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In his 2026 State of the State address on Wednesday, Feb.18, Governor J.B. Pritzker proposed a $56 billion budget for Fiscal Year 2027. The proposal balances new spending on education and housing with targeted tax increases and shifts in how state revenue is shared with local governments. Two key components of the Governor’s budget directly impact municipal governments:
I. Municipal Revenue and LGDF
The Governor’s budget proposes a change to the Local Government Distributive Fund (LGDF), the mechanism used to share state income tax revenue with cities and villages. His proposal is to lower the funding rate from its current level of 6.47% to 6.23%. While the message to local taxing districts is that the actual dollar amount of LGDF distributions would essentially remain flat, it eliminates the opportunity for local governments to see any natural growth in LGDF revenues that could support essential services such as public safety, infrastructure maintenance, and reduce reliance on property taxes.
“SSMMA municipal members have been fighting to restore LGDF to the previously dedicated level of 10% since the State cut disbursement levels years ago. The cuts have significantly impacted communities as LGDF funds could have gone to reduce property tax pressures, towards infrastructure, parks, and other quality of life initiatives that improve communities and serve residents. We have serious concerns with a proposed LGDF reduction”, said SSMMA Legislative Chairman Rick Reinbold, Mayor of Richton Park. “The Governor’s proposal effectively prevents local governments from receiving the surplus generated by natural economic growth, potentially making it even harder for municipalities to cover rising costs due to inflation and unfunded mandates imposed upon communities.”
II. Housing and Zoning Reform
The Governor’s proposed "Building Up IL Developments" (BUILD) initiative aims to address a statewide housing shortage by legalizing duplexes, triplexes, and accessory dwelling units (ADUs) on most residential lots. This far-reaching housing initiative seeks to increase supply across Illinois by legislating preemption of local authority for land use and zoning, but also imposes limitations on minimum parking requirements, authorization of third-party building inspectors, and the creation of a statewide formula related to impact fees.
This initiative also has a capital commitment of $250 million in proposed funding to support housing, with $100 million to be available for municipal infrastructure grants like sewer and stormwater upgrades required for new housing, $100 million for innovative financing packages for mixed density projects, and $50 million for down-payment assistance programs through IDHA.
SSMMA Executive Director Kristi DeLaurentiis said, “While we recognize the goal of increasing the availability of affordable housing and welcome programs and funding that support reinvestment in our communities, it’s critically important that input from local governments be considered prior to consideration as the proposal significantly alters local zoning and land use authority.” She added, “A diverse task force inclusive of municipalities would be in order to ensure that affordable housing initiatives also look at other strategies that can expand first time homebuyer programs and generational wealth building opportunities without weakening local planning and land use authority.”
Additional components of the Governor’s Budget proposal focused on new taxes and economic policy, with the State looking for new revenue sources to cover a projected budget gap and fund education. Specifically, the Governor proposed:
• Social Media Fee: A tiered monthly fee on social media companies with more than 100,000 users in Illinois, estimated to raise $200 million for K-12 schools.
• Casino Tax: An increase in the tax rate for casino table games to align them with higher rates currently paid on electronic gaming.
• Data Center Credit Pause: A proposed two-year pause on tax credits for data centers due to concerns over their high energy consumption and the resulting strain on the power grid.
For communities in the south suburbs and across the state, the proposed budget offers new grant opportunities for infrastructure, but introduces challenges regarding local zoning control and the stagnation of state-shared revenues. As these proposals move through the General Assembly this spring, SSMMA will be working with our elected officials and partners to protect local revenue and authority.
Read the Governor's speech and additional documents on the Illinois Municipal League website here.
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