A week after the state enacted its four-month late budget, a new report from the Independent Fiscal Office suggests balancing next year’s budget may not be an easy lift either.

Lawmakers shifted $670 million from special funds to help balance the budget in 2025-26, a move that will be difficult to repeat next year and will make balancing the 2026-27 budget more difficult.

In its five-year look ahead, the IFO said that if projections hold, the state is on pace to deplete the General Fund surplus in the coming year and on pace to wipe out the $7.5 billion Rainy Day Fund by 2027-28.

Heading into the coming year, the state is facing a projected deficit of $5.84 billion — $600 million more than the deficit that budget negotiators faced in 2025-26.

Increased costs associated with changes made to the Supplemental Nutrition Assistance Program will complicate matters.

The state is facing $100 million in increased SNAP costs in 2026-27, with the increase hitting $306 million in 2027-28.

Those increased costs will be even worse if the state does not successfully bring down its SNAP error rate, the IFO said.

The state’s error rate now stands at 10.8%. The IFO based its projections on an error rate of between 6%-8%.

The IFO is forecasting that state revenue will increase by 2.1% per year.

“The modest revenue growth is largely due to the phased-in corporate net income tax rate reduction from 7.99% in 2025 to 4.99% in 2031, which reduces annual revenues by $300 to $400 million (static estimate),” the IFO said in its report.

Spending is projected to increase 3.3% per year, largely due to increased costs in social service programming, with the costs of caring for an aging population being a huge factor.

The IFO had originally scheduled the release of the fiscal look-ahead for last week but delayed the report due to the Nov. 12 state budget deal.

Lawmakers balanced the $50.1 billion spending plan without approving new revenue sources sought by Gov. Josh Shapiro, such as legalizing and taxing skill games or adult recreational use of marijuana.

The governor had estimated that taxing skill games could raise almost $370 million a year in new tax revenue. Republicans who hold the majority in the state Senate had proposed skill games bills that would have used lower tax rates but still generated hundreds of millions of dollars in revenue.

But none of those plans gained traction, leaving the state with about 80,000 skill games untaxed and operating in a legal gray area. The Supreme Court, though, on Thursday, heard oral arguments in a case that could force lawmakers to act if the justices conclude that skill games are illegal under current law.