(The Center Square) – Pennsylvania’s economy will have modest real economic growth but also a dip in tax revenues in the next fiscal year as one-time boosts fade away, according to the latest revenue estimates from the Independent Fiscal Office.
The estimate for fiscal year 2022-23 does not assume a recession will hit, but does assume inflation will still be a problem, which cuts away at real gains in areas such as wages and salaries.
For the commonwealth’s General Fund, the IFO expects $43.32 billion in revenues, $5.38 billion lower than fiscal year 2021-22. The lower total comes from the end of one-time federal transfers and higher-than-expected tax revenues from the corporate net income tax, personal income tax, sales tax, and other sources.
The total tax revenue decline will be about $2 billion, a 4.5% drop.
One-time gains from stock market returns, the winding down of federal stimulus dollars, higher interest rates and a contracting money supply all influence lower revenues, IFO Director Matthew Knittel said in an email.
The state of the economy could complicate the revenue estimates; as The Center Square previously reported on the IFO’s initial estimate, the office placed a 60% chance of economic stagnation or a “growth recession” happening, and a 30% chance of a recession.
“Many analysts believe there is significant potential that the forecast could deteriorate rapidly based on high energy prices, volatile and declining equity markets, and global events,” the report noted.
If that happens, revenues would drop.
In its initial estimate, the IFO expected $41.46 billion in tax revenue, almost $2 billion lower than its final estimate.
“The IFO’s latest revenue estimate represents an increase over the most recent projection in terms of how much state government will collect from Pennsylvania taxpayers,” said Nathan Benefield, senior vice president of the Commonwealth Foundation. “Unfortunately, many have used this to wrongly claim that (the) state has a ‘surplus’ – as Governor Wolf’s budget proposal for 2023 would spend $2.6 billion more than revenue. Lawmakers should reject overspending and pass a truly balanced budget.”
Instead, Benefield suggests that legislators “take the opportunity to reform Pennsylvania’s tax and regulatory systems to make the state more competitive and more attractive to job creators and families.”
The General Assembly has a June 30 deadline to pass next fiscal year’s budget.
Anthony Hennen is a reporter for The Center Square. Previously, he worked for Philadelphia Weekly and the James G. Martin Center for Academic Renewal. He is managing editor of Expatalachians, a journalism project focused on the Appalachian region.