With the General Assembly failing to pass a budget by June 30, Republicans warn the state legislature must address a multi-billion-dollar structural deficit in which Pennsylvania is spending more every year than it takes in.
“It is disturbing that we could not come to a budget agreement in time to meet the June 30 constitutional deadline,” said State Rep. Tim Bonner (R-17) on Tuesday. “The governor’s original budget proposal meant that we would have had to dip into our reserves to support general spending requests as we have done in the first two years of his governance. That is fiscally irresponsible and not sustainable.”
On July 1, Gov. Josh Shapiro announced that the commonwealth ended the 2024-2025 fiscal year (FY) collecting $321 million more in revenue than originally estimated and is currently sitting on a nearly $11 billion surplus, including the General Fund surplus and the Budget Stabilization Fund.
“That additional revenue puts us in a strong financial position to continue making critical investments in our schools, workforce, transportation infrastructure, law enforcement and more,” Shapiro said. “We will continue to work together to secure a final budget for the next fiscal year.”
Staff for the Democratic governor, along with state House Democrats, and state Senate Republicans have been meeting behind closed doors in attempts to reach a deal for the coming fiscal year, which started July 1.
Republicans in charge of the state Senate want to reduce or slow the growth of spending, which they say will prevent the need for future tax increases.
“I strongly oppose spending our reserves to support general spending requests. Our reserves are meant to cover emergency needs,” said Bonner. “Our general fund reserves have been depleted by $5.2 billion in the first two years of Gov. Shapiro’s tenure and will disappear altogether if his current budget demands are met.”
“I have great difficulty accepting any spending plan that fails to keep our government spending in check,” he added, noting that current spending must keep pace with current revenues.
State Rep. Bud Cook (R-50) agreed, saying lawmakers must remain committed to doing the job of the people.
“We need a balanced budget where we don’t spend more than our projected revenues,” said Cook.
As budget negotiations continue, Cook also called on his colleagues to avoid harmful energy taxes that he says would kill jobs in his district and directly tax coal and natural gas power plants, “which would force customers into higher energy bills.”
At the same time, state Republicans also are criticizing House Bill 1610, which narrowly passed the House June 25 on a vote of 104-99, and now awaits consideration in the Senate.
If enacted, HB 1610 would impose combined reporting for corporate taxes, a policy the GOP says would reverse recent bipartisan progress on tax reform and hurt economic growth.
“This legislation punishes employers and undoes the progress we made on cutting the corporate tax rate,” Pennsylvania Rep. Valerie Gaydos (R-44) said yesterday. “If we keep driving businesses away, we won’t have the revenue to support the services people rely on.”
Gaydos also said that the state cannot sustain expanding programs — especially in human services — without a strong economic engine to fund them.
“We can’t keep growing the safety net while we shrink the economy,” she said. “The path forward is clear: lower taxes, fewer regulations, affordable health care options and real energy development.”
The Pennsylvania Manufacturers’ Association (PMA) also slammed combined reporting.
“This disastrous policy would have significant negative economic consequences for Pennsylvania,” PMA said in a July 1 online bulletin.
According to the association, HB1610 would make Pennsylvania’s tax system more complicated for businesses; create unpredictable tax situations for companies; force businesses to spend more on tax compliance; and deter out-of-state businesses from investing in the state.
Regarding Pennsylvania’s current $11 billion in reserves, PMA also warned that at the current spending rate, the funds will be exhausted within the next three years.
“Running annual deficits approaching $7 billion is a recipe for fiscal disaster,” said PMA. “And once the reserves are gone, the state will have only two viable options to meet the constitutional obligation of having a balanced budget: impose massive spending cuts or enact steep tax increases.”
The group suggests that Pennsylvania lawmakers prioritize reining in spending, preserving recent business tax reductions, and removing bureaucratic barriers to investment.
“It simply should not take longer to permit a project in Pennsylvania than it does to permit and complete construction in other states, but that is exactly what’s happening,” PMA said.
Meanwhile, Shapiro and fellow Democrats, who control the state House, want to use $5 billion from the $11-billion surplus to provide more funding to K-12 education, maintain health coverage for low-income people, and to bail out public transit agencies.
“With two credit upgrades in two years and a clear commitment to responsible budgeting, the Shapiro administration is saving taxpayers money and strengthening the commonwealth’s financial future,” said State Secretary of the Budget Uri Monson. “We will continue to be prudent stewards of the commonwealth’s resources.”
However, according to the conservative think tank the Commonwealth Foundation, Democratic leaders are pushing a partisan agenda in this year’s proposed budget that totals $8.4 billion in new spending alone.
“Since unveiling his partisan, fiscally reckless plan in February, Shapiro and House Democrats have remained unwilling to budge from a proposal that has been a non-starter in the legislature from the beginning,” said Andrew Lewis, president and CEO of the Commonwealth Foundation. “Shapiro’s failure to lead his party toward negotiating in good faith with Senate Republicans threatens the likelihood of a responsible bipartisan budget agreement.”
State Senate leaders also issued a statement on the budget impasse.
“Pennsylvania is facing a multi-billion-dollar structural deficit that we must address this year to prevent a financial crisis and tax increases in the future,” said Pennsylvania Senate President Pro Tempore Kim Ward (R-39), Senate Majority Leader Joe Pittman (R-41), and Senate Appropriations Committee Chairman Scott Martin (R-13) in a joint statement issued June 30.
“Better aligning revenues with expenditures remains our top priority,” said the lawmakers. “Standing up for families and taxpayers remains our focus as work to finalize the 2025-26 state budget continues to advance.”