State of Illinois Fiscal Year 2025 Budget

While it took several votes to approve the final revenue package, the Illinois General Assembly passed and Governor J.B. Pritzker signed into law a state budget for Fiscal Year 2025 (which runs from July 1, 2024, to June 30, 2025)[i].

The total approved expenditures are just under $53.1 billion. It is a budget that makes significant investments in children with the creation of a state Child Tax Credit, additional funding for early childhood education and care (including start-up funding for a new Department of Early Childhood)  further investments in K-12 education, and funding for additional staff at the Department of Children and Family Services (DCFS).

 Revenue

With the interest in providing additional investments to education, DCFS, and health care for immigrants and asylum seekers along with other areas, this budget is built on approximately $1 billion worth of tax code changes. These include:

• Extension of a corporate net operating loss deduction regarding losses carried over from prior years. For the past three years, this deduction was limited to $100,000. It is now extended for another three years but the permissible amount of the deduction is capped at $500,000. The extension of this provision, even with the increased cap, is anticipated to generate $526 million.
• An increase in the sports wagering tax. Up until now, Illinois had a tax on sports betting of 15% of a sports wagering licensee’s annual adjusted gross sports wagering receipts (AGSWR). That will now go to a progressive tax along the flowing lines:
  • 20% of annual AGSWR up to and including $30 million;
  • 25% of annual AGSWR in excess of $30 million but not to exceed $50 million;
  • 30% of annual AGSWR in excess of $50 million but not to exceed $100 million;
  • 35% of annual AGSWR in excess of $100 million but not to exceed $200 million; and
  • 40% of annual AGSWR in excess of $200 million.

The change in the tax structure is estimated to generate $200 million.

• A cap on the Retailer’s Discount. Previously, retailers were permitted to keep 1.75% of sales tax collected to pay for associated administrative costs. That discount will now be capped at $1,000 a month on tax returns due on or after January 1, 2025. This change is estimated to generate $101 million.
• Application of the hotel operators’ occupation tax to re-renters of hotel rooms beginning July 1, 2025. The hotel operators’ tax is calculated as a percentage of gross rental receipts from guests. The revenue collected goes to various funds including the Build Illinois Fund, Illinois Sports Facilities Fund and the Travel Industry Promotion Fund). State law also permits Chicago to levy an additional tax up to 1% of gross rental receipts of hotel operators. The state expects this measure to result in an additional $25 million per year.

In addition to these tax changes, there is a transfer of $150 million from the state’s Road Fund to pay for public transit expenses and a transfer of $50 million from the Underground Storage Tank Fund to public transit.

There are a number of provisions in the revenue bill creating tax credits. Chief among them is the establishment of a state Child Tax Credit. This applies only to taxpayers with a child under the age of 12 in the household and is worth 20% of a qualifying taxpayer’s state Earned Income Tax Credit in Tax Year 2024 and 40% in Tax Year 2025. More information on the state Child Tax Credit is contained in a separate one-pager on the tax.

A separate bill, HB 3144, removes the 1% state sales tax on groceries beginning January 1, 2026. The revenue went to local governments. The bill allows municipalities and counties (with respect to unincorporated areas) to adopt a 1% sales tax on groceries.

Expenditures

The largest area of expenditures in the state budget is education, followed by human services and pensions.

Education

The FY25 budget includes an increase of $350 million for the evidence-based school aid formula. Since the state overhauled it in 2017, legislators pledged to put in $350 million above the prior year’s appropriation for each of the next ten years. There is also an additional $75 million for the state’s early childhood block grant (ECBG) program. This amount is one element of the second year of the Governor’s Smart Start Program to improve the state’s early childhood education and care system. With the increase, it is expected there will be an additional 5,000 slots in the ECBG program. Other items related to Smart Start are reviewed in the human services section of this memo.

In addition to the $25 million for after-school programming that was in Governor J.B. Pritzker’s proposed budget, the final FY25 budget contains an additional $50 million for after-school programming for a total of $75 million. As the Illinois State Board of Education (ISBE) notes on its website:

The purpose of the funding is to:

• Improve academic outcomes for students.
• Provide opportunities for enrichment activities in a safe and healthy environment.
• Provide opportunities to strengthen public, private, and philanthropic partnerships so that quality support services are more durable for students facing the greatest challenges.

The $25 million initially proposed by the Governor will be distributed by an RFP process for non-school district entities and a formula grant for school districts that meet low-income eligibility criteria. With regards to the additional $50 million, ISBE will distribute the funds through a competitive grant competition but has indicated it will be working with the Governor’s Office and General Assembly leadership to “determine their intention” regarding how this continued investment in after school funding will be distributed.

The after-school funding allocated through ISBE is in addition to another $17.8 million allocated through the Department of Human Services (DHS) to Teen REACH, which is a youth development initiative that provides after school program services to high-risk youth between the ages of 6 and 17. According to DHS, the core services include improving educational performance, life skills, parental involvement, recreation, adult mentors, and STEM learning

Also, within the ISBE budget is:

• $45 million for the second year of a three-year pilot program to fill teacher vacancies
• A $32.7 million increase for grants regarding transportation and special education
• $10.2 million increase for Career Technical Education to implement a new equity-based funding formula

Higher Education

The FY25 budget includes a $24.6 million increase for public universities and a $6 million increase for community colleges. There is an additional $10 million for the college grant Monetary Assistance Program, bringing the total to $711 million. According to the Illinois Student Assistance Commission, the budget includes (for the first time since FY12) $6 million to reimburse public universities for a portion of the tuition and fees waived on behalf of eligible veterans and National Guard Members. Another $4.2 million is designated to the Illinois Community College Board for similar costs.

