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Treasury warns of medium‑term fiscal pressure; details on cash balances, IFO projections and bond refunding
Summary
Treasury testified the Commonwealth should expect cash balances to decline under current projections, cited Independent Fiscal Office (IFO) deficit forecasts and explained recent general obligation bond refunding actions and expected savings.
The State Treasurer told the Appropriations Committee Treasury expects a healthy cash balance this fiscal year but warned of a likely drawdown of reserves if current projections hold.
"We anticipate we'll end the year with $11,300,000,000 cash balance," Treasurer Garrity said, and she relayed Independent Fiscal Office projections showing a $3.5 billion budgetary deficit for the current fiscal year, widening to $6 billion the following year and $6.9 billion thereafter under those assumptions. Garrity said those projections imply the general fund surplus would be depleted in 2026 and the Budget Stabilization (rainy day) Fund would begin to be used in 2026–27 if no policy changes occur.
Committee members discussed the statutory rules that govern use of the Budget Stabilization Reserve Fund. Garrity cited fiscal‑code language requiring a two‑thirds legislative vote for transfers and emphasizing that the fund is intended for emergencies involving health, safety or major unanticipated revenue shortfalls.
Members also questioned recent debt‑service changes after October 2024 refunding actions. Treasury staff explained the Commonwealth issued new general obligation (GO) bonds in October and refunded a portion of outstanding 2014 GO bonds; the refunding increased next year’s principal and interest payments but generated a net present‑value savings on the refunded series. Garrity noted the 2014 series refund produced about $18 million in net present‑value savings and additional planned refunding issuances were expected to produce roughly $61 million in lifetime savings.
The treasurer emphasized that credit ratings and borrowing costs are sensitive to structural budget positions and rainy‑day balances. She said Pennsylvania’s Moody’s rating was upgraded in October and that consistent deposits to the rainy‑day fund contributed to that upgrade, but warned that failing to address a structural deficit could erode credit quality over time.
No formal appropriations votes were taken at the hearing. Treasury officials answered multiple committee requests for written follow‑up on refunding details and on the department’s cash and debt projections.
