Government Affairs Roundup for 2.25.26

Chamber members:

Thanks to all that attended and/or supported our Annual Dinner last evening. It was quite a celebration!

Lawmakers are back in Springfield today and so are members of the Chamber, as I’m in Springfield with our Community Leadership School group meeting with our elected officials and doing some tours. This week is the last until March 24 in which both chambers will be at the Capitol together so looking forward to the action that takes place.

Expanded Budget Coverage
Last week there was a quick add of items covered during Governor Pritzker’s State of the State/ Budget Address. Here is an attempt to streamline what was covered focusing on what is spent, how to pay for it, and what impact that has.

Governor Pritzker is proposing a $56.1 billion budget, an increase of about $879 million (1.6%) over the current year. Most of that growth is concentrated in:

• Education
• Pensions

Outside of those two areas, spending would increase by just 0.5%, reflecting what the governor describes as a “status quo” budget during a time of federal uncertainty.
The proposal comes after earlier projections show a possible $2.2 billion shortfall, and amid ongoing disputes with the federal government over funding cuts.

Why the Budget Is Tight
The governor argues Illinois has lost billions in expected federal funding due to actions by President Donald Trump’s administration. His office estimates the impact at $8.4 billion.
At the same time, Illinois continues to face:

• Rising Medicaid costs
• Growing pension obligations
• Long-term structural deficits projected in future years

To close gaps, the administration is relying on:

• $1 billion in upgraded revenue projections
• $589 million in new or extended taxes
• $139 million in one-time fund sweeps

Critics warn that relying on optimistic revenue forecasts and one-time transfers carries financial risk if the economy slows down.

How the State Plans to Raise Revenue
1. $200 Million Social Media Platform Fee
The proposal would tax large social media companies with at least 100,000 Illinois users.
Companies would pay:

• $0.10 per Illinois user per month, up to a threshold
• Platforms with over 1 million users would pay $165,000 monthly plus $0.50 per user above 1 million

The administration projects $200 million annually, with funds directed toward K-12 education. The governor argues companies like Meta Platforms (Facebook, Instagram), X Corp., and TikTok profit from user data and should contribute more.

Business groups counter that companies may pass costs onto advertisers — and ultimately consumers — despite language barring direct pass-through fees.

2. $269 Million Corporate Tax Change
Illinois would extend a cap on net operating loss (NOL) deductions, limiting how much money companies can deduct after previous losses.

The cap, originally enacted during the pandemic, was set to expire in 2026. Pritzker proposes phasing it out gradually instead. Supporters say it stabilizes revenue. Opponents argue it effectively raises corporate taxes and makes Illinois less competitive.

3. $120 Million Casino Tax Adjustment
The proposal would align tax rates on table games with electronic gaming devices at most Illinois casinos (excluding Chicago’s casino, which operates under a different structure).
The change is expected to generate $120 million and would support education funding.

4. $139 Million in Fund Sweeps
The governor proposes transferring money from dedicated funds into general state operations, including:

• $79 million from a capital projects fund
• $60 million by reducing revenue sharing with local governments

Local governments warn this could increase pressure on property taxes.

Where Spending Is Increasing

1. Education

• $305 million increase under the state’s Evidence-Based Funding Formula
• Property tax relief grants remain discontinued
• Universities and community colleges receive just 1% increases
• The Monetary Award Program (MAP) stays flat at $721.6 million
• A new Department of Early Childhood consolidates $2.1 billion in funding

Advocates argue schools still need significantly more funding to meet adequacy targets.

2. Pensions

The state would contribute $10.7 billion — the statutorily required amount — an increase of $192 million.
However, that amount is still about $5 billion less than actuarially recommended levels, meaning the system remains structurally underfunded.

3. Health Care

• $269 million increase tied largely to Medicaid growth
• Health coverage for qualifying immigrant seniors remains, at a projected cost of $143.6 million

 

4. Public Safety & Corrections

• $2 million to train 100 new state troopers
• $103 million increase for the Department of Corrections
• $74 million increase for the Department of Children and Family Services

 

5. Rainy Day Fund

The state’s reserve fund would grow by $176 million, reaching about $2.5 billion — a historically high level for Illinois.

