When Gov. Josh Shapiro gave his Feb. 6 budget address, he said it would include more than $46 billion in revenue collections. But the number crunchers in the state’s Independent Fiscal Office (IFO) put a damper on Shapiro’s lofty projections this week, dropping those projections by more than a billion dollars.
“The IFO’s projected revenues for 2024-25 are $825 million lower than the Shapiro administration’s, and a whopping $8 billion lower over five years, guaranteeing massive tax hikes or sweeping program cuts in the future,” state Senate Republicans said in a statement.
“We just have a different take [than the Shapiro administration],” IFO Director Matthew Knittel told the Senate Appropriations Committee on Feb. 20. “One is more optimistic than the other.”
The deficit numbers were even worse, said Knittle. “We have a larger deficit of about $1 billion at the front end, and by 2028-2029, the deficit is $4.5 billion.”
Republicans expressed shock at the number discrepancy.
“It is a surprise,” Sen. Tracy Pennycuick (R-Montgomery/Bucks/Berks) told DVJournal. She sits on the Senate Appropriations Committee. “I think [the governor] is understating expenses that we’re going to incur in the next few years, and I also think he’s over-projecting revenue. That’s a deadly combination…”
“An $8 billion discrepancy is concerning on its own,” Sen. Jarrett Coleman (R-Breinigsville) told DVJournal. “The legislature should absolutely use the IFO’s revenue projections when determining what funds will be available. What’s more concerning is that even with the overly optimistic revenue projections offered by the governor, his spending levels would drain the rainy day fund and all other reserves by the middle of 2027. Spending at that pace is completely irresponsible.”
Democrats were unconvinced. “Things are going well,” said Sen. Vincent J. Hudges (D-Philadelphia) during the hearing.
He pressed Knittel on why legislators should follow a five-year budget projection when financial figures regularly change. He added the economy is doing well in the Keystone State. “A year ago, everybody was yelling that the sky was falling…[but] everybody was messed up.”
Knittel stood firm on IFO’s budget projections saying that it’s based on historical trends. “We’re always returning to that level,” he said. “We’re returning things to a normal rate of growth… It’s reasonable. It’s plausible. It’s stable.”
He also wouldn’t back down on his warning that Shapiro’s budget drains the state’s finances. “We have the General Fund Surplus and the Rainy Day Fund Surplus being exhausted in 26-27.”
That was enough for Commonwealth Foundation Senior Vice President Nathan Benefield to declare that Shapiro’s spending plan wouldn’t work. “Shapiro’s outlook projects no further increase in basic education after this year despite endorsing future increases,” he told DVJournal. “This is clearly an effort to mask the size of his deficits. Our analysis tracks with the IFO’s testimony that Shapiro’s proposal leaves the commonwealth with a $6 billion annual deficit—about $2,000 per family…”
There’s still a sense of optimism within the Senate on a budget agreement being reached that includes new spending. Knittel told the committee that there could be a “multiplier effect” on using money from the General Fund or Rainy Day Fund.
Sen. Tim Kearney (D-Swarthmore) said that he wants a middle ground on funding programs and holding onto cash.
Republicans feel the same.
“I think there’s a middle point,” Pennycuick said. She expressed a preference for some spending cuts to be a good steward of taxpayer money. “I would have to see where that money would be going. If it’s, in fact, going to be used on some of our shovel-ready projects that the governor proposed, that would be a good solid investment in Pennsylvania’s future.”
The legislature is holding a series of budget hearings over the next month on Shapiro’s budget proposal. The budget has to be finalized by June 30. But delays have happened before. Shapiro didn’t sign last year’s budget until August.
