On Wednesday, February 18, 2026, Governor JB Pritzker presented his proposed Fiscal Year 2027 state budget to the Illinois General Assembly. The $56.0 billion General Funds proposal aims to balance core investments in education and human services with a continued commitment to fiscal responsibility. While the state has made significant fiscal progress—including ten credit rating upgrades and a $2.4 billion Rainy Day Fund—this budget must navigate fiscal pressures stemming from erratic federal policy and the implementation of H.R. 1. For Illinois counties, the following analysis examines how these state-level priorities and federal challenges will impact local shared revenues, public safety operations, and infrastructure development over the coming fiscal year.

Topline Revenue and Expenditure Estimates

The following estimates were used as the baseline for the overall proposed budget.

Projected Revenues: $56.1 Billion

• Total General Funds resources are projected to grow by 1.5% over FY26 revised estimates.
• State Sources ($52.0B): Driven primarily by Individual Income Taxes ($29.6B) and Sales Taxes ($11.1B).
• New Revenue Adjustments: Includes a $200M Social Media Platform Fee for education and a $120M realignment of casino game taxes.
• Federal Funding: Projected at $4.1B. However, the state anticipates a $1.7B negative impact from federal policy changes (H.R. 1), including $339M from tax law changes and $60M from reduced SNAP administration reimbursements.

Projected Spending: $56.0 Billion

• Proposed expenditures represent a 1.6% increase over FY26.
• Primary Spending Drivers: Over 75% of the spending increase is tied to K-12 Evidence-Based Funding (+$305M), Pensions (+$192M), and medical expenditures at CMS (+$269M).
• Pensions: The budget fully funds the $10.7B certified pension contribution.

Key Impacts for Counties

Counties should monitor these specific areas where state policy shifts will affect local operations, costs, and revenues:

Shared Revenues and Economic Development

• Overall Local Government Revenue Sharing: The administration reports that annual income and sales tax revenue sharing with local governments has increased to nearly $4B.
• Infrastructure Investment: The $57.4B Total Capital Budget includes $500M in new bond authorization for downstate road and bridge projects, which directly impacts county-maintained infrastructure.
• Tax Incentives: The proposed EDGE Essentials program would provide payroll withholding benefits to independent grocery stores and pharmacies in "deserts," potentially affecting local retail bases.

Local Government Distributive Fund

The headline policy shift for SFY 2027 regarding local revenues is a proposed "hold harmless" adjustment to the Local Government Distributive Fund (LGDF) diversion percentage. Under current law, the state diverts 6.47 percent of individual income tax collections to the LGDF. For SFY 2027, the Governor proposes adjusting this diversion percentage downward to 6.23 percent. The mechanism behind this proposal is to capture the fiscal benefit of projected growth in individual income tax receipts for the state's General Funds while keeping the actual dollar amount distributed to local governments flat relative to SFY 2026 levels.

This adjustment is projected to net the state's General Funds an additional $60 million in SFY 2027. From the perspective of county government, this proposal ensures that nominal revenues will not decline, but it effectively prevents counties from participating in the organic growth of the state’s primary tax engine during this fiscal cycle. The following table contextualizes the LGDF within the broader state-local revenue sharing framework.

There are at least two caveats that could place LGDF at risk despite the "hold harmless" approach within the SFY 2027 state budget.

The first is the long-term impact of federal H.R. 1 and the state's increasing reliance on one-time revenue adjustments and fund redirections to maintain its $24 million surplus. If federal Medicaid and SNAP support declines as projected, the resulting $1.7 billion annual pressure on the state General Revenue Fund will likely lead to a renewed debate over the LGDF diversion percentage in SFY 2028 and beyond.

A second concerns the proposed Net Operating Loss (NOL) deduction phase-in. Illinois has historically used temporary dollar caps on corporate Net Operating Loss (NOL) deductions to balance its budget. The current cap is scheduled to expire on January 1, 2027. To prevent a massive revenue loss that the state cannot afford, the Governor proposes a phase-in approach to NOL deductions rather than another temporary cap. Under this plan, corporations would be able to apply NOL deductions to their tax liability up to a cap of 20 percent of current earnings in SFY 2027, with the cap increasing to 40, 60, and 80 percent over subsequent years. This is estimated to have a $269 million net impact on General Funds in SFY 2027. Because corporate income tax is a component of the LGDF, the treatment of NOL deductions directly affects the pool of money shared with counties.

Motor Fuel Taxes

A major structural realignment in transportation funding occurs in SFY 2027 due to Public Act 104-0457, which created the Northern Illinois Transit Authority (NITA). This act fundamentally changes how sales tax on motor fuel is distributed.  

Beginning July 1, 2026, the state portion of sales taxes on motor fuel and gasohol, which was previously deposited into the Road Fund, will be shared between the Downstate Public Transportation Fund (15%) and the Public Transportation Fund (85%). This redirection is estimated to total $788 million in SFY 2027.

