As the state remains squarely stalled in its third month of a budget impasse, the fiscally conservative Commonwealth Foundation is raising alarms over Gov. Josh Shapiro’s proposal to use Pennsylvania’s so-called Rainy Day Fund to cover billions in new spending, calling the move unlawful, fiscally reckless, and out of step with voters.
“Pennsylvania is not facing any legitimate emergencies that meet the legal threshold for tapping into the Rainy Day Fund,” Nathan Benefield, chief policy officer at the Commonwealth Foundation, told Pennsylvania Business Report.
Benefield warned that draining the fund now would set a dangerous precedent, risk a credit downgrade, and worsen the state’s structural deficit. The idea is also one of the key factors behind the ongoing state budget impasse, he added.
“The law is clear,” said Benefield, “these reserves can only be used during a state of emergency or a recession causing unexpected revenue shortfalls. There has been no declared state of emergency, and revenues from last year exceeded forecasts.”
The Rainy Day Fund currently holds more than $7 billion. Gov. Shapiro has “unlawfully” proposed transferring $1.6 billion from the Budget Stabilization Reserve Fund — colloquially known as the Rainy Day Fund — to balance the 2025-2026 Pennsylvania General Fund Budget to create new programs and pay for deficit spending, Benefield explained.
Shapiro’s plan, said Benefield, is not only driving the state’s ongoing budget gridlock but would also weaken Pennsylvania’s long-term fiscal security because using the fund to spend anywhere from $5 billion to $7 billion more than state revenues exacerbates the structural deficit — ultimately requiring tax hikes on working families.
“By refusing to negotiate spending within available revenue levels, the governor has refused to budge from his plan that guts Pennsylvania’s emergency reserves and would require a $2,000 tax hike on working families,” he said.
Shapiro could have avoided the protracted impasse if he’d been open to a reasonable bipartisan compromise, said Benefield.
“Unfortunately, he’s refused to compromise, and now Pennsylvanians face the consequences of his stubborn partisanship,” he added, suggesting instead that the goal be to preserve the Rainy Day Fund now, while revenues are growing, in case there is a natural disaster or recession in Pennsylvania’s future.
Andrew Lewis, president and CEO of the Commonwealth Foundation, echoed these concerns in a Sept. 8 letter sent to State Treasurer Stacy Garrity and leaders of the Pennsylvania House and Senate.
“Raiding the Rainy Day Fund… runs afoul of the law and sets a dangerous precedent for future state budgets,” wrote Lewis. “We respectfully ask that you safeguard the integrity of the Rainy Day Fund by blocking the governor’s executive overreach in attempting to exhaust the fund beyond its legislatively defined limits.”
He urged the state leaders to withhold any future transfers from Pennsylvania’s Rainy Day Fund without a two-thirds majority vote from the General Assembly, action that’s required by state law.
Lewis also pointed out that all three ratings agencies — Moody’s, Fitch Ratings, and S&P Global — have warned that reducing the Rainy Day Fund to balance the budget could result in a downgrade in Pennsylvania’s bond rating.
“Such a downgrade would result in a significant increase in interest rates on bonds the commonwealth issues every year — imposing yet another long-term cost on the backs of taxpayers,” Lewis wrote.
Garrity, in fact, has publicly agreed, telling The Center Square in a Sept. 16 story that she thinks the foundation’s letter “serves to reinforce the fact that using any portion of the Rainy Day Fund should be reserved to such time when it’s actually raining, and not used just to balance the current or future budgets.”
Recent polling conducted by the Commonwealth Foundation also backs up these concerns.
The nonprofit’s statewide poll, conducted August 15-19, surveyed 800 likely Pennsylvania voters, who were asked about Shapiro’s proposal to use $1.6 billion from the Rainy Day Fund to cover new spending.
Nearly two-thirds (65 percent) opposed the proposal, according to the foundation, which said voters are also very concerned about Shapiro’s proposed spending increases and the prospect of it forcing tax hikes, with 64 percent opposing his plan. A majority (52 percent) are looking to Shapiro and Democrats in the legislature to finalize the budget.
“Families balance their household budgets every day, and they expect government to do the same,” Benefield said. “Instead of draining our reserves, lawmakers must reach a final budget agreement that aligns spending with revenues and protects the long-term fiscal health of our state.”