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Illinois’ FY2027 budget advances transportation and climate priorities, but structural revenue challenges persist

On June 16, 2026, Governor J.B. Pritzker signed Illinois’ fiscal year (FY) 2027 state budget, which covers July 1, 2026 through June 30, 2027. The enacted budget includes $55.9 billion in General Fund appropriations, a modest 1.3 percent increase from the enacted FY2026 budget.

Shortly after the governor released his proposed budget in February, the Chicago Metropolitan Agency for Planning (CMAP) offered an early assessment of potential effects on transportation, climate, and local governments in northeastern Illinois, with a focus on new initiatives proposed for FY2027. Now that the budget cycle is complete, CMAP offers a more in-depth analysis of enacted budget actions affecting the state’s transportation system and its climate priorities. Key findings include:

• Water infrastructure needs exceed available funding. The budget provides $1.3 billion in new appropriations for loans supporting drinking water, wastewater, and stormwater infrastructure. However, larger and more sustained investments are needed as federal support remains uncertain and water system needs grow.
• Accelerating electric vehicle (EV) adoption requires greater state support. The federal EV tax credit has expired, and EV adoption in Illinois has slowed, making the state’s EV rebate program increasingly important. The FY2027 appropriation of $14 million is significant, but additional resources and complementary policies will be needed to meet greenhouse gas reduction goals.
• The state’s six-month motor fuel tax (MFT) freeze weakens its primary source of transportation capital funding. The enacted budget freezes the MFT rate for six months, delaying the standard annual inflation adjustment until January 1, 2027. This freeze comes as the motor fuel tax base continues to shrink and the future of fuel-based revenue grows more uncertain.
• One-time diversions of tax revenue from motor fuel sales constrain transit funding. The enacted budget diverts the first $170 million generated by the sales tax on motor fuels — a key new source of transit operating funding — to the General Fund ($150 million) and the Road Fund ($20 million) in FY2027. Fluctuating fuel prices will determine whether the remaining revenue is sufficient to fund transit agency budgets at previously anticipated levels.

Persistent budget pressures and shifting federal priorities force tradeoffs between ongoing investments and forward-looking policy goals

Illinois faces a challenging fiscal outlook, exacerbated by a growing structural gap: annual expenses continue to grow faster than annual revenues. Shifts in federal priorities, including recent cuts to Medicaid and the Supplemental Nutrition Assistance Program, have increased pressure on the state to fund important programs beyond its existing priorities and commitments. At the same time, limited growth in key revenue sources, including corporate income and sales taxes, constrains state finances. The sales tax, for example, relies on an outdated base that primarily covers retail goods rather than services. Persistent inflation and slow post-pandemic job growth have further dampened consumer spending and economic growth, worsening the state’s overall position.

In recent budgets, the General Assembly has responded to these pressures by adding revenue sources and adjusting existing ones. The FY2027 budget continues this approach by introducing a new social media fee and taxes on digital advertising and digital assets. Although these and other incremental changes may help balance the budget year-to-year, they do not provide lasting structural relief.

The enacted FY2027 budget therefore reflects a series of difficult tradeoffs between immediate needs and long-term priorities. Although an earlier proposal would have reduced funding for local governments, the state maintained existing distribution rates for the Local Government Distributive Fund. The budget also provides significant funding for regional priorities, including climate programs and the transformational transit investment established through the Northern Illinois Transit Authority (NITA) Act. Still, maintaining aging infrastructure and meeting climate goals will require more resources than the state’s current revenue tools can provide. Long-term revenue solutions and careful stewardship of new resources are essential for the state to fulfill the commitments included in the FY2027 budget.

Efforts to chart a path forward are underway. Landmark state climate legislation, including the 2021 Clean and Equitable Jobs Act (CEJA), has established ambitious goals and created new tools to achieve them. The Illinois Comprehensive Climate Action Plan, scheduled to be formally released later this month, provides a roadmap for continued progress toward net-zero targets. The Blue Ribbon Commission on Transportation Infrastructure Funding and Policy (BRC) has identified strategies to secure more sustainable transportation revenue and strengthen the state’s ability to deliver transportation improvements. Regionally, the Comprehensive Climate Action Plan for Greater Chicago (CCAP) and the 2026 Regional Transportation Plan (RTP) chart a path toward a stronger, more resilient future in Northeastern Illinois. State and regional partners must now work together to turn these plans into action.

Illinois sustains critical environmental investments amid federal uncertainty, but ongoing funding is still needed

As federal support for environmental, natural resource, and clean energy programs becomes increasingly uncertain, Illinois has strengthened its own commitments. The state increased funding to offset anticipated cuts to federal natural resource protection programs, and the enacted budget maintains investments in water infrastructure and the EV rebate program. These commitments represent meaningful progress, but additional, ongoing investment will be essential to upgrade water infrastructure, accelerate EV adoption, and help the region meet its climate goals amid mounting environmental pressures.