This move is intended to provide a stable, long-term funding source for regional transit without increasing statewide taxes. For counties, particularly those in downstate regions, the $118.2 million allocated to the Downstate Public Transportation Fund is a vital lifeline for maintaining local bus systems and paratransit services. Furthermore, the local cost-share for downstate transit is being lowered from 35 percent to 20 percent to reflect shifting local tax bases.

While the sales tax portion is being redirected to transit, the standard Motor Fuel Tax Fund (Table III-B) remains a primary source for county road and bridge maintenance. Since the enactment of Rebuild Illinois in 2019, local governments have seen over $800 million annually in additional motor fuel taxes. The SFY 2027 budget plans for a continuation of these allotments, though the specific county-by-county breakdown is typically determined by formulaic adjustments based on vehicle registrations and road mileage.

Health and Human Services (Cost-Shifting Risks)

• SNAP and Medicaid Administration: Federal changes (H.R. 1) are increasing administrative burdens. The state is adding $50M and 450 staff to handle eligibility determinations. Counties that partner in service delivery should watch for similar administrative pressures.
• Home Illinois: This program provides $253.7M for homeless services, including $81.5M for shelters and $50M for court-based rental assistance—programs often administered at the local level.

Public Safety and Criminal Justice

• Clean Slate Act: The state has allocated $5.6M for early implementation costs. Counties will need to coordinate with the State Police on these record-clearing processes.
• Juvenile Justice and Corrections: Funding increases for staffing at state facilities ($103M for DOC, $12M for DJJ) aim to reduce mandatory overtime, which may alleviate some pressures on the broader regional labor market for public safety officers.

Housing and Permitting Reform

• Cutting Red Tape: A planned Executive Order will direct state agencies to review ways to expedite permitting.
• Unlocking Housing: The budget proposes modernizing building codes and utilizing state-funded public transit to reduce parking requirements for developers, which may require counties to adjust local zoning and development standards.

Pension Sustainability

• Buyout Extension: The Governor proposes extending the pension buyout program through FY28. While this addresses state-level debt, the broader stability of the state pension system impacts county credit environments and the overall fiscal health of the region.

Overview of Capital Spending

The Governor's SFY 2027 budget proposal includes a multitude of capital expenditures. 

Transportation and Regional Infrastructure

Transportation remains the largest piece of the capital puzzle, with $30.2 billion in total appropriations.

• Downstate Road and Bridge Construction: A new $500 million bond authorization is proposed specifically for downstate IDOT projects, which will provide critical support for regional connectivity outside of the Chicago metro area.
• Port Development: The budget includes $10 million in capital for grants to ports for administrative functions and to leverage federal matches, alongside existing Rebuild Illinois funding for dock wall rehabilitations and intermodal yards.
• Local Motor Fuel Tax (MFT) Distributions: Counties currently receive approximately $134 million annually in total MFT distributions (including Cook County's $64 million and $70 million for all other counties) bolstered by the 2019 fee increases.

Community and Economic Development Grants

The Department of Commerce and Economic Opportunity (DCEO) oversees $7.8 billion in capital appropriations, much of which is accessible to local governments through competitive grants.

• Public Infrastructure Grants: $200 million is allocated for public infrastructure to modernize local roads, bridges, and sewer/water mains. Individual grants through programs like the CDBG often cap at $1.5 million per project.
• Rebuild Illinois Downtowns and Main Streets: $35 million is proposed to revitalize business corridors. Counties can partner with municipalities on these projects, which have previously funded streetscapes and historic restorations up to $3 million per award.
• Site Readiness and Prime Sites: A combined $165 million is proposed for Site Readiness Illinois ($100M) and Prime Sites ($65M) to help local governments and developers make industrial sites "shovel-ready" for large-scale investment.
• Surplus to Success: An additional $50 million is proposed for CMS to remediate state-owned sites, which can eventually return these properties to local tax rolls.

Water and Environmental Infrastructure

The Illinois Environmental Protection Agency (IEPA) manages $5.9 billion in capital funding.

• Water Loan Program Expansion: A $100 million expansion of water loan programs is proposed. This supports low-interest loans for wastewater, storm water, and drinking water infrastructure.
• Contaminant Mitigation: $90 million is set aside to address PFAS and other emerging contaminants in small and disadvantaged communities.
• Lead Service Line Replacement: The budget continues a massive $1.07 billion commitment to funding lead service line replacements statewide.

Workforce and Education Infrastructure

Area Career Centers: A new $50 million capital grant program, designed in partnership with ISBE, will modernize facilities to create better career pathways for local students. Manufacturing Training Academies (MTA): $20 million is proposed for capital grants to support workforce training partnerships involving community colleges and private industry.

Conclusion