HARRISBURG — Gov. Josh Shapiro’s office has pitched a $49.9 billion budget to top Pennsylvania lawmakers in an attempt to end the state’s two-month impasse, according to Capitol sources.
Such a proposal would increase state spending by about 5%, as opposed to the 8% Shapiro originally pitched this spring. Republicans who control the state Senate have repeatedly said they will not sign off on a budget that doesn’t address spending and preserve the state’s cash reserves.
Four sources confirmed the existence of the pitch, made last week via email, but did not provide details about its exact contents.
Elizabeth Rementer, a spokesperson for Democrats who lead the state House, said the caucus continues to “negotiate with all parties in good faith.” She also noted that Shapiro’s new proposal has been “before the Senate for nearly a week, meeting all preconditions that could be passed by the House and signed by the governor in short order.”
A spokesperson for state Senate Majority Leader Joe Pittman (R., Indiana) said he has “consistently stated [that] the budget spend number is only one part of a full budget agreement and until everything is agreed to, nothing is agreed to.
“Discussions remain ongoing regarding a full budget agreement,” the spokesperson, Kate Flessner, said.
A spokesperson for Shapiro did not immediately respond to a request for comment.
In February, Shapiro proposed a $51.4 billion plan that included $526 million for the state’s poorest schools and mandatory spending bumps on federal programs like Medicaid. That plan immediately received heavy opposition from the state Senate.
In the following weeks, public transit funding became a central budget issue, and disagreements about where additional money should come from contributed to lawmakers missing the June 30 deadline.
The ongoing impasse is being felt across the commonwealth by transit authorities like SEPTA, foster care agencies, libraries, and more.
Speaking to reporters Monday, the governor declined to get into details of budget talks.
“I’m not going to give you that,” he said.
However, he said a deal could be reached soon if unnamed individuals would “set politics aside” and if “both sides make tough choices.”
Shapiro said he’s been forced to “run back and forth between” Pittman and state House Majority Leader Matt Bradford (D., Montgomery).
“And I'm going to keep doing everything I can to bridge the differences between the two of them and to find a package that can pass the House and the Senate.”
Wanted: More money for competing interests
Heading into this fiscal year, Pennsylvania had roughly $11 billion in cash reserves, built up during the pandemic due to federal aid and higher-than-expected tax returns.
But the state still has a structural deficit, meaning its expenses often outstrip its revenues. To balance the books over the years, policymakers have flat-funded key services such as mental health, brought in new revenue from expanded gambling, and engaged in short-term accounting maneuvers to paper over gaps.
New bills keep coming due. Pennsylvania policymakers continue to grapple with a ruling that found the state has unconstitutionally underfunded poor school districts, which demands a solution. And in the coming years, lawmakers must decide whether to use state money to make up for federal funding cuts to Medicaid, food assistance, and disaster relief.
Shapiro pitched new revenue from two sin taxes in his February budget salvo: legalizing recreational marijuana and taxing and regulating slot-like skill games.
Revenue estimates for both vary greatly depending on the details, but Shapiro’s budget projected the two combined would bring in $900 million in the 2025-26 fiscal year. However, much of that would come from one-time license fees to the cannabis industry.
State Senate leadership has rejected plans to legalize cannabis, but has been open to some sort of skill games legislation. However, a conflict between powerful GOP lawmakers and the industry has seemingly put any talks on ice.
Asked about his two revenue pitches, Shapiro said Monday that he’s “not going to concede on any of those fronts.”
Public transit agencies are among the many interests competing for more state money. SEPTA in Philadelphia recently followed through on deep service cuts it said it would have to make if state lawmakers didn’t send the agency more money.
GOP lawmakers want to pull hundreds of millions of dollars from a special public transit fund to help SEPTA and other struggling agencies cover operating costs. Democrats want to divert sales tax money to pay for operations.
Shapiro included more sales tax money for transit in his February budget pitch. But he recently announced that he’s open to using money from the special fund to backstop agencies’ operating budgets, but only as “part of a broader package that focuses on recurring funding over a long period of time that funds mass transit in each of our 67 counties.”
Bradford echoed Shapiro in an interview with the Philadelphia Inquirer this week, telling the news outlet that he'd be willing to use the trust fund's balance to temporarily patch up transit budgets if it could be replenished with a new, unspecified funding stream.
But where to get new recurring revenue remains the bigger unanswered question of the debate.
Broad-based sales and income tax hikes are the most reliable option for more revenue, but are politically unpopular and could threaten incumbents with electoral defeat. Pennsylvania also constitutionally cannot levy a graduated income tax focused on wealthier earners.
During a news conference this week, state Sen. Katie Muth (D., Chester) pitched new revenue sources, including axing the state’s tax exemption for data centers, ending a loophole that lets multistate corporations reduce their tax liability in Pennsylvania, or taxing “passive, invested wealth by some of the richest people in the commonwealth.”
She also expressed frustration with the late budget and SEPTA cuts while criticizing Harrisburg’s traditional closed-door talks that tend to culminate in a string of rushed votes.
“I wanted to take today to say, ‘We need a long-term solution, not a Band-Aid,’” Muth told Spotlight PA.