Pennsylvania’s Independent Fiscal Office projects the state will end this fiscal year with a $3.9 billion budget deficit but still grow its largest reserve fund to a record $7.8 billion, according to a report released Tuesday.
The IFO says the deficit is expected to get bigger, growing to $6.7 billion by the end of next fiscal year in 2027 — even without proposals contained in Gov. Josh Shapiro’s spending plan factored in.
“This amount is the underlying structural deficit,” the IFO wrote in its budget brief.
The office blamed the growing deficit on the use of “temporary monies” to balance this year’s budget (including $1.1 billion from special funds and budget transfers), along with a 6.7% growth in spending on health care programs for seniors and overall revenue growth of less than a half-percent.
Stacey Knavel, deputy director of the IFO, said the state is expected to grow its rainy day fund this year despite the structural deficit because of interest earnings on the fund’s current balance and anticipated transfers from the general fund.
The IFO said it intends to update its projections within two weeks to reflect Shapiro’s latest budget proposal, but the office doesn’t anticipate the numbers will change significantly. Shapiro, a Democrat from Montgomery County, unveiled a proposed $53.3 billion spending plan last week. The proposal relies on using nearly $4.6 billion from the state’s rainy day fund — formally the Budget Stabilization Reserve Fund — to balance.
The rainy day fund is projected to have $1.4 billion in it when the 2026-27 fiscal year ends, according to the IFO.
Pennsylvania operated with little to no money in its rainy day fund in the 2014 through 2017 fiscal years and $340 million or less in the fund in the 2018 through 2020 fiscal years, according to the IFO.
The state transferred $2.6 billion into the fund in September 2021, $2.1 billion in September 2022, $900 million in November 2023 and $737 million in September 2024, according to state Treasurer Stacy Garrity’s office.
“I’ve been a strong advocate for building our reserves, and thanks to a number of wise decisions by the General Assembly and the governor, we now have enough set aside to run the state for more than 53 days, which is above the national median,” Garrity said after the 2024 transfer.
Garrity and other Republicans panned Shapiro’s latest budget proposal as fiscally irresponsible.
“Gov. Shapiro’s budget is the largest in Pennsylvania history, and it is unsustainable, irresponsible and reckless,” Garrity, a Republican candidate for governor, said in a statement last week.
“In what world does Josh Shapiro think he can fund a $53.3 billion budget when he couldn’t cover last year’s $50 billion budget?” Garrity added.
Shapiro’s office did not immediately respond to questions about the IFO report.