Source: Illinois Board of Higher education

New Early Childhood Agency

As noted in the review of substantive legislation, SB 1 creates a new Department of Early Childhood. While the agency will be working over the next two years to shift programs currently under the State Board of Education, Department of Children and Family Services, and the Department of Human Services, the FY25 budget contains $14 million for the Department to begin hiring staffing, opening office space, and hiring consultants to begin the planning for that effort.

Department of Human Services

Among the programs currently at the Department of Human Services (DHS) that will eventually be transferred over are the state’s Early Intervention and Child Care Assistance Programs.

The FY25 budget contains an additional $6 million for the Early Intervention Program, which provides services (including diagnosis) to children aged birth to three with developmental delays. Advocates were seeking a $40 million increase to meet growing caseloads in increase provider reimbursement rates.

Advocates were also seeking $60 for Early Childhood Access Consortium for Equity Scholarships (to support access to academic programs allowing current or potential early childhood employees to complete needed credentials and degrees as well as funding for coaches and mentors) to replace expiring federal funding. However, only $5 million for the program is included in the approved budget.

The budget contains a $36.5 million increase to the Child Care Assistance Program to handle an anticipated caseload increase and another $122 in SMART Start workforce initiatives. This includes:

• $110 million for workforce compensation contracts (which includes staff wage increases)
• $10 million for quality support contracts to help with staffing costs associated with higher quality childcare center services
• $2 million for the Early Childhood Apprentice Program to help childcare centers attract, train and support early care and education practitioners

There is a $90 million increase in the state budget for Home Illinois. While housed at DHS, Home Illinois is an interagency effort to coordinate existing and new initiatives to combat homelessness in Illinois. A large portion of the increased funding ($75 million according to the Governor’s Office) is going towards a court-based Rental Assistance Program to prevent evictions. The Home Illinois budget also includes $13 million to support initiatives to reduce racial disparities in homelessness rates and $67 million to help address housing issues faced by asylum seekers arriving in Illinois (most via buses from Texas).

The FY25 state budget appropriates $115 million for Welcoming Centers. These centers are designed to assist immigrants and refugees in accessing state services. There is also a $38 million appropriation for immigrant services.  According to the referenced Illinois state statutory provision, this line item funds services to legal immigrants that includes, but is not limited to, naturalization services, nutrition services, and financial assistance.

The DHS budget also includes:

• A $5 million increase for Home Visiting Programs
• $1 million for grants associated with a pilot program for distribution of diapers to qualified individuals.

Department of Public Health

The Department of Public Health budget includes $4 million for grants associated with a new Birth Equity Initiative including, but not limited to support and capacity building for community-based women’s health providers, the development of an inventory of need and assets, implementation plan to increase equitable access to community-based health providers, and the design of health navigation tools.

Department of Children and Family Services

The Department of Children and Family Services (DCFS) budget includes an additional $50.3 million dollars to support an additional 392 staff positions and rate reform for DCFS providers to address staffing shortages of social service workers. Based on DCFS statistics, the number of investigations has increased 18% since Fiscal Year 2020. There’s also $100 million in capital grants to support increased clinical capacity for youth placement (Level of Care Support Service Grants).

Department of Healthcare and Family Services

The Department of Healthcare and Family Services (HFS) budget contains nearly $498 million dollars to annualize increases in Medicaid rates that became effective this current fiscal year as well as fund FY25 rate increases and add-ons to rates for services (contained in SB 3268) associated with psychiatric care, skilled nursing facilities, children’s community health centers, birth centers, optometry, and safety net hospitals among others.

Illinois has two healthcare programs to cover undocumented residents aged 42 and up: the Health Benefits for Immigrant Adults (HBIA) for individuals aged 42-65 and Health Benefits for Immigrant Seniors (HBIS). The state capped HBIS enrollment in 2023 at 16,500 and on July 1 of that year halted enrollment in the HBIA program. The FY25 budget contains $625 million for the two programs of which $440 million is from the General Revenue Fund. This funding does not remove the existing caps.

The HFS budget also contains $10 million to support a new initiative to relieve medical debt for more than 300,000 Illinoisans. With the funds, the state plans to partner with a non-profit that negotiates the sale or donation of medical debt. The state anticipates erasing up to $1 billion in medical debt.

The FY25 budget did not address upcoming projected budget deficits for state transit agencies (nearly $730 million). There is also the need to modify of supplement the new state Child Tax Credit for extremely low-income children who do not benefit as much from the creation of the credit as higher-income households due to the structure of the Earned Income Tax Credit.

The legislature is scheduled to return to Springfield on November 12^th for the state of the fall veto session.

Written by Mitch Lifson.

[i] The actual appropriations bill is SB 251, the omnibus revenue bill is HB 4951 and the budget implementation bill is HB 4959.