SB3986 amends the Illinois Motor Fuel Tax Law (35 ILCS 505/2) to prevent the automatic, CPI-based increase in the motor fuel tax that would otherwise take effect on July 1, 2026. The bill inserts an explicit exception so that the July 1, 2026 increase "shall not occur," and makes the change effective immediately upon enactment.
This is a targeted, one-off suspension of an automatic indexing mechanism that was built into the statute starting in 2023. Practically, it freezes the tax rate that would have been raised by the CPI calculation, reducing state and local motor-fuel receipts relative to the scheduled amount and forcing budget planners to absorb or replace the shortfall within transportation programs and other funds that rely on motor fuel tax revenue.
At a Glance
What It Does
The bill amends 35 ILCS 505/2 to add an explicit carve-out: the July 1, 2026 automatic increase in the motor fuel tax tied to the Consumer Price Index will not occur. The rest of the statutory CPI-indexing language — the calculation method and the July 1 timing for subsequent years — remains unchanged.
Who It Affects
Directly affected parties include gasoline and diesel purchasers in Illinois, state agencies that receive motor fuel tax revenues (notably the Illinois Department of Transportation), counties and municipalities that rely on motor-fuel-derived distributions, and fleet operators whose fuel costs are sensitive to per-gallon tax changes.
Why It Matters
The change creates an immediate, quantifiable reduction in projected motor fuel tax receipts for fiscal year planning and capital programs funded by those receipts. It also signals a willingness by the legislature to override automatic indexing rules, which may affect long-term revenue forecasting and trust in statutory inflation adjustments.
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What This Bill Actually Does
Starting in 2023 Illinois set up an automatic inflation adjustment for the primary motor fuel excise tax: an increase tied to the Consumer Price Index (CPI) calculated from 12‑month averages and scheduled for January 1, 2023 and then July 1 of each subsequent year. SB3986 intervenes in that schedule by inserting a single, targeted exception — it states that the July 1, 2026 CPI-based increase shall not occur.
The bill does not repeal the indexing mechanism itself, nor does it change how future CPI increases are computed; it simply prevents the 2026 bump.
Mechanically, the statute retains its existing CPI calculation language (12‑month averages ending in March, comparison to the prior year, and rounding to the nearest one‑tenth of a cent). Because the bill stops only the July 1, 2026 increase, the Department of Revenue would not apply or collect an incremental cents-per-gallon increase on that date; rates remain at their pre-July-2026 level until any later adjustments provided by law.The bill takes effect immediately upon becoming law, so the Department of Revenue and budget offices must account for the change in ongoing forecasting and in any systems that produce rate tables or that report projected motor fuel tax revenues.
The statute does not include offsetting revenue measures or transfers to backfill the forgone receipts, which means the shortfall must be absorbed by existing balances, alternative revenues, or reduced outlays in transportation and other affected programs.Operationally, the immediate utility-side effect is simple: pump prices will not include the additional cents-per-gallon that the July 1 CPI adjustment would have added. However, the policy effect is broader: by halting a statutorily automatic increase, the legislature narrows the scope of predictability built into indexed revenue streams and introduces a precedent for future ad hoc suspensions.
The Five Things You Need to Know
SB3986 amends 35 ILCS 505/2 to state explicitly that the July 1, 2026 CPI-based motor fuel tax increase "shall not occur.", The law continues to calculate CPI increases using the 12-month average ending in March compared to the prior year and rounds the result to the nearest 0.1 cent per gallon.
The bill takes effect upon becoming law; there is no delayed implementation date or phase-in.
SB3986 is a single-date suspension: it leaves the statutory indexing framework intact for other dates and years rather than repealing automatic CPI adjustments.
The bill contains no compensating revenue provisions or transfers, leaving any revenue shortfall from the suspended increase to be covered by existing funds, cuts, or future legislative action.
