HARRISBURG – Testimony from Pennsylvania’s non-partisan Independent Fiscal Office (IFO) validated Senate Republican concerns about the faulty revenue and expense projections in Gov. Josh Shapiro’s budget proposal and emphasized the important benefits of the state Rainy Day Fund during a budget hearing with the Senate Appropriations Committee today.
The governor’s $48.3 billion plan seeks to boost state spending by more than $3.2 billion, or 7.1% above the current budget.
Independent Fiscal Office
The IFO’s projected revenues for 2024-25 are $825 million lower than the Shapiro administration’s, and a whopping $8 billion lower over five years, guaranteeing massive tax hikes or sweeping program cuts in the future.
IFO Executive Director Matthew Knittel acknowledged Pennsylvania’s ongoing structural deficit and projected the current fund balance and the Rainy Day Fund – the state’s emergency savings account – would both run out in 2026-27 under the governor’s budget.
Committee Chair Scott Martin (R-13) sought additional analysis from the IFO on the commonwealth’s future financial standing as the cash balance is spent down and the administration spending proposals take effect. Martin said this would provide a more realistic view for Pennsylvanians of the impact of the Shapiro administration’s spending plans.
Video Highlights
According to the IFO, Pennsylvania’s budgetary reserves are currently in the prudent range of 12-15%, and spending down these reserves could lead to credit rating downgrades. Contrary to Gov. Shapiro’s budget address rhetoric, the IFO is not aware of any rating agencies that think Pennsylvania’s reserves are too high.
The Shapiro administration is assuming the state will receive billions more in revenues over the next five years. In fact, the IFO’s revenue projections are $8 billion lower than the Administration’s projections during the five-year planning period.
The IFO recently revised its economic forecast downward, creating a big difference between the IFO’s revenue outlook and the optimistic assumptions the Shapiro administration used to build its budget.
The IFO projects additional financial challenges for Pennsylvania in the years ahead due to demographic changes, particularly the growth in the aging population while overall population remains flat. At the same time, the K-12 school-age population is expected to decline.
High interest rates continue to have a negative impact on consumers and job creators. As a result, Pennsylvania is beginning to see a slowdown in revenue collections.
Additional analysis of the financial impact of Gov. Shapiro’s proposals on adult use marijuana, games of skill, minimum wage and other issues will be available later in March.
The IFO testified that increasing the minimum wage to $15 an hour would have a disproportionate impact on rural areas. The proposed increase is projected to cost Pennsylvania 20,000 jobs and increase inflationary costs to consumers.
Pennsylvania remains the top exporter of energy in the region, especially as some neighboring states have seen declining generation.
It is unclear whether the state could realize enough revenue from the legalization of adult use marijuana to meet the Shapiro administration’s projections. It does not appear that the Shapiro administration is including additional funding to deal with the societal and financial costs associated with legalization.
Department of Corrections
Gov. Shapiro has proposed new funding for the department totaling $229 million – $74 million more than the department requested for 2024-25. This followed the Department overspending its 2023-24 budget by $100 million.
In addition, projected overtime costs of $143 million for 2023-24 will exceed the budgeted amount of $128 million. Committee members sought answers to these and other spending highlights from Secretary Laurel Harry.
EMS companies waiting two years for reimbursement was also raised by members, who urged more timely action from the department’s vendor. Senators also discussed concerns over lowering the minimum age for corrections officers from 21 to 18, among other issues.
Video Highlights
An additional $100 million in supplemental spending was requested by the department above the amount that was appropriated in the current year’s budget. Much of the cost overrun was related to personnel and overtime costs.
Concerns were raised about the rise in the number of corrections officers who are working excessive overtime hours and increasing overall costs, while creating potential safety risks due to exhaustion. Approximately 40 officers earned more than $100,000 last year in overtime pay alone.
Gov. Shapiro included $74 million more in his budget than the Department of Corrections requested.
The recent data loss that impacted the Office of Administration did not affect Corrections information or records, but it did lead to a more thorough review of existing protocols and protections. Department officials struggled to answer where their servers are located.
The department recently instituted a new policy allowing individuals as young as 18 to work as corrections officers, but it is unclear how many have been hired.
Additional measures to identify and treat incarcerated individuals suffering from mental health issues was suggested to reduce recidivism.
EMS providers are not being reimbursed promptly for services related to inmate care, with some emergency service providers waiting two years to be compensated by the department. This places a greater burden on local taxpayers.
The cost to include body cameras for probation and parole officers is included in the department’s budget request.
You can find recaps and video from every Senate budget hearing at PASenateGOP.com.
CONTACT: Jason Thompson