Stacy Garrity recently issued an urgent warning: This year’s budget will determine the commonwealth’s economic future — so lawmakers must plan wisely. Garrity, reelected in November to her second term as Pennsylvania state treasurer, cautioned that, if elected leaders don’t act swiftly, the commonwealth’s pending budget deficit will likely, in Garrity’s words, “squander” the Rainy Day Fund.

Expenditures up, revenues down

Years of uncontrolled government spending have caught up to Pennsylvania. Over the past five years, General Fund expenditures have increased by $12.55 billion while revenues only increased by $9.47 billion. Now, Pennsylvania faces a $3.6 billion structural deficit.

Worse yet, the deficit is expanding. A recent report from Pennsylvania’s Independent Fiscal Office (IFO) forecasts the deficit will reach $4.6 billion in fiscal year (FY) 2025–26. The IFO sees disparate growth for the rest of the decade, with expenditures up 18% and revenues 11%. According to the IFO’s projections, this culminates in a $6.8 billion budget deficit in FY 2029–30.

Though fiscal irresponsibility created the deficit, demographic changes drive the disparity. The IFO projects the number of Pennsylvanians over 65 to grow to 2.95 million by 2030, an increase of more than 750,000 since 2015. As such, costs for programs primarily serving older residents will explode over the next five years. Long-term living and medical assistance, two such programs, are expected to grow by 22.8 and 37.2%, respectively, by FY 2029–30.

Meanwhile, Pennsylvania’s working-age population, the source of the taxes that pay for these programs, continues to shrink. The IFO projects this cohort (between the ages of 20 and 64) to drop to 7.1 million by 2030, a decline of 500,000 people from 2015.

Domestic outmigration continues to plague Pennsylvania. Census data shows the state lost 11,500 residents to out-of-state migration in 2024. It marks the 14th time in the past 15 years that Pennsylvania lost population to other states. Since 2015, Pennsylvania has seen a net 176,439 residents leave. This year, U-Haul put Pennsylvania in the bottom five (i.e., 46th) of its annual “Growth States” index, alongside states like California, New York, and New Jersey. Pennsylvania’s ranking has steadily dropped each year, 38th in 2023 and 24th in 2022.

State-to-state migration data reveals Pennsylvanians are moving to Florida, North Carolina, and South Carolina.

Moving for money

This pattern follows a national trend, with Americans consistently moving from high-tax states to economically prosperous, low-tax states. Migration data and polling suggest that increased taxes will only exacerbate this issue, so lawmakers must address the budget deficit without raising taxes.

They must also avoid doling out corporate welfare. Lawmakers traditionally attempt to incentivize development and investment by offering tax credits and subsidies to businesses. However, corporate welfare has a history of failure.

In recent years, Pennsylvania missed out on a $3 billion steel mill and the northeast’s largest milk-processing plant despite offering lucrative economic development packages. Nearly $2.6 billion in state tax credits remain unused.

Even when companies accept these packages, their success is no guarantee. Last year, a Pennsylvania company’s lunar lander came to a literal fiery end after receiving $4 million in taxpayer funds.

Ultimately, these economic development packages don’t improve economic competitiveness. Research from the IFO shows that most tax credits have a net return on investment of less than 25 cents per dollar spent.

In FY 2024–25, Pennsylvania spent nearly $1.5 billion on corporate welfare programs and tax credits. Instead, lawmakers should cut all corporate welfare spending. Lawmakers could use the $1.5 billion in savings to reduce taxes without worsening the deficit. A broad-based tax reduction that benefits all businesses will be far more effective at attracting new jobs and businesses. Continuing and accelerating the scheduled reductions to business taxes, including the Corporate Net Income Tax and the start-up tax, will incentivize genuine business development.

Reform and responsibility

As budget negotiations begin, lawmakers cannot hide from Pennsylvania’s structural deficit. Instead, they must rein in spending and prioritize business tax cuts over ineffective corporate welfare programs. Tax reform and fiscal responsibility can make our commonwealth a more attractive place to live and work, encouraging current residents to stay and attracting new ones to call the Keystone State home.

Lawmakers cannot afford to squander this moment.

Andrew Holman is a policy analyst with the Commonwealth Foundation. His previous article was “Union political spending doesn't represent all their members.”

First Published: January 21, 2025, 10:30 a.m.