Pennsylvania faces a budget disaster in two years if it doesn’t slow spending, according to the Commonwealth Foundation.
Senior Vice President Nathan Benefield said the deficit is expected to hit more than $3.2 billion in 2026.
“That deficit will drain the General Fund balance by 2026. If we don’t right the ship by 2026, it will require tax hikes at the current rate of spending growth.”
The nonpartisan Independent Fiscal Office (IFO) projected last November that the General Fund could face a deficit of more than $4 billion in four years.
“Often lawmakers don’t look ahead several years in the future,” said Benefield. “‘There’s no crisis this year, no need to raise taxes to balance the budget.’ But looking ahead just a few years…we will need to raise taxes or cut spending.”
The Commonwealth Foundation does not believe the Rainy Day Fund can fix the budget problem. “That should be off the table for funding ongoing spending,” said Benefield. The state Treasury Department deposited $898 million into the Rainy Day Fund last November. That brought reserves up to $6.1 billion, which would keep the government funded for about 48 days.
Pennsylvania law allows the government to tap the fund only “when emergencies involving the health safety or welfare of the residents of this Commonwealth” or a recession. It would also require a two-thirds vote in the state House and Senate.
The IFO’s projections include the use of the Rainy Day Fund to fix budget holes. Those figures, however, suggest the fund will be empty by 2028.
Pennsylvania House Republican leadership said it’s time for the government to get control of its spending.
“Pennsylvania’s structural deficit for the 2023-24 budget currently sits at $1.83 billion, which represents the gap between total authorized state spending ($44.95 billion) and total state revenue ($43.12 billion),” Appropriations Committee Chair Rep. Seth Grove told DVJournal. “Already state revenues are falling short of estimate by $70.7 million which only adds to this problem. To deal with this daunting problem, we must find ways to control state spending, create jobs, and grow the economy.”
For Benefield, any budget changes should slow the growth of spending so Pennsylvania can avoid deficits rather than impose tax hikes. Commonwealth Foundation argued for ending the more than $1.3 billion in corporate welfare handed out last year and further regulatory changes. They’ve also suggested lowering the Corporate Net Income Tax (CNIT) faster – something the governor pushed for in last year’s budget address. The state’s CNIT is expected to be 4.99 percent by 2031.
Gov. Josh Shapiro will unveil his budget proposal in a couple of weeks. He said earlier this month that his budget priorities include increased funding for education. His administration has endorsed the Democratic majority’s Basic Education Funding Commission (BEFC) plan, calling for more than $5 billion in additional funding for low-income school districts.
Benefield disagreed, pointing out the state spends $15.5 billion on education. “Pennsylvania spends about $22,000 per student, among the highest of any state in the country.” He said statewide school district reserves are close to $6 billion.
“The School Boards Association typically releases a scary report every year saying that school districts are going to have to dive into their reserves unless there’s a massive increase in state funding,” Benefield scoffed. “Every single year, the actual numbers come out a few months later, and school districts actually padded their reserves. Many of them to excessive amounts.”
Commonwealth Partners Chamber of Entrepreneurs President and CEO Matthew J. Brouillette wrote in DVJournal that the BEFC proposal would cost families an extra $2,000 in taxes.
Brouillette compared increased funding for public schools to patients visiting a bad hospital and paying higher fees. “They’ll still be bad hospitals,” he wrote. “The solution isn’t higher medical bills. It’s different medical providers.”
Partisanship is also a problem in the legislature, according to Grove. The Senate is controlled by Republicans, while Democrats run the House. Democrats successfully scuttled a deal between Shapiro and the Senate on school vouchers last year.
Grove expressed other frustrations with House Democrats when it came to spending control measures. “[More than 42 percent] of Pennsylvania’s budget is spent on Human Services, yet dozens of Program Integrity bills are sitting in Democrat-controlled House Committees with no action,” he said. “Program Integrity bills aim to keep taxpayer dollars out of the hands of bad actors like fraudulent providers.”
Shapiro’s budget address is scheduled for February 6.