Pennsylvania governor’s budget taps surplus to fund education, transit

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Pennsylvania Gov. Josh Shapiro unveiled his 2024-25 budget to the General Assembly on Tuesday, a $48.3 billion proposal that relies on the state’s surplus reserves to invest in education, economic development, and transportation.

The Democratic governor in his second budget address set out how he’d like to take advantage of the state’s $14 billion surplus to create opportunities for Pennsylvanians without raising taxes. Shapiro said that if all his initiatives were funded, the Commonwealth would still have an $11 billion surplus by the end of fiscal year 2024-25.

“We need to build a more competitive Pennsylvania that starts in our classrooms, runs through our union halls and our small businesses, through our farmlands and our high rises, our college campuses, and leads to a life of opportunity and a retirement with dignity,” the governor said in his budget address to the General Assembly.

But business-advocacy organizations and Republican lawmakers criticized the governor’s more than $3 billion increase in proposed spending, warning that Pennsylvania is facing a structural deficit, with expenditures having outpaced revenues – a situation that could lead to tax hikes in future years.

“The fiscal cliff is real, and it’s coming,” NFIB State Director Greg Moreland
said. “Lawmakers better be prepared to make some tough decisions when it comes to entitlements and spending, or else they will be forced to raise taxes.”

In terms of economic development initiatives, Shapiro’s budget proposes over $600 million in new and expanded investments that will enhance the Department of Community and Economic Development’s (DCED) ability to implement Pennsylvania’s new 10-year strategic plan for economic development.

The budget proposes $500 million to expand Pennsylvania Strategic Investments to Enhance Sites (PA SITES) to fund on-site development for industries such as agriculture and manufacturing. That would involve issuing taxable bonds through the Pennsylvania Economic Development Financing Authority to provide the amount of investment needed to help Pennsylvania catch up with competitor states.

The budget also includes $20 million to support innovation and leverage Pennsylvania’s research and development assets. That funding would be used to incentivize the deployment of additional private venture capital, which the governor said would position Pennsylvania as a national center for innovation while also making investments in entrepreneurs who have historically lacked access to venture capital funding.

After delivering the largest increase in K-12 basic education funding in Pennsylvania history in his previous budget, Shapiro’s latest budget proposal includes a nearly $1.1 billion increase in basic education funding. The bulk of the funds would be directed to poor school districts.

To address an historic lack of investment in Pennsylvania’s higher education system, the governor’s budget proposes $975 million in a new governance system that combines community colleges and state-owned universities – a 15 percent increase from $850 million last year. The 2024-25 budget also calls for a 5 percent increase in institutional support for state-related universities, including Penn State, Temple, Lincoln, and Pitt, and a 15 percent increase to Thaddeus Stevens College of Technology.

Democratic leaders in the Pennsylvania House of Representatives praised the governor’s budget proposal for building on last year’s historic investments in education and for prioritizing investments that will attract and retain businesses while growing the state’s workforce.

“We’re pleased that the governor continues to share our commitment to ensuring better schools, better jobs and better communities,” Democrats said in a joint statement.

But House Republican Appropriations Chairman Seth Grove (R-York) called the governor’s budget proposal for the fiscal year that begins July 1 “unaffordable, irresponsible and misleading.”

“This budget will bankrupt Pennsylvania’s future and lead to tax hikes within the next four years. Shapiro’s proposal includes spending more than $2.5 billion on initiatives identified in his budget as creating new or expanding current government programs,” Grove said. “Pennsylvanians deserve a government that lives within its means by keeping spending below income like families throughout this Commonwealth do every day.”

Shapiro’s budget also proposes investments in public transportation. The budget calls for increasing by 1.75 percent the transfer of Sales and Use Tax receipts into the Public Transportation Trust Fund. That increase in funding would provide an additional $283 million for mass transit, including $160 million to support the Southeastern Pennsylvania Transportation Authority (SEPTA).

Commonwealth Foundation Senior Vice President Nathan Benefield frowned on the governor’s willingness to throw taxpayer dollars at a problem. “Shapiro wants $282.8 million in additional public transit spending in 2024 and another $1.5 billion over the next five years — for transit agencies with declining ridership and bloated bureaucracies. That’s a bailout, not a solution,” Benefield said.

Shapiro also seeks to capitalize on critical tax revenue by legalizing adult-use cannabis. All of Pennsylvania’s neighbors with the exception of West Virginia have legalized adult use cannabis. The budget would invest $5 million in restorative justice initiatives from cannabis proceeds. Once up and running the industry is expected to yield $250 million in additional revenue for the Commonwealth.

And to make the state more competitive, Shapiro called for a more than doubling of the current $7.25 minimum wage to $15 per hour in his budget. According to the NFIB, if that policy were enacted it would create a negative employment impact of nearly 104,000 jobs by 2033. More than 58,000 of those jobs are in small businesses.

Lawmakers in the General Assembly will begin state budget hearings on Feb. 20. A final spending plan for the 2024-25 fiscal year is due by June 30.