A closer look at the state budget
Boil it all down and any budget—from your household to the US government—is based on two things: Money coming in, and money going out. On this page we’ll break down the Illinois state budget—where the money comes from, where it goes, and just as importantly, what’s wrong with it and how it can be fixed.
Who cares? We all do!
It’s no stretch to say that every AFSCME member has a big stake in the state budget. The annual spending plan debated each winter and ulti-mately approved each spring at the State Capitol in Springfield decides how much money state government will expend on its priorities.
That includes all the jobs that state employees do, such as mental health and disability care, prisons, child protection, state parks and veterans’ homes, to name just a few.
And that’s just the start.
The state budget also determines major chunks of funding for state universities; local school districts; entities such as disability care provider agencies, hospitals and nursing homes that receive state reimbursements; and city and county governments.
And it pays for benefits, including pensions for both active and retired state workers and university employees, and health insurance for them and their families.
How is it paid for?
More than half of the state’s general fund revenue comes from income taxes paid by individuals. Sales taxes account for another 20%. Corporate taxes and federal funds are the next largest sources, each just under 10%. Lottery and other forms of gambling are about 2%, with the rest made up by investment income and miscellaneous fees.
The looming hole
Cuts to federal funding—part of the so-called “One Big Beautiful Bill” passed last year by Republicans in Congress and signed into law by President Trump—pose what’s probably the biggest immediate challenge. Under that law, Illinois will lose $8.4 billion over five years for Medicaid and SNAP (food assistance).
“Initial estimates show a billion-and-a-half dollar hole in the state budget in FY28,” AFSCME Council 31 director of employee benefits Martha Merrill says. “That continues to grow through subsequent fiscal years.”
Other reports estimate the hit from OBBBA could be even larger. There are other complicating factors, too. The state’s budget already has what’s called a “structural deficit” because the tax system does not grow at a rate needed to support maintaining services. The structural deficit is estimated at around $2 billion in the coming year, according to Merrill.
And just as inflation pushes up the cost of living for working people when we go to the grocery store or gas station, it increases costs for state government, meaning tax dollars don’t stretch as far.
And that’s just the cost of continuing state-funded programs, services, jobs and benefits at current levels. Add in the need to increase funding for schools, state universities, and local governments, to meet the higher payments required on the pension funding ramp, to settle a new union contract for state employees, to continue raising wages for direct support personnel (DSPs) and more, and the dollar divide becomes a canyon.
In all, Merrill says, “The state budget is becoming more challenging this coming year, and exponentially harder in future years. A holistic approach is needed, because it’s not a one-year problem; it’s a progressively deteriorating situation in terms of lost revenue.”
The possible solutions
Taxing the rich. Ending the ban on different income tax rates for people with different incomes requires an amendment to the Illinois Constitution. That’s the right thing to do, it’s more important than ever, but it’s difficult: AFSCME supported such a change—the Fair Tax Amendment—in 2020, but it lost at the polls following a blizzard of spending by Republican billionaire Ken Griffin.
More recently, some have suggested an amendment to allow for higher taxes only on millionaires. In principle, that’s a more than fair solution. Illinois is among a minority of states that actually prohibit a progressive income tax structure.
But it’s hard to see this solution addressing our current revenue woes. It couldn’t be on the ballot before 2028 and wouldn’t take effect even if passed until the 2030 budget year. And as 2020 showed, there’s no guarantee voters would approve.
Closing loopholes. Corporate taxes and sales taxes have their challenges, too. The Constitution ties the income tax rate paid by corporations to the rate paid by individuals, so corporate income taxes can’t be raised without jacking up what everybody pays. Corporations use loopholes—like moving money abroad—that hide their profits from being taxed fairly. (The “Big Beautiful Bill” shoveled even more giveaways to big business and billionaire investors, making the situation worse.)
AFSCME strongly supports continued efforts to close corporate tax loopholes at the state level and to decouple Illinois tax law from changes at the federal level that unfairly privilege big business and the very rich.
State sales taxes apply only to the goods we buy—like clothes, shoes, furniture and restaurant meals—not services that tend to be used by those
with more income, like spa treatments, lawyers and investment advisers.
Applying the sales tax to such services could raise revenue for the state while making the tax code a little bit fairer for working folks.Likely what is needed is some combination of the above revenue-raising measures.
As we go forward, we’ll need to fight on two fronts: We need to be part of a nationwide effort to force repeal or amendment of the Ugly Bill and we need an Illinois strategy to win support for new revenue measures here in our own state.