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IFO projects $700M growth in general revenue next year

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(The Center Square) — Pennsylvania has some good economic news: its general fund revenues are higher than expected — and next year’s are expected to grow by another $700 million.

The Independent Fiscal Office announced Monday a $140 million upward revision from its initial estimates for fiscal year 2023-24, almost 1% higher than the original estimate. The IFO now expects general fund revenues to reach $45.3 billion.

“The economy and general fund revenues are performing about as expected,” IFO Director Matthe Knittel said during a press conference Monday. “We did have some unusual revenue gains this fiscal year that we don’t think will continue next year.”

Though corporate net income tax collections and personal income taxes were lower than expected, the rise in non-motor sales taxes, gross receipts taxes, and Treasury collections were high enough to offset declines.

The fluctuation reflects previous years’ assessments that have been reliable, but cautious — though the pandemic years proved more difficult to estimate, the independent agency tends to underestimate revenues.

For next year, the IFO expects a $679 million (1.5%) increase in general fund revenues, $46.02 billion. Though the agency expects a decline in revenues from the corporate net income tax, tobacco taxes, and the gross receipts tax, significant gains from personal income taxes and non-motor sales taxes will drive collections.

The revenue forecast reflects Pennsylvania’s economy as slowing from catch-up post-pandemic growth, but still growing.

“The job market is holding up very well, our two jobs measures are telling us the same thing: the labor market remains tight and pace of hiring remains strong,” Knittel said.

However, inflation remains elevated at 4.1% and the IFO expects it to stay above the Federal Reserve’s 2% target due to higher energy and housing costs, along with solid wage growth.

High interest rates mean that current owners don’t want to move and lose their low rates.

“The housing market is basically locked up; there’s not a lot of turnover in home sales,” Knittel said. “Pennsylvania home sales are at an all-time low since 1990.”