Other Major Policy Proposals
Beyond the budget, Governor Pritzker is pushing:

• A statewide zoning law to encourage housing development
• A ban on hidden “junk fees”
• A ban on cell phones in schools
• Community college bachelor’s degree expansion
• A “Children’s Social Media Safety Act”
• A two-year pause on new data center tax credits
• An executive order encouraging new nuclear power development

What It All Means
The FY27 proposal is not an expansionary budget. It:

• Maintains core programs
• Avoids broad-based tax hikes
• Relies on targeted business tax changes
• Depends heavily on optimistic revenue projections
• Leaves long-term pension and structural deficit challenges unresolved

Governor Pritzker describes it as a responsible plan during uncertain federal and economic conditions.

Critics argue it increases reliance on business taxes, shifts pressure to local governments, and postpones deeper structural reforms.

As lawmakers begin negotiations, the biggest questions will be:

• Are the revenue projections realistic?
• Will businesses or consumers ultimately bear the new fees?
• How sustainable is the state’s long-term pension funding plan?

The debate now moves to the General Assembly, where revisions are expected before the July start of the new fiscal year.

Governor Pritzker’s Fiscal Year 2027 Budget – Higher Education
Last week, Governor JB Pritzker presented to the General Assembly his proposed fiscal year 2027 budget for the state, which includes a higher education budget of $2.7 billion. The higher education budget includes a one percent increase in operating funding for public universities ($13 million) and community colleges ($3 million).

The fiscal year 2027 proposed budget also supports ongoing affordability initiatives by investing $721.6 million to maintain the Monetary Award Program (MAP) grants and $50 million in AIM HIGH grants, bringing total funding to $771.6 million to support a projected 158,700 students annually. With these investments, nearly every MAP recipient at or below the median income level can attend community college tuition-free through a combination of MAP and federal financial aid.

“While federal funding cuts have put a strain on the state’s budget for the next fiscal year, the governor is still proposing funding increases for the state’s higher education institutions and continued funding for the MAP and AIM HIGH grant programs, demonstrating commitment to the progress we have made toward making higher education in Illinois more equitable, accessible and affordable,” said Illinois Board of Higher Education (IBHE) Executive Director Ginger Ostro. “The proposed increase in funding for student success efforts and new funding for deferred maintenance at state higher education institutions will further ensure students have access to an affordable and quality education.”

“In a challenging budget year, Governor Pritzker’s sustained investments in affordability and MAP grant support ensure community college remains accessible, strengthens our talent pipeline, and keeps opportunity within reach for communities across Illinois,” said Illinois Community College Board (ICCB) Executive Director Brian Durham. “Preserving that commitment allows more students, particularly those with limited financial means, to balance work, family, and school while preparing for in-demand careers.”

“By maintaining the largest MAP appropriation in the state’s history, Governor Pritzker renews his commitment to increasing access to higher education and advancing a brighter future for students with limited financial means,” said Executive Director of the Illinois Student Assistance Commission (ISAC) Eric Zarnikow. “From FY19 to FY26, a $320 million increase in MAP has allowed us to improve affordability by increasing the maximum MAP award from $4,869 in FY19 to $8,064 in FY26, covering more of students’ tuition and fees.  We have also been able to improve access to higher education: MAP is expected to serve more than 21,000 additional students this year than it did in FY19. ISAC projects that in FY26, more than 150,000 students will begin or continue their higher education journey to meet their career goals, with help from MAP funding.”

The increases in MAP and operations for colleges and universities over the last several years have made significant progress in affordability. Forty-four percent of in-state undergraduates attending a public university paid no tuition and fees out-of-pocket in fiscal year 2025 compared to 25 percent in 2019, according to a recent report by the IBHE. More than half, 52 percent, of in-state undergraduates paid 25 percent or less of the sticker price for tuition and fees after financial aid. At the same time, more than 78 percent of Pell Grant-eligible undergraduate students paid zero out-of-pocket for tuition and fees – a remarkable increase from 45 percent in 2018.

Building on historic increases for higher education, the governor’s proposed fiscal year 2027 budget for higher education includes:
• $721.6 million to maintain MAP
• $50 million to maintain AIM HIGH
• $13 million (1%) increase in operating funding for public universities
• $3 million (1%) increase in funding for community colleges, adult education, and career and technical education
• $500,000 increase in student success grants
• Continued funding to support community college investments in dual-credit and non-credit workforce grant programs.
• $2 million to continue funding the Diversifying Higher Education Faculty in Illinois (DFI) program
• $8 million to fund the Teachers of Illinois Scholarship Program
• $3 million to support Common App simplified admissions
• $7 million to support the Prepare for Illinois’ Future Program, which provides free test preparation materials for various professional programs
• $5 million to continue Early Childhood Access Consortium for Equity scholarships
• $10.75 million for Golden Apple Scholars and $2.5 million for Golden Apple Accelerators

The governor’s detailed higher education budget can be accessed here.

