Deficit Watch

accountant

Deficit Watch: March 2025 

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Background

Pennsylvania faces serious fiscal challenges. The enacted 2024–25 General Fund budget created a $3.6 billion structural deficit. Gov. Josh Shapiro’s 2025–26 budget proposal would increase the deficit to $4.8 billion. Revenue collection data for this fiscal year shows that Pennsylvania’s budget deficit may be larger than expected. 

Revenue Estimates and Collections

  • In February 2025, Pennsylvania collected $2.87 billion in revenue, $44 million above the official revenue estimate. While February collections exceeded the estimate—revenue sums still lag for fiscal year (FY) 2024–25. In total, FY-to-date collections are $104 million below estimated revenues. 
  • Shapiro’s 2025–26 budget proposal drastically overestimates the revenue impact of his revenue proposals. A March briefing 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 billion over the next three fiscal years. If Shapiro’s proposals do not reach his hefty projections, the budget deficit will be even larger than previously expected. 

Human Services Costs and the Deficit

  • As Pennsylvania’s population ages, costs for human services programs serving the elderly face serious upsurges. The IFO projects costs for Pennsylvania’s Medicaid program to rise four times faster than revenues from now to FY 2027–28. At the same time, the IFO projects Long-Term Living costs to increase five times faster than revenues.
  • While costs for vulnerable populations increase, Pennsylvania has over 830,000 healthy, able-bodied adults enrolled in Medicaid. This population costs state and federal taxpayers a combined $6 billion annually, drawing resources from vulnerable populations. 
  • Entitlement programs, including Medicaid and Supplemental Nutrition Assistance Program (SNAP) suffer from large improper payment rates due to eligibility errors. In 2019, Pennsylvania made $2.3 billion in improper payments, with eligibility errors accounting for $1.8 billion. 
    • Currently, Pennsylvania only verifies eligibility once per year, accepts eligibility information without additional verification, allows continuous eligibility, practices ex parte renewal, and allows enrollment in SNAP based on eligibility for other welfare programs. These practices all contribute to improper payments. 
  • Additionally, the SNAP program has work or training requirements for adults without disabilities or dependents between the ages of 18 and 54. However, Pennsylvania waives these requirements in 59 counties and parts of six other counties. Pennsylvania’s waiver uses gerrymandering and extended lookback periods and ignores historical data to maximize the number of individuals exempt from work requirements. 

Solutions

  • Lawmakers should institute work requirements for healthy, able-bodied adults receiving Medicaid and SNAP benefits. Research shows work requirements help individuals become independent, with incomes tripling within two years of returning to work. These income gains more than offset the cost of lost benefits, putting individuals on the path toward self-sufficiency. 
    • A January 2025 poll found that 84 percent of Pennsylvania voters support work requirements for able-bodied adults receiving assistance. 
  • Harrisburg should improve Pennsylvania’s process for verifying Medicaid and SNAP eligibility. Upping the frequency of eligibility checks to twice per year would decrease eligibility errors. A recent poll found that 86 percent of voters support increasing the frequency of eligibility verification. 
    • Lawmakers should explore additional steps to reduce eligibility errors and improper payments. The state should require additional verification for every aspect of program eligibility and end harmful practices like ex parte renewals, continuous eligibility, and broad-based categorical eligibility. Reducing improper payments would increase resources available to vulnerable populations. 
  • As federal lawmakers explore program integrity reforms, Pennsylvania lawmakers should do the same. Requiring legislative approval for federal waivers, reducing Medicaid provider taxes, capping supplemental payments, increasing audits and fraud investigations, and improving oversight of costly optional benefits would all enhance program integrity in Pennsylvania.