Water infrastructure investment has increased, but sustained state support is critical

State investments in water infrastructure have increased significantly in recent years. Since FY2022, appropriations for the Illinois Environmental Protection Agency’s (IEPA) Water Revolving Fund — which finances drinking water, wastewater, stormwater, and lead service line replacement projects — have more than doubled. The enacted budget continues this trend, providing $1.3 billion in new appropriations and $4.2 billion in reappropriations. Much of this growth has been made possible by temporary, unprecedented federal funding through the Infrastructure Investment and Jobs Act, which expires in September.

Even with this historic funding, available resources meet only a fraction of the state’s needs. Since FY2023, IEPA has been able to fund only 20 to 25 percent of annual requests for water, wastewater, and lead service line replacement projects. The broader need is substantial: the U.S. Environmental Protection Agency estimates that Illinois must invest $33.6 billion over the next 20 years to maintain and upgrade its drinking water and clean water infrastructure. Needs will continue to grow as more frequent and intense storms, more high volume water users such as data centers, and weaker federal protections for wetlands and streams place additional pressure on aging infrastructure.

Reliable, affordable, and safe water systems support the region’s public health, economic competitiveness, and climate resilience. Increasing investment — and securing long-term funding as federal support declines — will be essential to close the infrastructure funding gap and provide reliable drinking water, wastewater treatment, and stormwater management for future generations. Addressing these challenges will also require long-term planning, asset management, and coordination across jurisdictions so investments deliver the greatest public benefit.

Despite renewed funding, EV rebates fall short of what is needed to meet fleet electrification goals

Illinois continues to make meaningful investments in the transition to EVs. In 2021, CEJA established a goal of one million EVs on Illinois roads by 2030 and created a statewide EV rebate program which has received $74.5 million to date. CMAP’s CCAP found that even faster fleet electrification is needed to meet regional climate goals. The plan estimates that northeastern Illinois alone will need nearly one million EVs by 2030 to remain on track for 2050 transportation emission reduction goals.

Current adoption trends indicate Illinois is unlikely to meet either the CEJA or CCAP target without stronger state support. During the first three months of 2026 — one of the slowest quarters since the rebate program began — Illinois recorded only 3,948 new EV registrations (including 3,218 in the CMAP region), representing a 60 percent decline compared to the same period in 2025. The slowdown likely reflects several factors, including the expiration of the federal EV tax credit in September 2025 and changes to the state rebate amount for high-income households. At the current pace, CMAP estimates that Illinois will have approximately 400,000 EVs by 2030, less than half the number needed to meet the CEJA and CCAP goals (Figure 1).

Figure 1: At the current pace of EV adoption, the state and region will not meet fleet electrification goals

Accelerating the pace of transportation electrification will increasingly depend on state policy and investment, especially as federal incentives and vehicle emissions standards change. The enacted FY2027 budget appropriates $14 million for EV rebates, maintaining the funding levels from FY2025 and FY2026. Although this continued investment is significant, meeting the state and the regional goals will likely require additional funding and a broader set of complementary policies. Even if rebate participation remains at its current reduced level — rebates were issued for approximately 12 percent of new EV registrations in early 2026 — CMAP estimates that annual funding could need to increase nearly fivefold. Sustained state leadership, including complementary investments in charging infrastructure and policies that accelerate market adoption, will also be critical to making EV ownership more feasible.

Illinois needs sustainable revenues to uphold transportation commitments and preserve the system

The need for new EV infrastructure highlights a widening gap between Illinois’ commitments to a climate aligned, multimodal transportation system and the weakening revenue sources available to sustain them. As EV adoption increases and fuel consumption declines, the MFT and other fuel-based revenues — designed for an era before electric and hybrid vehicles — no longer provide a reliable foundation for maintaining infrastructure or supporting essential transit services. Temporary revenue increases and short-term fluctuations have obscured this erosion, while diversions of dedicated funds continue to strain transit agencies’ already fragile finances. The result is a fundamental imbalance between ambitious goals and an increasingly unsustainable funding structure.

The tax freeze and declining fuel consumption weaken motor fuel tax revenue

The MFT is a vital source of revenue for state highways, local roads, and regional transit assets. The enacted budget, however, freezes the MFT rate for six months by delaying the standard annual inflationary adjustment that typically takes effect on July 1. This is the second time the state has delayed the annual increase since establishing it under Rebuild Illinois in 2019. Although the freeze is intended as an affordability measure, the amount of relief for Illinois residents is uncertain. Economic analyses show that gas tax holiday savings are not always passed on fully to consumers because sellers may raise prices in response to market conditions. Moreover, any savings that do reach consumers also come at a cost: sustained year-over-year MFT revenue growth remains critical to maintain the transportation infrastructure that supports the region’s economy and quality of life.

Even before the freeze, MFT revenue was not keeping up with inflation. Improvements in fuel economy and EV adoption have reduced motor fuel consumption over time, and consumption is expected to decline another 0.5 percent in FY2027. As the tax base shrinks, the state collects less revenue. In the governor’s initial budget proposal, the pre-freeze MFT rate was assumed to increase 2.64 percent from FY2026 and FY2027, yet revenues were projected to grow only 1.6 percent over the same period. This trend does not mean fewer drivers will use the roads, however. Instead, EVs — which are generally heavier than comparable gasoline-powered vehicles — and increasingly heavier trucks may cause greater levels of wear and tear even if travel levels remain unchanged.

