Shapiro’s $44.4B budget pitch keeps Pa. spending relatively flat, preserves some pandemic benefits

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HARRISBURG — In his first budget proposal as Pennsylvania’s chief executive, Gov. Josh Shapiro is calling for $1 billion in new education spending, permanent state funding for public defenders, and an expansion of a shrinking rebate program for older people.

The $44.4 billion proposal — a 3.6% spending increase over the current fiscal year — is based on what the Democrat called “conservative” future revenue estimates in a Tuesday speech to the legislature. He said his plan attempts to preserve Pennsylvania’s flush coffers to avoid future tax increases or budget cuts while replacing federal monies with state dollars to fund a number of pandemic-era policies.

Flanked by the General Assembly’s first female chamber leaders — state House Speaker Joanna McClinton (D., Philadelphia) and state Senate President Pro Tempore Kim Ward (R., Westmoreland) — Shapiro called his pitch a “commonsense budget” that is a “reflection of our reality.”

“And nothing gets done unless a majority in her chamber and in her chamber agree,” Shapiro said.

The speech kicks off four months of public hearings and private meetings between the executive and the divided legislature. Republicans control the state Senate, and Democrats have a razor-thin hold on the state House.

The deadline for a spending deal is June 30.

‘Things we can all get on board with’

Some of Shapiro’s biggest proposals will likely have wide bipartisan appeal. One such pitch is to raise the income threshold for a state property tax and rent rebate program for older adults from $35,000 to $45,000 a year.

The governor wants the program’s eligibility floor to be indexed to inflation, which would allow some recipients to benefit from the program even as their Social Security payments rise with inflation.

He also proposed millions for a number of small-dollar workforce development initiatives. The biggest is a $24.7 million tax credit — capped at $7,500 over three years per individual — for anyone who earns a teaching, nursing, or law enforcement certification as of January 2023, or moves to Pennsylvania with one.

State Senate Republicans may be the biggest hurdle for the Governor during budget negotiations now that the House is under Democratic control. Ward said her colleagues saw room for collaboration in many of Shapiro’s proposed ideas, but cautioned that the funding may not all be there.

“There were a lot of things we can all get on board with,” said Ward. “We just have to figure out how we’re gonna pay for those things.”

Pandemic-era programs that Shapiro wants to make permanent include the rebate expansion, free school breakfasts for all students, and increased state reimbursements for many human service providers.

He also suggested a number of smaller, targeted priorities, from a mental health hotline for farmers to 384 new state troopers to the elimination of the state cell phone tax (one of Shapiro’s campaign promises).

Other issues could be trickier for Shapiro to navigate as he tries to shepherd his budget through Harrisburg’s divided legislature.

For instance, a recent Commonwealth Court ruling held that Pennsylvania’s education system underfunds poor districts and directed the governor and legislature to come up with a solution — a major undertaking.

Shapiro is calling for $567 million in new basic education funding for the state’s public schools, or roughly 8%, an increase that is little more than the rate of inflation. Hundreds of millions more would go to special education, school safety, and mental health programs.

The number falls far below the investment of billions that some Democrats and public school advocates argue is necessary to correct the unequal funding across the school system raised in the court’s ruling.

In a statement, advocacy group Education Voters of PA said Shapiro’s funding proposal would allow “districts to barely tread water when they need substantial additional state investments to meet their students’ needs.”

The organization also said it is “disappointing and puzzling” that the governor didn’t include supplemental “Level Up” funding for the poorest school districts, and that it is “deeply disappointed and concerned” by Shapiro’s decision not to call for a bigger budget increase for higher education.

But overall, legislative Democrats were largely supportive of the request, which they argued invests in everyday people.

“You can tell when a person cares about how they spend their money,” new state House Appropriations Committee Chair Jordan Harris (D., Philadelphia) said. “And for far too long, Pennsylvanians have been questioning what we care about in this building.”

Taking cues from Wolf

Several of Shapiro’s requests are essentially the same things that his predecessor, Democrat Tom Wolf, routinely put in his budgets.

One of the most notable is an apparent pledge to stay in the Regional Greenhouse Gas Initiative, or RGGI.

RGGI is an interstate agreement to reduce emissions by requiring fossil fuel power plants to purchase allowances in order to emit carbon dioxide. On the campaign trail, Shapiro repeatedly refused to say whether he’d keep Pennsylvania in the program.