Section-by-Section Breakdown
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One-time exclusion of the July 1, 2026 CPI increase
This is the operative change: the amendment inserts language that prevents the specific July 1, 2026 CPI-based rate increase from taking effect. Practically, that blocks the cents-per-gallon uptick the statute would otherwise generate on that date. The provision is narrowly worded and does not purport to alter the indexing formula, rounding rule, or the annual schedule for other years.
Retained methodology for future CPI adjustments
The bill leaves intact the statutory instructions for computing CPI increases: average the CPI for the full 12 months ending in March of the year the increase would take place, compare it to the previous year's 12‑month average, calculate the percentage increase, and round to the nearest one‑tenth of a cent. That means the administrative mechanics and disclosure requirements for future increases remain unchanged and the Department of Revenue will still be able to compute future adjustments using the existing formula.
Existing 2022 pump-notice requirement and fines remain unaffected
The statute contains a separate, time-limited retailer notice requirement tied to the 2022 suspension (posting a sign on retail dispensing devices and a $500 per day fine for noncompliance). SB3986 does not alter or reactivate that provision; it addresses only the July 1, 2026 CPI increase. That distinction matters for enforcement: no new pump-signing obligations or fines are created by this bill.
Immediate effective date
The bill's effective date clause makes the change operative upon enactment. For administrators and budget officials, that means any revenue projections or rate tables prepared after enactment should reflect the non-occurrence of the July 1, 2026 increase; no transition or delayed implementation period is provided.
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Explore Transportation in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Illinois motorists and consumers — avoid the per-gallon increase that would have raised retail pump prices on July 1, 2026, providing modest, immediate relief at the point of sale.
- Commercial fleets and logistics companies — preserve fuel-cost predictability for 2026 by avoiding an incremental per-gallon tax increase that would have raised operating costs.
- Low- and fixed-income households — disproportionately benefit from the avoided tax increase because fuel is a larger share of their household budgets.
- Retail fuel sellers — avoid having to adjust posted pump prices and customer-facing signage to reflect an additional tax increase on the scheduled date.
Who Bears the Cost
- State transportation programs administered by the Illinois Department of Transportation — will receive less motor fuel tax revenue than scheduled for fiscal planning tied to the July 1, 2026 increase.
- Counties and municipalities receiving motor-fuel-derived distributions — local road and infrastructure projects funded by those distributions may face delays, cuts, or need backfill from other sources.
- Illinois General Obligation or revenue-backed budgets — the state will either absorb the shortfall in existing balances or need to identify alternative revenues or spending reductions.
- Future taxpayers or bondholders — if the revenue shortfall requires borrowing or delays projects that increase long-term costs, future taxpayers could indirectly bear added costs; bond covenants tied to motor fuel receipts could also be stressed.
Key Issues
The Core Tension
The central tension is between short-term consumer relief and the need for predictable, stable funding for transportation infrastructure: preventing an automatic CPI increase reduces immediate out-of-pocket fuel costs but erodes a built-in mechanism designed to preserve purchasing power for transportation programs — forcing policymakers to choose between politically popular tax relief and steady, inflation‑proofed funding for roads, bridges, and transit.
SB3986 achieves a policy outcome — preventing a scheduled CPI increase — with minimal statutory complexity, but that simplicity masks several implementation and policy tensions. First, by stopping a single automatic increase while leaving the indexing mechanism otherwise intact, the bill preserves ambiguity about legislative willingness to respect future automatic adjustments.
That ambiguity can undermine the reliability of indexed revenue streams for capital planning and long-term contracts.
Second, the bill contains no offsets. The motor fuel tax funds many state and local transportation obligations; absent a specified backfill, budget offices must either reallocate existing funds, defer projects, or seek new revenue sources.
The bill therefore shifts the fiscal decision from an automatic, formulaic increase to ad hoc budget choices that may have larger administrative and political costs. Finally, the bill does not address operational questions that follow from an on-off suspension: agencies must update projections, IT systems that compute and display tax rates must be adjusted, and communications to distributors and retailers must be clear to avoid inconsistent pricing at the pump.
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