Pension Alternative Offered
An Illinois state senator is proposing a voluntary overhaul of the state’s retirement system, offering public employees a 401(k)-style alternative as part of a broader response to Illinois’ $145 billion unfunded pension liability.

State Sen. Chris Balkema, R-Channahon, has introduced legislation that would allow public employees — including teachers — to opt out of the traditional defined-benefit pension system and instead participate in a market-based, defined-contribution plan. This approach mirrors an option already available to university professors in Illinois, who can choose a portable, investment-driven retirement plan.

“Right now, professors in Illinois already have this option,” Balkema said. “They can opt out of the traditional pension and contribute to a market-based retirement plan. That system was created because professors often move in and out of the state, and lawmakers didn’t want to penalize them for changing jobs or leaving Illinois.”

Participation among higher education employees has been strong, Balkema noted, largely because the plans are portable and give individuals control over their investments. His proposal would extend that same flexibility to employees in the state’s other four pension systems. Workers could remain in the traditional pension structure or voluntarily select a market-based plan where they direct their own investments — an option he argues could be particularly attractive to Tier 2 employees seeking stronger long-term returns.

Tier 1 and Tier 2 refer to employee classifications based on hire date. Tier 1 members generally receive older, more generous benefits, while Tier 2 employees — hired more recently — participate in a less costly, scaled-back version of the system.

Balkema contends the proposal could enhance recruitment and retention in public service by increasing mobility.

“If today I’m halfway through my career and I’d like to make a change, but I’m locked into the pension system, I can’t move,” he said. “This would make it much more portable. We want to attract and retain high-quality employees.”

The proposal comes as Illinois continues to grapple with roughly $145 billion in unfunded pension liabilities. Balkema argues that offering a defined-contribution option would reduce long-term risk for taxpayers while preserving commitments already made to current retirees and employees who remain in the traditional system.

Critics have raised concerns that if employees shift to a market-based plan, they would no longer contribute to the existing pension funds, potentially widening short-term funding gaps. Balkema rejects that argument as overly focused on the near term.

“If you look at the trajectory between now and 2045, and the state of Illinois continues to make the payments it has been making over the last two years — roughly $11 billion to $18 billion a year — that would allow us to climb out of the hole we’ve been in for decades because governments did not pay into pension obligations as they should have,” Balkema said. “Allowing a portion of employees to shift to a market-driven formula would create significant long-term cost savings by reducing the number of pensions the state must manage.”

He also frames the measure as a step toward aligning public-sector retirement benefits more closely with private-sector norms.

“Run the numbers,” Balkema said. “Over the long term, markets have historically delivered strong returns. Giving employees the choice to invest in equities rather than relying solely on a government pension system could leave them better positioned for retirement while reducing pressure on taxpayers.”

Impact of Proposed Minimum Wage Hike
Illinois lawmakers are advancing legislation that would raise the state’s minimum wage to $27 per hour by 2032 — a proposal critics warn could fuel significant inflation and place added strain on small businesses.

House Bill 5367 and Senate Bill 3821, filed by state Rep. Norma Hernandez, D-Melrose Park, and state Sen. Kimberly Lightford, D-Maywood, outline a series of incremental wage increases beginning July 1 of this year. If enacted, the state’s current $15 hourly minimum wage would rise to $17 on July 1, followed by additional increases each January from 2028 through 2032 until it reaches $27 per hour. After 2032, the minimum wage would automatically adjust annually based on the consumer price index, capped at 2.5% per year.

The legislation would also phase out the tip credit and raise the minimum wage for workers under 18 to match the rate for adult employees.

Supporters say the measure would help workers keep pace with the cost of living. However, opponents argue the economic ripple effects could be substantial.

Rebekah Paxton, research director for the Employment Policies Institute, cited research from economists and data from the Bureau of Labor Statistics suggesting that for every $1 increase in the minimum wage, prices can rise by as much as 5.5%.

“When you’re talking about a proposal like a $27 an hour minimum wage, those increases could be much more drastic and much swifter, depending on how it’s implemented,” Paxton told The Center Square.

She pointed to California’s $20 minimum wage for fast food workers, which took effect in 2024, as a real-world example.

“Just a year after that policy went into place, food prices were jumping over 14%,” Paxton said. “This is certainly something that’s not just in a textbook or an academic paper. This is something that we’re seeing in the real world.”

