Addressing Illinois’ budget problems requires fixing flawed policy
Stop me if you’ve heard this one before: the governor of Illinois walks into a bar and cautions that the state is having fiscal difficulties, so tough budget decisions lie ahead. If that sounds like déjà vu all over again — it is (except for maybe the bar part, but I wouldn’t begrudge anyone serving as this state’s governor the occasional adult beverage). For the vast majority of the last four decades, Illinois has run a deficit in its General Fund. And so it is again.
As Gov. Pritzker prepares to make the FY 2027 General Fund budget proposal next month, his office forecasts that revenue will fall some $2.2 billion short of what’s needed to continue funding the same level of services provided this year, plus cover the growth in the state’s debt service. That’s troubling for four reasons.
First, 95% of all General Fund spending on services covers the core areas of: education — including Pre-K, K-12 and Higher-Ed; health care — primarily Medicaid coverage for low income folks who otherwise wouldn’t have insurance; social services — like caring for the elderly, or abused and neglected children; and public safety. Simply put, Illinois lacks the financial capacity to satisfy its fundamental obligations.
Second, Illinois’ fiscal shortcomings have led to the state disinvesting in those core services over the last two decades. In fact, after adjusting for inflation, aggregate General Fund spending on those services in FY 2026 will be $6.5 billion, or 14.3%, less than in FY 2000.
Third, current service spending levels aren’t adequate to cover existing needs. While space doesn’t permit listing all programs which the data show are inadequately funded, two of the more compelling examples involve education.
Start with K-12. Illinois’ school funding formula ties the dollar amount taxpayers invest in public schools to covering the cost of those educational practices which the evidence show actually improve student achievement. In other words, it funds what works. Unfortunately, as things stand today total K-12 funding is $3.2 billion less than what the evidence indicates is needed to provide a quality education to every child. That’s $500 million worse than the $2.7 billion shortfall last year.
Then there’s Higher-Ed. After adjusting for inflation, General Fund appropriations for Higher-Ed in FY 2026 are 43% less than actual spending was in FY 2000. Disinvesting in Higher-Ed makes absolutely no sense. Consider that, back in 1979, a full-time worker with a bachelor’s degree earned 38% more than a high school grad. By 2020, that wage gap more than doubled to 85%. Underfunding Higher-Ed puts Illinoisans at a competitive disadvantage in the modern economy. Period.
Fourth, and most galling, is lawmakers have known for decades the main driver of the state’s fiscal problems: Illinois’ tax policy is so flawed it doesn’t align with the modern economy. Hence, General Fund revenue consistently grows at a slower rate than what’s needed to cover inflation-adjusted increases in the cost of maintaining service levels from year-to-year. This is a classic structural deficit. Worse, Illinois unfairly over-taxes low- and middle-income folks, while under-taxing the wealthy.
Fortunately, there are textbook approaches available to design the tax reforms needed to simultaneously eliminate the structural deficit and more fairly impose tax burden on people. But for decades politicians have avoided taking the steps needed to fix the state’s tax policy, choosing instead to point fingers and demagogue the issue. That scores political points, but it doesn’t solve problems.
Which means the tough budgetary decision Illinois really needs politicians to make is clear: fix state tax policy to work in the modern economy — so the cycle of deficits and disinvestment can finally end.
• Ralph Martire, rmartire@ctbaonline.org, is Executive Director of the Center for Tax and Budget Accountability, a fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.