Pennsylvania’s newly enacted 2026-27 budget avoids drawing from the state’s Rainy Day Fund, but the Commonwealth continues to face an underlying structural deficit of about $5 billion, according to a new analysis by the Independent Fiscal Office.

The $52.17 billion spending plan is considered balanced under state law, but the IFO found that recurring expenditures are projected to exceed recurring revenues by roughly $5 billion during the fiscal year after accounting for one-time funding measures and payment timing changes.

The budget achieves balance in part by delaying more than $1.3 billion in Medicaid managed care payments from May and June until July, shifting those costs into the next fiscal year. The spending plan also relies on approximately $580 million in transfers from special-purpose funds and another $450 million from prior-year lapsed funds and temporary shifts of costs to other accounts.

Without those measures, the IFO concluded that ongoing revenues would fall well short of supporting current spending levels.

The budget preserves the state’s $7.8 billion Rainy Day Fund, avoiding the multibillion-dollar withdrawal proposed earlier this year. Keeping those reserves intact allows the fund to continue earning interest while maintaining a larger financial cushion for future economic downturns.

The IFO’s analysis indicates Pennsylvania’s structural budget imbalance remains unresolved, setting the stage for continued debate over how to align recurring revenues with long-term spending commitments in future budget cycles.

The report comes as policymakers continue to weigh options for closing the gap, including spending restraint, identifying new recurring revenue sources, and other fiscal reforms.

The PA Chamber affirms that the most durable, long-term solution to this imbalance is to continue enacting bipartisan, pro-growth policy reforms to improve the state’s business climate and attract more employers and residents to Pennsylvania.

You can read the full report here.