The $45.5 billion spending plan also cuts $800 million in other spending and delays a capital construction plan.
The Democratic governor says the budget also allows more children to go to preschool and helps seniors pay for prescription drugs.
Blagojevich said in a statement that, "We are able to do all of this without asking the taxpayers to pay more in their income taxes or sales taxes."
It did not come without a price. House Democrats teamed with Republicans to oppose the governor's original plan and sent the legislative session into a record 54-day overtime. The fiscal year began July 1.