During a budget hearing with the Senate Appropriation Committee on Tuesday, the Independent Fiscal Office (IFO) said its anticipated about $8 billion less revenue for the state over the next five years.
Gov. Josh Shapiro’s $48.3 billion budget plan aims to boost state spending by more than $3.2 billion, Senate Republicans said. Testimony from the IFO projected state revenues for 2024-2025 would be $825 million lower than Shapiro’s budget projects, and $8 billion lower over the next five years. IFO Executive Director Matthew Knittel said the structural deficit and projected current fund balance and the Rainy Day Fund would both run out in 2026-2027 under Shapiro’s proposed budget, Senate Republicans said in a press release.
The Budget Committee Chair Scott Martin (R- Lancaster County) held the hearing to get more information from the IFO on the state’s financial future as the cash balance is spent down and spending proposals take effect. Martin said the IFO’s projections provide a more realistic view of the governor’s proposed spending plans.
The IFO said the state’s budgetary reserves are currently about 12 to 15 percent, and spending down the reserves could lead to credit rating downgrades. Additionally, the IFO said it recently revised its economic forecast downward unlike the optimistic revenue outlook from the Shapiro administration. IFO projects the state will undergo financial challenges because of demographic changes, particularly in the growth of the aging population, and a slowdown in revenue collections due to higher interest rates.
The IFO also said increasing the minimum wage to $15 an hour would cost the state 20,000 jobs, and increase inflationary costs for consumers, with a disproportionate impact on the state’s rural areas.