(The Center Square) — While Pennsylvania’s budget remains in good fiscal shape for the short term, the treasurer warned of potential problems on the horizon.

During a discussion on Tuesday with House Republican Appropriations Chairman Seth Grove, R-York, Treasurer Stacy Garrity warned of a “fiscal cliff” that lawmakers will soon face.

“I’m very happy to say that our general fund cash flow — it’s very strong,” she said. “However, I urge all of us to look down the road and focus on the fiscal cliff that’s looming. The cliff will likely arrive somewhere during fiscal year ‘25–26.”

The warning isn’t entirely surprising. The Independent Fiscal Office (IFO) has warned, as The Center Square previously reported, of a shrinking labor force due to an aging population and outmigration of younger workers that could turn the current budget surplus into a budget deficit.

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The working-age population in Pennsylvania — ages 20–64 — fell by 131,000 since 2019 and is expected to drop by another 128,000 people through 2025. The IFO anticipates that although tax revenues will increase 3.1 percent, government spending outpace that growth by 0.2 percent.

The IFO estimate warned of budget deficits as the approaching state fiscal year, beginning July 1.

Regardless of the timing, Garrity urged lawmakers to prepare for budget problems before they appear.

“We have two choices — we can spend modestly now, saving as much as possible to make that cliff as small as possible while protecting those important programs that we fund now for a longer period of time,” she said. “Or we can spend a lot now, making the fiscal cliff even higher.”

Federal matching for state Medicaid payments, ranging between $2 billion and $3 billion per month, will also end soon, exacerbating the situation.

“The one-time federal dollars bolstering our coffers will soon run dry,” Garrity said.

To soften the blow for the future, she recommended flowing more money into the state’s rainy day fund. In the last two budget cycles, the General Assembly funneled over $5 billion into the account, comprised mostly of pandemic relief funds.

Garrity warned, however, that money would only fund government operations for just over 40 days.

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.

This article was republished with permission from The Center Square.