Pennsylvania’s nonpartisan Independent Fiscal Office recently issued a research brief that updates its revenue projections against expenditures based on the FY 2024-25 enacted budget. And, according to the IFO, spending is now outpacing revenue and the revenue estimate for the current fiscal year is $320 million lower than the official estimate certified by Gov. Josh Shapiro. This has the office warning that, unless steps are taken to lower spending or boost revenue, the result could be a budget deficit of close to $1.6 billion by next year.

The IFO projects that if education spending increases by 2.4 percent, human services spending increases by 5.2 percent, and personnel-related spending increases by 4.2 percent, the state budget will be close to $50 billion in 2025-26 even though the state is projected to only bring in about $45 billion in revenue.

“For FY 25-26, revenue growth is modest (1.4 percent) due to the ongoing corporate rate cut, the reduction in interest that accrues on General Fund balances (-$240 million) and the deduction of newly enacted tax law changes (-$304 million),” the IFO said in its analysis.

The IFO notes in its analysis that the Shapiro administration has projected that Pennsylvania will get $300 million more in revenue in this fiscal year than the IFO has projected, meaning the deficit would be slightly less (if the administration’s estimates hold true.)

The 2024-25 budget will require about $3 billion of surplus cash to balance, leaving about $10.5 billion in reserve.

The IFO’s analysis warns that the cost of tapping into its reserves to pay for this year’s budget will leave the state with just under $3 billion in general fund surplus at the end of 2024-25. That surplus is on pace to become a $1.57 billion deficit by the end of 2025-26.

The state ended 2023-24 with a $6.6 billion surplus, plus almost $7 billion in the Rainy Day Fund.

To read the full report, click here.