Although Pennsylvania’s participation in the agreement is still tied up in court, Shapiro is factoring RGGI into his budget. He predicts participation in the program’s carbon auctions will bring in $663 million this fiscal year and that it will reduce the state’s CO2 emissions by between 97 and 225 million total tons by 2030.

Conservation advocates take this as a sign that the governor intends to stay in the organization.

Molly Parzen, executive director of environmental group Conservation Voters of PA, said that the inclusion of RGGI in the budget is a directive “to stop dilly-dallying about trying to prevent it” and instead figure out how best to use the funds it generates.

Senate Republicans almost uniformly oppose Pennsylvania’s participation in RGGI, arguing it hamstrings the commonwealth’s energy sector and raises energy prices.

State Senate Appropriations Committee Chair Scott Martin (R., Lancaster) said his caucus “implore[s] the governor to move away from a policy that’s going to put that kind of pressure on people who are struggling with inflationary costs all across this Commonwealth.”

The new governor is also trying to thread a needle that long eluded Wolf: finding a new revenue source for Pennsylvania State Police, which currently gets a chunk of its budget from a fund intended to pay for road and bridge repairs.

Wolf repeatedly tried to levy a local fee for police services — a no-go for the legislature. Shapiro is pitching a different approach that would siphon some money to PSP from taxes on liquor, tobacco products, and motor vehicle sales and use.

The governor is also making a call that’s familiar to Harrisburg insiders: He wants to raise Pennsylvania’s minimum wage from $7.25 to $15 per hour.

“To me, this feels like a fight that has gripped our politics for so long that some people entrenched on the other side don’t even know why they’re opposing Pennsylvania workers anymore,” he told lawmakers.

Senate Republicans opposed this proposal as well. Chamber Majority Leader Joe Pittman (R., Armstrong) argued that raising the minimum wage is unnecessary.

“I think it’s important to point out that whether we use a minimum wage at $7.25 or $15 an hour that is not the family-sustaining livable wage,” he said. “What this caucus is focused on is supporting family-sustaining wages that individuals can raise families on.”

A budget to ‘weather a storm’

Central in any conversation about state budgeting is revenue: How much money will state taxes and other cash sources yield in the coming years?

That answer changes depending on who you ask.

The governor’s office and the Independent Fiscal Office, a state agency that issues reports on the state economy, both make annual projections of Pennsylvania’s likely revenue and spending. These figures form the basis for budget discussions among the governor and legislators.

Everyone agrees on the fundamentals: Pennsylvania has a roughly $12 billion surplus this year, including $5 billion that lawmakers had socked away in the commonwealth’s rainy day fund.

But the end of pandemic-era federal spending on human services — such as Medicaid and the Supplemental Nutrition Assistance Program, whose costs are split with the states — and expenses from the state’s aging population are seen by all political sides as looming financial challenges.

Shapiro said he would invest $16 million in SNAP to mitigate the loss of food benefits for older adults and people with disabilities. The total value of benefits lost is higher: an average of $181 monthly for the nearly two million Pennsylvanians who use the program.

Whether the loss of federal dollars will bust future budgets is up for debate.

Legislative Democrats have argued that gloomy future estimates, particularly from the IFO, are too pessimistic about revenue.

They say their key priorities, like pumping billions of new dollars into the state’s public schools, would stimulate economic and population growth in the coming years that would further grow the state’s coffers.

In its most recent report on Pennsylvania’s fiscal health, the IFO projected that even if spending stays the same over the next several years, the commonwealth will routinely spend more than it brings in. Its forecast predicts that without new revenue or spending cuts, the state will eat up its current $12 billion cushion by around 2027.

In his address, Shapiro called the agency a “notoriously cautious group of economic forecasters.” However, the governor said his office is using an even more conservative revenue estimate than the agency’s so that Pennsylvania is “prepared to weather a storm should it come.”

His tone of fiscal caution reflects the concerns that Senate Republicans have voiced about the commonwealth’s budgets.

In their overall assessments of the state’s finances, members of the caucus have argued that lawmakers should be planning for future structural deficits and say they want to keep spending as flat as possible in order to avoid painful budget debates in years to come.

While he and other Senate GOP leaders noted they like parts of Shapiro’s budget, Pittman said that there is “still extensive work to be done in order to produce a balanced and responsible state budget for the benefit of all Pennsylvanians.”

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