Paxton also referenced research from Stanford University indicating that inflationary pressures tied to minimum wage hikes disproportionately affect the lowest-income households.

“Especially for those poorer folks, especially for folks who may be new to the workforce, younger or entry level, they may be more acutely affected by inflation — which is the reverse of what folks are intending to do with this legislation,” she said.

Business groups have raised additional concerns. The National Federation of Independent Business said the bills would allow uninjured special-interest groups to sue employers for alleged violations, potentially increasing litigation risks for small businesses.

“Illinois’ small business community is already struggling with the current minimum wage and paid-leave mandates,” NFIB Illinois State Director Noah Finley said in a statement. “They can only raise their prices so much to offset these additional costs.”

As the proposal moves through the General Assembly, lawmakers will weigh whether the long-term wage gains for workers outweigh the potential costs to employers and consumers.

Tariff Decision Impact
Business groups across the country are pressing for swift tariff refunds after the U.S. Supreme Court ruled that former President Donald Trump exceeded his authority in imposing sweeping import duties under a 1977 law.

The decision centers on tariffs enacted under the International Emergency Economic Powers Act (IEEPA), which Trump used to apply broad tariffs on nearly all imported goods. The Court determined that the use of that authority in this instance went beyond the scope permitted by Congress, potentially opening the door to billions of dollars in refunds for businesses that paid the duties.

The U.S. Supreme Court ruling prompted immediate reaction from business advocates, who argue that companies — particularly small importers — should be reimbursed without delay.

Neil Bradley, executive vice president of the U.S. Chamber of Commerce, called the decision a positive development for both businesses and consumers.

“Swift refunds of the impermissible tariffs will be meaningful for the more than 200,000 small business importers in this country,” Bradley said. He also urged policymakers to use the moment as an opportunity to reassess broader trade policy. “We encourage the administration to reset overall tariff policy in a way that promotes economic growth, higher wages, and lower costs for families.”

According to estimates from the Penn Wharton Budget Model, the ruling could result in as much as $175 billion in refunds.

However, trade experts caution that securing those refunds may prove complicated. John Denton, secretary general of the International Chamber of Commerce, warned that the mechanics of U.S. import procedures could make claims administratively complex.

“Companies should not expect a simple process,” Denton said, noting that the Court’s decision offered little guidance on implementation. He added that clarity from the Court of International Trade and federal agencies would be essential to minimize litigation risks and unnecessary costs.

President Trump sharply criticized the ruling and the Court’s silence on the refund process, arguing that the lack of direction could result in prolonged legal battles. He later announced plans to pursue new tariffs under alternative statutory authorities to replace those invalidated by the Court.

Industry leaders are urging the administration to avoid delays. Gary Shapiro, CEO of the Consumer Technology Association, said the government “must act quickly to refund retailers and importers without red tape or delay.”

Some companies moved preemptively. Costco filed a lawsuit in December to preserve its position in line for potential reimbursement, noting that importers are not guaranteed repayment, absent their own court judgments. The action underscores concerns that businesses may need individual legal relief to recover funds.

During oral arguments in November, Justice Amy Coney Barrett acknowledged the potential administrative challenges, describing the refund issue as potentially a “mess.”

Lawmakers are also seeking clarity. U.S. Sen. Maria Cantwell, D-Wash., sent a letter to Treasury Secretary Scott Bessent requesting a detailed explanation of how refunds would be processed. She warned that many small and mid-sized firms have struggled to absorb the added costs and, in some cases, face serious financial strain.

At the state level, J.B. Pritzker called for $8.6 billion in refunds for Illinois residents, framing the issue as direct relief for families. “On behalf of the people of Illinois, I demand a refund of $1,700 for every family in Illinois,” he said, signaling potential further action if the federal government does not act.

Economic research has consistently shown that tariffs are largely borne by domestic firms and consumers. The Federal Reserve Bank of New York has reported that U.S. businesses and households continue to shoulder most of the economic burden of the 2025 tariffs. Similarly, the Kiel Institute for the World Economy has found that Americans are paying nearly the full cost of the duties through higher prices.

As federal agencies and courts determine the mechanics of reimbursement, businesses are watching closely. The stakes are significant: a streamlined refund process could return billions to importers and retailers, while a prolonged legal battle could leave funds tied up for years.

Stay well,

Mike Paone
Executive Vice President
Joliet Region Chamber of Commerce & Industry
mpaone@jolietchamber.com
815.727.5371 main
815.727.5373 direct