Using the IFO revenue estimate and refunds, lapses and expenditures from the Executive Budget, it is estimated that the FY25-26 deficit currently sits at $3.9B.<\/p>\n
If new policies are excluded, the IFO anticipates the deficit exploding by 72 percent to $6.7 billion, exacerbated by a underlying structural deficit. According to its report, the primary factors driving the deficit expansion are three-fold: 1) the use of temporary monies in FY25-26 such as $1.1B from various special funds and transfers; 2) strong growth in healthcare programs for seniors, and; 3) modest net revenue growth.<\/p>\n
For the five years prior to the Covid pandemic, net revenues expanded by 3.9% per annum. During Covid, net revenue growth surged (5.5% per annum) but then decelerated to 2.8% per annum due to factors including depleted federal stimulus, corporate tax cuts, new and expanded tax credits, a new sales tax transfer to the Public Transportation Trust Fund and the loss of interest earnings that had accrued on General Fund surplus balances.<\/p>\n
Before Covid, spending expanded by 3.3% per annum. Since then, it has increased by 6.1% per annum driven by costs related to Human Services healthcare programs, pre-K-12 education and reduced support for the State Police from the Motor License Fund.<\/p>\n
While\u00a0Gov. Josh Shapiro\u2019s\u00a0budget hopes to raise revenue through the legalization of recreational cannabis, it does not appear to be much of a panacea to the problem.<\/p>\n
The IFO anticipates publishing estimates for revenue proposals by the end of the month. For FY 26-27, the Executive Budget includes $1.9 billion of new revenues from proposals such as recreational cannabis, the regulation and taxing of skill games, and the enactment of combined reporting for corporate net income tax.<\/p>\n
Last year, the corresponding estimate for similar proposals was $0.5 billion and the IFO anticipates due to the similarity to the FY 25-26 proposal, the estimates will not change significantly and will have a modest impact on the deficit.<\/p>\n
The Shapiro administration was quick to point out that the governor has proposed updating Pennsylvania\u2019s revenue system to deal with the state\u2019s long-term structural imbalance, but those proposals have not yet been passed by the General Assembly. Meanwhile, the federal government has reduced or shifted funding responsibilities in some areas, which puts additional pressure on the state.<\/p>\n
\u201cGovernor Shapiro has been clear that we can address Pennsylvania\u2019s challenges responsibly and without broad-based tax increases by growing our economy, modernizing our revenue system, and maintaining strong reserves,\u201d said a statement from the Governor\u2019s Press Office. \u201cPennsylvania\u2019s economy is expanding, revenues are outperforming expectations, and the Shapiro Administration remains laser-focused on delivering stability and opportunity for the people of the Commonwealth.<\/p>\n
\u201cThe Independent Fiscal Office (IFO)\u2019s projection excludes the recurring revenue proposals the Governor has put forward \u2014 including combined reporting, skill games regulation, and adult-use cannabis \u2014 while continuing to count spending that would be supported by those revenues. It is disingenuous to review only one side of the ledger \u2014 the IFO\u2019s projection does not depict the true budget as proposed by the Governor.\u201d<\/p>\n
Republican candidate for governor and\u00a0State Treasurer Stacy Garrity\u00a0was quick to pounce on the numbers.<\/p>\n
\u201cLast week, Governor Josh Shapiro claimed Pennsylvania\u2019s finances have never been better,\u201d she said in a statement. \u201cHe went on to call for more than $3 billion in new spending \u2014 ignoring the current $4 billion structural deficit covered up with the last of the COVID funds.<\/p>\n
\u201cShapiro insists his spending spree won\u2019t lead to higher income or sales taxes anytime in the next five years and when anyone challenges his math, he accuses them of lying.\u00a0Now the nonpartisan Pennsylvania Independent Fiscal Office has blown the whistle. Their analysis shows the deficit will explode to nearly $7 billion next year \u2014 wiping out the Rainy Day Fund.<\/p>\n
You can repeat talking points all you want, but facts are facts. This level of spending proposed by Josh Shapiro will mean higher taxes for Pennsylvanians down the road. Josh Shapiro knows it \u2013 he\u2019s just hoping to be gone before the bill comes due.\u201d<\/p>\n
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