The Pennsylvania government was issued another dire warning about its finances last month from the Independent Fiscal Office (IFO).
“The general fund, based on our forecast, is depleted next fiscal year and our rainy day fund ending balance is largely depleted by [Fiscal Year 2026–2027],” said IFO Director Matt Knittel during a presentation on Pennsylvania’s budget outlook.
The Keystone State’s budget deficit is projected to balloon from $3.4 billion this year to $6.7 billion by Fiscal Year 2029—an increase of $2.2 billion over last year’s projections.
IFO documents note average spending growth “significantly exceeds” the average revenue growth by 1.2 percent.
Tax collections are $700 million higher than pre-pandemic levels, but are expected to drop to $399 million in Fiscal Year 2025. Pennsylvania’s current $2.9 billion budget surplus was due to federal COVID spending levels and economic growth as the pandemic ended.
The IFO blamed General Fund deficit spending due to spending policies pushed by Democratic Gov. Josh Shapiro.
“About $1.9 billion of (the new deficit projections) is due to new policies that had not yet been enacted,” Knittel said.
The government plans to spend $1 billion on education each fiscal year until 2028. Other factors include increased spending on the Department of Human Services.
IFO analysts say corporate profits will be lower, along with corporate net income tax collections.
It’s not just state spending policy that has the IFO concerned about Pennsylvania’s future.
Rising federal spending also worried Knittel. He called the current federal budget deficit ‘unsustainable’ and questioned whether Congress and the incoming Trump administration would have the resolve for spending cuts.
Interest rates also concerned Knittel. He said that, along with sticky inflation, could slow economic growth in Pennsylvania. He added Pennsylvanians could also be hit with a $13-billion tax increase if the Trump tax cuts aren’t extended.
“That would have a negative impact on our revenue collections,” noted Knittel.
The budget deficit alarmed Commonwealth Foundation Policy Analyst Andrew Holman.
He said the massive budget deficit was proof that previous years of government overspending was finally catching up Pennsylvania.
“Pennsylvania families will soon face multi-billion-dollar tax hikes if lawmakers fail to pass a truly balanced budget, where ongoing spending is less than or equal to ongoing revenue,” Holman told DVJournal.
Lawmakers have typically used budget gimmicks like delayed payments, one-time revenue sources, self-borrowing, and intentional underbudgeting to even out the budget.
But Holman urged lawmakers to truly balance the budget and enact structural budget reforms like the Taxpayer Protection Act. The proposal would place limits on government spending by tying it to the inflation rate and population growth. The Commonwealth Foundation has argued the fiscal guardrail could have saved taxpayers $23.5 billion if it had been implemented in 2019.
The Taxpayer Protection Act hasn’t enjoyed much success in the state legislature. While the state House approved the bill in 2017, it hasn’t had much success in the Senate. Sen. Camera Bartolotta (R-Washington) said this week she wanted the Pennsylvania voters to approve a constitutional amendment making the proposal law. The General Assembly would have to pass the bill in two consecutive legislative sessions for it to end up on the ballot.
Holman argued the act would “ensure that Pennsylvania’s fiscally irresponsible past does not repeat itself.”
Shapiro’s Office did not return a request for comment on the IFO report.
