March 07, 2023
Democratic Gov. Josh Shapiro will deliver his first budget address to a joint session of the Pennsylvania General Assembly on Tuesday at 11 a.m., a tradition used to set a legislative wish list and map a vision for the future.
Shapiro inherited a bolstered reserve and growing surplus from former Democratic Gov. Tom Wolf, who clashed with a Republican-controlled Legislature and whose first year in office was consumed by a months-long budget impasse. Despite improvement to the commonwealth's finances, Republicans have urged caution and suggested saving funds to pay for future increased costs.
A signed spending plan must be in place by the start of the fiscal year on July 1.
Tuesday's speech in Harrisburg, expected to touch on promises made on the campaign trail, marks the beginning of weeks of budget hearings and negotiations between the governor and lawmakers in the now-divided General Assembly. Democrats narrowly control the state House, while Republicans have a comfortable margin in the state Senate.
Gov. Shapiro delivers his budget address in Harrisburg at 11 a.m. Watch it live.
Shapiro, who took office in January, focused on building an administration with varied professional and political backgrounds, urging people to set aside their differences for the betterment of Pennsylvania. During his first month in office, he has appealed to lawmakers on both sides of the aisle by promoting economic development and cutting through red tape with executive orders.
Shapiro has hinted at some budget priorities, but he's primarily refrained from discussing specifics ahead of his address. His speech will give lawmakers and the public a detailed picture of the administration's top priorities.
Earlier this month, the governor said he'll call for a "significant down payment in innovation and economic development," proposing a 50% increase for the Manufacturing PA Innovation Program, which connects state universities with businesses, and a 25% increase in funding for computer science and STEM education through the PA Smart Program.
"Pennsylvania is open for business," Shapiro said earlier this month. "We're going to be a leader in the industries of the future, and my administration is ready to make that happen."
Here's a look at some issues the Capital-Star is watching ahead of Tuesday's speech and during upcoming months of budget negotiations:
The Wolf administration ended its eighth and final budget with a historic $1.8 billion increase in education funding, bringing the total investment to more than $3.7 billion.
Following a Commonwealth Court decision in the landmark school funding case directing lawmakers, the governor, and educators to reform the system used to pay for K-12 public schools, education is likely a key feature in this year's budgetary process.
Attorneys for the plaintiffs in the case said Shapiro's speech could signal priorities and offer solutions to help address the state's public education funding system.
Dan Urevick-Ackelsberg, a senior attorney at the Public Interest Law Center, said he expects the first budget to have "a significant down payment on bringing the system into constitutional compliance."
Susan Spicka, executive director of Education Voters of Pennsylvania, said that the down payment should be an additional $1 billion in regular education funding and Level Up funding that goes to the state's 100 poorest districts. Wolf's last budget included an $850 million increase in regular education funding and $225 million in Level Up money.
In the longer term, Spicka said she hopes that is the beginning of a $4 billion increase in funding over the next four years.
"We really need in Pennsylvania to start looking at budgets that fund schools and what students need to succeed instead of the way the legislature has handled it by saying, 'What do we feel like spending this year?'" Spicka said.
Senate President Pro Tempore Kim Ward, R-Westmoreland, said lawmakers will have "deeper discussions" about reforming school funding after a final ruling in the school funding case. She noted that the case "could be in court for years."
"This is an opportunity for us, depending on what that final ruling is, to take a big, empty, clean slate and bring our education system and our funding formula into the 21st century and to make sure that every single student, no matter what their income, no matter where they live, is able to graduate and be able to go to a higher education facility or enter a trade," Ward said during a March 1 press conference.
Meanwhile, Sen. Vincent Hughes, D-Philadelphia, unveiled a $3.1 billion education spending proposal.
Hughes, who is the ranking Democrat on the Senate Appropriations Committee, has called for $750 million for basic education funding, $400 million for Level Up — which prioritizes the state's poorest districts — $250 million for special education, and a $1 billion investment in remediating toxic schools.
"We have the money to right this wrong, and we are morally obligated to deliver for our children," Hughes said. "They've suffered from a broken funding system for far too long."
Rep. Seth Grove, R-York, told the Capital-Star that a billion-dollar increase in educational funding is neither realistic nor sustainable.
As the state works to comply with the Commonwealth Court decision in the school funding lawsuit, it should look to the Basic Education Funding Commission, which developed the state's fair funding formula in 2015, to determine public education needs, Grove, the ranking Republican member of the House Appropriations Committee, said.
