his budget address Feb. 18, and the senior administration official said lawmakers should not be surprised to hear a conservative approach to budgeting and an emphasis on tough choices.

In October, Pritzker’s budget office projected a $2.2 billion deficit for fiscal year 2027. Sturm said the financial outlook “has not changed significantly since last fall.”

A report published in early January by the legislature’s Commission on Government Forecasting and Accountability found state revenue is up nearly 5%, or $1.2 billion, through the first six months of FY26 compared to the same period in FY25.

However, an official said Pritzker’s administration expects the financial situation could worsen, particularly as parts H.R. 1 take effect and the economy remains volatile.