Deficit Watch: April 2026

Background

Pennsylvania continues to face serious fiscal challenges. The enacted 2025–26 General Fund budget created a $4.6 billion structural deficit. Gov. Josh Shapiro’s 2026–27 budget proposal would increase the deficit to $6.8 billion. Under the current policy and spending growth, long-term forecasts indicate daunting deficit increases in future years.

Revenue Estimates and Collections

• The $6.8 billion deficit equals the difference between net revenue (projected revenues minus refunds) and proposed spending (including one-time transfers). For the 2026–27 budget plan, these are $46.4 billion and $53.3 billion, respectively.
• In March 2026, Pennsylvania collected $6.52 billion in revenue, $91.9 million above the official revenue estimate. In total, fiscal year (FY) 2025–26 collections are $473.8 million above estimated revenues. When enacted, the 2025–26 budget included an estimated $4.6 billion structural deficit. Revenue collections above the estimate would reduce this to $4.1 billion. But Shapiro has also asked for $450 million in “supplemental appropriations,” or overspending, which wipes out revenue windfalls and puts the deficit back at $4.6 billion.
• Shapiro’s 2026–27 budget proposal drastically overestimates the impact of his proposed tax increases. A February analysis by the Pennsylvania Independent Fiscal Office (IFO) calculates Shapiro’s revenue estimates for his marijuana, skill games, and combined reporting proposals exceed IFO estimates by $4.4 billion over the next three fiscal years.

Recommendations

• If left unaddressed, the budget deficit will represent a tax increase of $2,100 per family of four beginning in 2027.
• Lawmakers must act now to reduce the structural deficit to protect working families from tax increases. Other legislative actions that would reduce the deficit and wasteful spending include:
  • Implementing welfare reforms to frequently verify eligibility and strengthen work requirements to reduce waste and fraud.
  • Opting in to the Federal Scholarship Tax Credit and passing other education reforms to ensure funding that follows children, such as expanding tax credit scholarships and Lifeline Scholarships.
  • Supporting the Taxpayer Protection Act (TPA), a fiscal guardrail that limits state spending growth to the average rate of inflation plus population growth or personal income growth.
  • Eliminate corporate welfare, or economic development spending, and use the cost savings to lower tax rates for all Pennsylvanians.
  • Pass the Regulations from the Executive in Need of Scrutiny (REINS) Act, requiring a formal cost verification process through the IFO, followed by a mandatory vote in the Pennsylvania General Assembly for regulations with an annual financial impact of $1 million or more.