Last week, Pennsylvania State Education Association President Rich Askey testified before the Senate Education Committee about the educator staffing crisis and urged lawmakers to prioritize efforts to recruit and retain educators.
For the first time, PSEA formally supported raising Pennsylvania's minimum educator salary to $60,000 a year and putting a $20 per hour minimum wage in place for education support staff, such as bus drivers and paraprofessionals.
Shapiro said this week he will include teachers in a tax incentive program he will propose to attract new workers to frontline jobs.
Askey also told the Capital-Star that PSEA is pushing to make it easier for new teachers to earn certification and for paraprofessionals who want to become certified teachers to advance.
"We need to remove the barriers for them to get certified in the field and become certified educators," Askey said.
Student teachers, who essentially work full-time without pay, still have to cover their room and board, Askey said. The PSEA supports paying student teachers a stipend to make the career path more competitive with other fields where students are paid while earning practicum credit.
PSEA spokesperson Christopher Lilienthal said the out-of-pocket costs, including evaluations and other fees, can top $1,000.
"Too many young people say there are easier ways to make more money," Lilienthal said.
Growing Pennsylvania's economy by fostering innovation, encouraging business growth, and creating jobs was a central theme of Shapiro's campaign.
In his first months in office, Shapiro has taken steps toward that goal with the creation of the Office of Transformation and Opportunity within his administration to serve as a one-stop-shop for businesses looking to get permits, approvals, and funding for development.
Shapiro also announced his budget proposal will include increased funding for the state's manufacturing innovation program to connect businesses and universities to advance the state of the industry and for computer science and STEM education.
But House Majority Leader Matt Bradford, D-Montgomery, said Shapiro's most powerful economic controls are corporate tax reforms. Shapiro said during his campaign that he would reduce the corporate net income tax to 4% by 2025, significantly exceeding benchmarks in legislation passed in June to reduce the rate to 5% by 2031.
"We remain intrigued by the governor's proposal to accelerate that," Bradford said.
Another corporate tax reform goal, Bradford said, is the expansion of the state Net Operating Loss allowance, which is beneficial to small businesses and startups because it allows them to carry forward losses to offset taxable income in a subsequent year.
While the CNI reduction was a win in 2022, the Legislature needs to do more, such as NOL reform, to support growing businesses, Bradford said.
Shapiro said he will tackle a workforce shortage among frontline workers by proposing a three-year $2,500 tax incentive for newly hired teachers, nurses, and police officers.
Grove said the Shapiro administration has been tight-lipped about the broader details of the budget, but he and other House Republicans hope to see fiscal restraint.
Budget forecasts indicate Pennsylvania will see less revenue and increasing costs in coming years, which constitute a structural deficit even though the state's financial picture appears rosy, Grove said.
"We need to see some solutions to reduce expenditures," Grove said.
One area where Grove said the state will be able to save money is by reducing Medicaid expenditures after the March 31 cutoff of a pandemic-era policy allowing people to remain in the joint state and federal health care program without applying for re-enrollment.
The state Department of Human Services has reported that at least 617,000 people might now be ineligible. Grove said moving people who no longer qualify for the programs to subsidized health insurance such as CHIP or policies available through the state insurance exchange Pennie, could save the government between $500 million and $1 billion.
Grove said DHS could also save money by resuming its recovery audit contractor program, which federal law requires, to review Medicaid services and payments. The state received an exemption from the requirement from the Centers for Medicare and Medicaid Services in 2019 that is set to expire on May 31.
"We're looking at program integrity as a focal point to reduce costs in a very common sense way," Grove said.
House Republicans are also opposed to spending down the state's historic surplus and rainy day fund, which Bradford and other Democrats have said provide an opportunity for investment in the state's future.
The surplus and rainy day savings account are expected to total about $13 billion by the end of the fiscal year. In addition to smoothing the state's cash flow throughout the year, the savings generate hundreds of millions in interest that can be used to fund programs, Grove said.
"There are a lot of positives in not spending down those surpluses," Grove said.
Pennsylvania Capital-Star is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Pennsylvania Capital-Star maintains editorial independence. Contact Editor John Micek for questions: info@penncapital-star.com. Follow Pennsylvania Capital-Star on Facebook and Twitter.