These dynamics are particularly concerning amid sustained construction cost inflation. Based on recent and long-term trends in the National Highway Construction Cost Index, CMAP estimates that ongoing supply chain constraints and rising material and labor costs could increase transportation construction costs by 7 percent from 2026 to 2027. Construction cost inflation would therefore significantly outpace the modest nominal growth in MFT revenue.

Given these fiscal pressures and the need to preserve the region’s legacy transportation system, CMAP has called for a new funding approach. CMAP’s Advancing a Road Usage Charge in Illinois explains how a well-designed road usage charge could replace the shrinking MFT over time while also supporting a broader congestion management strategy. CMAP’s Transportation Funding Strategies policy brief identifies additional long-term options for sustainable transportation investment, including regional transportation fee surcharges, freight fees, and other indirect user fees.

Sales tax diversions create continued uncertainty for transit

The NITA Act, enacted last year, dedicated revenue from the state sales tax on motor fuels to transit, signaling a strong legislative commitment. The FY2027 revenue omnibus bill, however, diverts $170 million to other purposes: $150 million to the General Fund and $20 million to the Road Fund. The Public Transportation Fund and Downstate Public Transportation Fund, which support transit operations in northeastern and downstate Illinois, will receive only the remaining revenue.

Because of these diversions, the state sales tax on motor fuels must outperform initial FY2027 projections by at least $170 million for transit systems to receive the funding levels previously anticipated. Forecasting this revenue is difficult because retailers prepay sales taxes on motor fuels based on the state’s biannual forecast of average fuel prices, making collections volatile (Figure 2). Higher fuel prices could push revenue above the governor’s initial projections, but any decline could quickly erase those gains. Rising prices can also accelerate declines in fuel consumption as travel behavior changes.

Figure 2. Annual revenue from the state sales tax on motor fuel rises and falls with fuel prices

Year-to-year fluctuations in this newly dedicated source of transit funding — whether caused by unpredictable fuel markets or budget diversions — could complicate transit operations. Because operators face substantial fixed costs, they cannot easily scale service in response to unexpected revenue shortfalls. In the short term, transit leaders will need to monitor revenue performance carefully, maximize the value of new funding, and manage risk and tradeoffs. State leaders also should avoid additional diversions that would undermine the NITA Act’s transformational investment in transit service.

Over the long term, Illinois must explore and implement more modern, sustainable revenue sources that can support broader state and regional needs. In Modernizing Illinois’ sales tax: A pathway to a sustainable future, CMAP and a coalition of civic partners built on longstanding recommendations to expand the sales tax base to include consumer services. As the state’s second-largest revenue source, the sales tax supports various state operations and services, including transit. Modernizing the sales tax structure could provide long-term structural relief for the state and local governments while generating more sustainable transit funding through existing revenue streams.

The Blue Ribbon Commission and the 2026 Regional Transportation Plan offer a path forward

Despite the uncertainty surrounding the FY2027 budget — especially the long-term sustainability of transportation funding — viable solutions exist. The BRC’s final report, released in January 2026, identifies promisin transportation revenue options and recommends steps to study and implement them (Table 1). The BRC also recommends that IDOT and the General Assembly create a Transportation Funding Coordination Committee to guide policy development and the technical design of these mechanisms. CMAP has studied many of the same revenue options, several of which are included in the RTP as reasonably expected revenues (Table 1). The RTP is open for public comment through July 31, 2026.

New revenue alone, however, will not be enough to maintain the region’s aging transportation system. IDOT must accelerate project awards and construction spending to translate fund balances into improvements. The current multiyear capital program includes $50.6 billion in improvements from FY2026 through FY2031, which assumes that IDOT can award and spend $8.4 billion per year. According to the BRC, delivering this ambitious program will require IDOT to more than double its average annual awards from FY2020 and FY2025. The BRC report recommends changes to project delivery processes and investments in IDOT’s workforce capacity. In the coming years, the governor and General Assembly should prepare to authorize substantial staffing increases, and other initiatives that expand workforce capacity and accelerate project delivery.

Conclusion

Illinois’ FY2027 budget sustains important investments in transportation, water infrastructure, and climate priorities amid federal uncertainty and economic volatility. Yet the state’s longstanding structural revenue challenges remain unresolved. As Illinois pursues a resilient, multimodal, and climate-aligned future, the revenue sources needed to support that vision are becoming less stable. MFT revenue is eroding, sales tax revenue from motor fuels is volatile, and dedicated climate funding remains insufficient. Regional and state climate action plans, the BRC, and the RTP point to a clear path forward: modernize and diversify the state’s revenue system, accelerate project delivery, and ensure funding and policy tools evolve with Illinois’ environmental and mobility goals. Sustained action to align ambitious state and regional commitments with durable, long-term funding will be essential to deliver the safe, reliable, and climate-ready systems Illinoisans depend on.

Documents used in this analysis were obtained from the Governor’s Office of Management and Budget and the Illinois General Assembly.