Illinois Pauses Data Center Incentives

Illinois' Data Center Investment Program is closing to new applicants. On June 5, 2026, Governor JB Pritzker (D) directed the Department of Commerce and Economic Opportunity (DCEO) to stop processing new incentive agreements under the Data Center Investment Program as of July 1, 2026. He first proposed a two-year suspension in his February 18, 2026 State of the State and fiscal year 2027 budget address, and the General Assembly adjourned May 31 without acting. Agreements executed before July 1 are honored. The pause comes with a study of the incentives' effect on the electric grid, consumers, and state revenue.

From the program's 2019 launch through 2024, 27 certified data centers received more than $983 million in estimated lifetime tax benefits under the program, according to DCEO's 2024 annual report. Growing electricity demand, including substantial growth from data centers, contributed to roughly $13 billion in higher capacity costs across the last two auctions run by PJM, the grid operator serving northern Illinois. A February 2026 Union of Concerned Scientists report projects another $37 billion in added electricity costs in Illinois alone over the next 25 years. Commonwealth Edison (ComEd) reports nearly 100 data center requests in its interconnection pipeline totaling more than 30,000 megawatts (MW), above the utility's roughly 24,000 MW all-time peak, per Capitol News Illinois.

The program has been paused, and it has not been repealed. The Governor's FY 2027 budget proposal frames the pause as time to evaluate "the effectiveness of these tax incentives, the electricity excise tax structure, and their impact on state revenue" while the administration and the General Assembly negotiate a comprehensive data center framework covering rate design, water permitting, and community transparency. Exhibit 1 shows the sequence.

What the Pause Does

DCEO will stop processing new agreements on July 1, 2026. Per the Governor's June 5 directive, DCEO will no longer process applications for data center certification as of that date. The February proposal framed the suspension as two years. The directive itself sets no end date and ties the pause to enactment of a comprehensive framework.

Existing agreements are honored. The Governor's announcement states that incentive agreements entered into with DCEO before July 1, 2026 will be honored. Those agreements, including their renewable five-year exemption certificates, remain in force.

The construction jobs credit pauses with the exemptions. The program's income tax credit equal to 20% of construction worker wages for projects in underserved areas (35 ILCS 5/229) is unavailable for newly certified projects during the pause.

The pause came after the POWER Act stalled. Lawmakers did not pass House Bill 5513, the POWER Act sponsored by Rep. Robyn Gabel (D-Evanston), by the May 31 deadline. The bill would have required hyperscale data centers to supply their own renewable energy, report water use quarterly, obtain water impact permits, and enter community benefits agreements, and it would have banned nondisclosure agreements with local governments. It remains in the House Rules Committee.

Program Benefits Going on Hold

The Data Center Investment Program pairs a 20-year sales and use tax exemption with a construction wage credit. It was enacted with bipartisan support in 2019 and is codified at 20 ILCS 605/605-1025. Exhibit 2 lists its terms.

Effect on Pending and Certified Projects

Projects without an executed DCEO agreement by July 1, 2026 will be locked out for the duration of the pause. Illinois' state sales and use tax rate is 6.25%. On $200 million of taxable servers, networking, and cooling equipment within a minimum $250 million build-out, the exemption is worth $12.5 million in state tax alone. Combined state and local rates exceed 10% in Chicago, and hardware refresh cycles repeat the purchase every few years, so the full value runs higher.

Certified projects keep their benefits only while they stay in compliance. Five-year certificate renewals depend on continued compliance with statutory, rule, and memorandum of understanding (MOU) terms. We expect closer scrutiny of jobs, wage, and sustainability covenants while the program is paused.

The fall veto session will decide what comes next. The Governor has asked lawmakers to enact his framework during the November and December 2026 veto session. It covers a data center rate class, interruptible service, bring-your-own clean energy, water permits, clean air standards, a ban on nondisclosure agreements, and mandatory community benefits agreements. Labor groups, including Climate Jobs Illinois and the Illinois AFL-CIO, are pressing to reverse the pause, arguing it pushes projects to Indiana, Kentucky, and Ohio. The result will set the terms of the program that reopens.

Alternatives Still Open in Illinois

The directive covers only the data center program. Nothing else in Illinois replaces the data center exemption, but related facilities and suppliers can still use DCEO's incentive programs:

• Economic Development for a Growing Economy (EDGE): payroll-based income tax credits for qualifying job creation and investment.
• Advancing Innovative Manufacturing (AIM) Illinois: investment tax credits of 3%, 5%, or 7% for advanced manufacturers investing $10 million or more under Public Act 104-0006, signed June 16, 2025. It fits the equipment, cooling, and power-infrastructure suppliers that build around data centers.
• Reimagining Energy and Vehicles (REV) Illinois and Manufacturing Illinois Chips and Microchips (MICRO): credits and utility tax exemptions for electric vehicle, semiconductor, and component manufacturing projects.
• High Impact Business and Enterprise Zone designations: sales tax exemptions on building materials and utility tax relief for large-scale projects.
• Local incentives: county property tax abatements and TIF are locally controlled and unaffected by the state directive.

What to Do Now

If your company has a data center project in Illinois, or was counting on the state’s exemption, this pause is worth a close look. Agreements signed before July 1, 2026 are honored, and other state and local programs remain open for some project components. If you want a read on where your project stands before the veto session, reach out to our team.

References

1. Office of Gov. JB Pritzker, Gov. Pritzker Pauses New Data Center Tax Incentives, June 5, 2026.
2. NPR Illinois, Read Gov. Pritzker's State of the State and FY 2027 Budget Address, February 18, 2026.
3. Capitol News Illinois, Gov. JB Pritzker suspends tax breaks for data centers, urges more discussion, June 5, 2026.
4. Capitol News Illinois, Pritzker proposes $56B budget with minimal new spending, tax on social media companies, February 2026.
5. Illinois DCEO, Data Center Investment Tax Exemptions and Credits.
6. Illinois DCEO, Data Center Investment Program 2024 Annual Report.
7. Illinois Compiled Statutes, 20 ILCS 605/605-1025 and 35 ILCS 5/229.
8. LegiScan, Illinois HB 5513 (104th General Assembly), Hyperscale Data Centers.
9. Axios Chicago, Illinois freezes data center tax incentives amid energy concerns, February 18, 2026.
10. NPR Illinois, Report shows data centers could significantly add to electricity cost in Illinois, February 10, 2026.
11. Data Center Dynamics, Illinois governor Pritzker calls for two-year pause on data center tax credits, February 19, 2026.
12. Illinois DCEO, Advancing Innovative Manufacturing (AIM) Tax Credit, Public Act 104-0006.
13. Natural Resources Defense Council, POWER Act Intended to Protect Ratepayers and the Environment from Data Center Harm.

© Copyright 2026 TC Policy Group, LLC (d/b/a Crawford Partners). The views expressed herein are those of the author(s) and not necessarily the views of Crawford Partners, its management, its subsidiaries, its affiliates, or its other professionals. Crawford Partners is not a law firm and cannot provide legal advice.