Gov. JB Pritzker is heading into his seventh budget with some key pressure points, including the potential need for more expenses to fend off President Donald Trump’s administration — and mounting financial burdens like the state’s pension obligation and health care costs.

The Governor’s Office of Management and Budget in November projected a $3.2 billion deficit — and warned that “the ability to fund new programs will be severely limited.”

Deputy Gov. Andy Manar in November also warned in a memo to state agencies that a new Trump administration is creating “additional uncertainty” when it comes to federal funding and the economic outlook.

“We need to take steps to ensure that the State is in position to address any economic disruptions that may arise,” Manar wrote.

Pritzker will outline his budgetary priorities in an address on Feb. 19 at the Illinois State Capitol. So far, he has hinted that raising taxes to balance the budget is a last-resort proposition. But things could change.

“It’s very important that we live within our means in this state, and that we not resort to tax increases as a way to, you know, to balance the budget,” Pritzker said last month.

Uncertainty over Trump and federal funding

With Pritzker back on his bully pulpit to voice his displeasure at Trump and Elon Musk’s hacks to the federal government, the Democratic governor is undoubtedly concerned about what cuts to Medicaid will mean to the 931,169 Illinois residents who rely on it for health coverage.

Republicans in Congress are discussing a plan to slash the Affordable Care Act’s Medicaid expansion — which would lower costs for the federal government, but increase costs for states. The cuts are being floated as a way to help fund Trump’s tax cut and his immigration crackdown bill.

But Illinois has a “trigger” law that would automatically end Medicaid expansions in the state if federal reimbursement falls below 90% — meaning the more than 900,000 Illinoisans would lose coverage. And the state does not have a solution should there be a shortfall.

Tyler Pasciak LaRiviere/Sun-Times

The governor will also be looking at increased requests for funding at Illinois Attorney General Kwame Raoul’s office, which has already filed four lawsuits against the Trump administration.

Raoul nodded a big yes when Pritzker was asked by a reporter last month about whether his office needed more funds for legal expenses.

The need for pension fixes

Another budget means another massive payment to Illinois’ desperately underfunded pensions, this year to the tune of nearly $10.6 billion as required by state law, which requires a fifth of the budget to go toward liabilities that still top $140 billion.

Ratings agencies have commended the governor’s office for its progress, but calls for pension reform could challenge Pritzker’s goal of leading the state to full funding by 2048.

State workers hired since 2011 have less generous benefits than longer-tenured workers, even below federal standards for Social Security for which they aren’t eligible.

A proposal to bring so-called Tier 2 pensions up to federal levels is estimated to cost an additional $5.6 billion over 20 years, but a previous union-backed proposal would cost several times that amount.

“If we don’t fix our system to meet that Social Security minimum, it will cost taxpayers in Illinois far more than it should, because we could end up getting sued and penalized and having to put back Social Security-level funding into the pension system,” Pritzker said last month. “That’s not a good idea.”

Transit reform on the horizon

As lawmakers hammer out a budget through the spring, they’ll also be deciding the future of the Chicago area’s transit agencies.

With federal COVID-19 relief dollars drying up, the CTA, Metra, Pace and Regional Transportation Authority face a combined budget shortfall of more than $750 million starting in 2026, prompting calls for the state to step in with upwards of $1 billion in additional annual funding, or else risk widespread service and job cuts.

Tyler Pasciak LaRiviere/Sun-Times

More skin in the game for the state should come with more oversight, many lawmakers have argued, with some suggesting the agencies should be merged under a single state body.

The latest proposal from a coalition of influential labor unions would give the RTA more leeway over the other agencies but keep them all autonomous while introducing a new system-wide police force, among other incremental reforms.

But it’s not clear how much that would cost — or where the money would come from. Transit funding is separate from the general revenue fund that lawmakers hash out in the state budget, but they’ll need to take transit fiscal pressures into account wherever they land on reforms.

New revenue coming soon?

Pritzker’s office for months has been urging agency heads to find cost cuts, suggesting Democrats won’t be able to tax their way to a balanced budget as they did last year with about $1 billion in new revenue through a patchwork of tax code changes.

But some lawmakers say there’s more money to be squeezed from Illinois’ sprawling gambling industry, this time by legalizing internet gambling to allow people to play the slots, blackjack, poker and more on their cellphones.

That could generate an estimated $450 million for the state, according to supporters in the sports betting industry who were slapped with massive Illinois tax hikes last year, but would benefit from casino games slotting smoothly into their apps.

Opponents argue so-called iGaming would boost gambling addiction in a state that has 16 casinos and the largest video gaming terminal network in the world.

Government finance experts at the Civic Federation say the state needs to make “a holistic re-evaluation of the state’s fiscal structure and adopt a more strategic approach to taxing and budgeting.”

That includes expanding the state sales tax to services like dry cleaning and plumbing. Illinois currently taxes 29 types of services; on average, other states tax 62 services, according to the federation. An expansion could raise about $2 billion, they estimated.

The federation also called for a systematic review of tax exemptions and a consolidation of special funds.

“The state has done admirable work stabilizing its fiscal situation inherited from years of unsustainable budget and tax practices,” Civic Federation president Joe Ferguson said in a statement. “But if Illinois lawmakers want to get the state back on track, they need to move beyond marginal stabilization to holistic optimization and begin to do so now.”