Illinois Budget Hearing Reveals Controversy Over Foreign Investments and Soaring Health Costs

Springfield lawmakers grilled Treasurer Michael Frerichs over state investments in foreign bonds Tuesday, as the Senate Appropriations Committee heard testimony about soaring health care costs for state employees and a growing workforce.

The hearing came as Illinois collected more than $1.57 billion in additional tax revenue through the first nine months of fiscal year 2026, or 4.2 percent more than the same period a year ago, according to the Commission on Government Forecasting and Accountability. The windfall provides a rosier outlook for Illinois compared to earlier fiscal warnings.

But behind the revenue good news, lawmakers pressed officials on contentious issues that could shape the final budget released in May.

Foreign Investment Controversy

Sen. Rachel Ventura, D-Joliet and chair of the Human Rights Committee, raised concerns over whether state funds invested in foreign government bonds could be linked to international conflicts with human rights concerns.

Ventura specifically pressed Treasurer Frerichs on whether current Illinois investments could be connected to Israel government bonds, given the ongoing regional tensions.

Frerichs emphasized that foreign investments have been standard practice in Illinois for the past 20 years and stressed his role as a fiduciary, not a policy maker.

My job is not to engage in foreign policy, Frerichs said during the hearing. My job is to maximize returns.

The treasurer explained how state statute allows for the Treasury to invest up to three quarters of 1 percent of the state portfolio into foreign bonds. We invest in Israel bonds, $100 million, he said, adding that any investments made by the state must meet criteria set in state law.

Frerichs further discussed the broader role of his office, noting how investment returns play a key role in supporting state programs and operations. Our office made a record $2.5 billion in investment earnings for state and local governments in fiscal year 2025, he said. He added that those returns alongside with more than $2.4 billion in unclaimed property returned to Illinois residents since 2015 are part of the broader effort to bring value to the state.

Health Care Costs Continue Rising

Lawmakers also raised concerns about rising health care costs for state employees, which are expected to rise up to 9 percent next year. Some questioned whether the state is adequately evaluating the effectiveness of its spending or conducting analysis to judge the efficiency of spending, particularly as costs continue to rise year over year.

Its breaking the bank, its starting to become a significant issue, said Sen. Chapin Rose, R-Mahomet.

Officials acknowledged the complexity of measuring cost savings tied to improved health outcomes, but said current efforts are focused on improving care and managing long-term risk.

CMS Director Raven DeVaughn told the committee that the state expects to see an increase of $380 million or 9 percent in total costs to the health system in fiscal year 2027. That would bring total expenses paid by all funding sources to about $4.6 billion.

That would be a slightly lower rate of inflation than the state has seen in recent years. Costs increased this fiscal year by an estimated $402.8 million or 10.5 percent over fiscal year 2025. That year was almost 15 percent higher than fiscal year 2024.

DeVaughn said the increases have been due to several factors, including growth in the states workforce. Since 2019, she said the state has added about 10,000 employees. She said the health plan now covers about 470,000 lives, including employees, retirees and qualifying dependents.

Growing Workforce

DeVaughn also cited general inflation in the health care industry as a contributing factor. Certainly theres the general idea of inflation that we are all just fighting through as a country, she said. We cant quite point to one specific thing that has increased our liabilities.

According to CMS data, the average cost per participant is expected to grow 8.3 percent next year, to $12,051. That would represent a 45.7 percent increase over fiscal year 2018.

As an employer, the state offers its employees a variety of different health benefit plans. They are funded through a combination of state funds, employee premiums, prescription drug rebates and other miscellaneous revenues.

The states general revenue fund is the largest single source of funding, accounting about 62 percent of the systems total revenues. That cost is expected to rise 12.8 percent, to $2.8 billion in the upcoming fiscal year. Contributions from the road fund are expected to decline 10 percent, to $155.5 million, while funding from university funds is expected to remain even at $45 million.

Member contributions are expected to increase $30 million or 4.9 percent, to $637 million. Member contributions make up about 14 percent of the systems total revenues.

Premiums, which are largely a function of collective bargaining agreements, are expected to rise $8 per month for employees and $4 per month for all dependents in both fiscal year 2026 and 2027, the last year of the current labor contract.

Modernization and Hiring

Officials from Central Management Services pointed to improvements in state operations, such as a growing workforce and faster hiring timelines. The agency reported Illinois now employs nearly 57,000 workers the highest level since 2007 while vacancy rates and hiring delays have declined in recent years.

We have reduced the average time to hire from 269 days to approximately 93 days today, Director Raven DeVaughn told lawmakers, describing a significant improvement in addressing longstanding staffing challenges.

What had been a paper-driven process and grading system has undergone a modernization effort making it efficient for agencies and applicants.

What Comes Next

The main task for lawmakers and the governor, as it is each year, is to pass a new budget before adjourning the spring session. It is expected to wrap up at the end of May, giving them just a handful of weeks to make final decisions that will determine funding for a variety of areas over the next fiscal year.

Along with hearings, behind-the-scenes budget negotiations are taking place involving the General Assembly and the governors office. Many agreements are already in place. There are also revenue enhancements proposed items like a social media tax and sales tax changes that are expected to impact future revenue growth. Both the governors budget office and CGFA will release more revenue estimates prior to lawmakers wrapping up their work.

Uncertainty over energy costs, foreign conflicts, tariffs and the overall economy will be taken into account. But for those waiting to see how they will fare in the new budget, it is likely the final plan will not be released until shortly before it comes up for a vote next month.

Revenue Context

The almost $1.6 billion in new revenues is an increase of 4.2 percent. The state budget was crafted last year with an expectation that revenues would rise just 2.3 percent for the full fiscal year, so that is pretty darned good news, according to Rich Miller of Muddy River News.

The commission revised its projected revenue estimates upward last month by $684 million, or 1.2 percent, above the original budget forecast last May. The continued revenue increases in March further reinforced last months upward revision, the commission claimed in its latest revenue report issued at the beginning of April.

Without further changes to state corporate tax laws to decouple from last summers massive federal tax cuts, the huge slide in corporate tax receipts will continue. As of now, corporate receipts are down 6.2 percent for the year, but they were projected to increase by 10.8 percent when the state budget was passed before Congress slashed so many corporate taxes.

Only mentioned briefly in the latest monthly report is the potential economic fallout from the attack on Iran and the subsequent closure of a key petroleum shipping lane. It is such a volatile situation that nobody really knows what to expect in the fiscal years final three months.

And that brings us to President Donald Trumps recently proposed budget for Fiscal Year 2027, which starts October 1. The proposal would slash funds for infrastructure projects by $15.2 billion, reduce public school funding by $8.5 billion, eliminate the program to help low-income households with utility bills, cut higher education funding by $2.7 billion, reduce law enforcement and public safety programs by $1.7 billion, cut homelessness grants by $393 million, eliminate the school meals program etc.

That is on top of the gargantuan cuts to Medicaid and nutrition assistance programs included in last summers reconciliation budget.