State revenue projections improve as economic uncertainty grows

SPRINGFIELD — The General Assembly’s independent forecasting commission has improved revenue projections for the upcoming fiscal year despite growing economic volatility.

That’s good news for state lawmakers who are in the final weeks of crafting the fiscal year 2026 budget set to take effect July 1. But the Commission on Government Forecasting and Accountability’s upward revision to its revenue forecast remains significantly more conservative than what Gov. JB Pritzker’s office projected when he proposed a budget in February.

COGFA’s latest update now projects $54.5 billion in revenue in FY26 – $266 million more than the commission’s March projection, but still $471 million below the governor’s February projection for baseline revenues.

Pritzker has also proposed changes to raise an additional $492 million in revenue in FY26, although that number is not factored into the baseline revenue comparison.

Read more: Legislative revenue estimate more than $700 million lower than Pritzker’s proposed budget

COGFA is also projecting state revenue will increase by $317 million in the current fiscal year 2025 compared to its March projection. That means the state would finish the fiscal year at the end of June with $53.9 billion of revenue – above the $53.3 billion lawmakers budgeted for and $31 million more than the governor’s office’s February forecast.

The projected revenue growth was driven by strong April income tax receipts. April revenue was up $593 million compared to April 2024 and was driven by 20% growth in income tax receipts, thanks to higher capital gains and interest earnings last year. Corporate income taxes also grew by 6.6% for the month, even though the revenue source remains down 8.2% for the fiscal year.

But there are warning signs in several areas, according to COGFA. The commission lowered expectations for federal receipts for FY25 by 8.5% and 6.3% in FY26 because the state has been using a fund outside the typical General Revenue Fund for Medicaid-related expenses. That means reimbursements from the federal government to the state are not reflected in the state’s General Revenue Fund total.

The commission also warned that the federal government could, at any time, decrease financial aid to states, creating more uncertainty.

“Those capital gains revenue increases are not sustainable so as we look at fiscal year 26, we should not expect that as we go into fiscal year 27, I think it’s going to be an even worse look,” COGFA Co-Chair Rep. C.D. Davidsmeyer, R-Murrayville, said at a news conference last week.

COGFA Revenue Manager Eric Noggle wrote broader economic uncertainty necessitates a “more cautious approach” projecting next year’s revenue numbers.

“The unknown implications of tariffs create many questions related to the duration of the tariffs, their impact on prices, and if these changes could lead to a recession,” Noggle wrote. “These complicating factors and their potential impact on tax revenues make the revenue estimate for FY 2026 very challenging.”

Recent national economic reports have indicated the U.S. added more jobs than expected in April, but the nation’s gross domestic product declined by 0.3% in the first quarter of 2025, marking the first quarter of economic regression since 2022. Personal consumption grew by 1.8%, showing consumers overall aren’t yet cutting back, but it was the slowest growth since spring 2022.

“It’s very concerning because Illinois tends to lag the nation in economic growth and economic stability,” Davidsmeyer said.

The decline in GDP was driven by an increase in imports, COGFA Chief Economist Ben Varner wrote, because businesses are likely “front-loading” foreign purchases before tariffs imposed by the Trump administration kick in and make overseas goods more expensive. Imports are subtracted from domestic growth to calculate GDP.

National projections are also blaring more warnings. Wells Fargo modeling projects stagflation from tariffs and an increase in inflation will cause an economic downturn, while Goldman Sachs’ early April projection pegs the likelihood of a recession at 45%.

“The U.S. economy has entered a precarious phase, with early signs of contraction and rising inflation signaling the potential onset of stagflation,” Varner wrote. “While domestic demand and business investment remain relatively strong, they are being overshadowed by external shocks — particularly the surge in imports ahead of tariff implementation. The policy-driven volatility is already weighing on forecasts and investor confidence.”

The governor’s proposed $55.2 billion FY26 budget is based on a December S&P Global forecast that projected stable economic growth and considered some of Trump’s proposed economic policies, including tariffs and tax cut extensions, Pritzker budget office director Alexis Sturm said told a legislative committee in February.

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.

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