Gmerek Government Relations – 2.4.25.

Today, Governor Josh Shapiro unveiled his third annual budget to a joint session of the Pennsylvania General Assembly.  After taking a one-year hiatus due to repairs, the budget address returned to the chamber of the House of Representatives.

As Governor Shapiro and the Legislature grapple with a growing structural deficit, which Pennsylvania’s Independent Fiscal Office projected to grow to more than $3 billion at the end of the current fiscal year, this year’s budget cycle will attempt to address multiple political priorities ranging from the continued growth of spending for public education and other education reforms, transportation funding, and reassessing Pennsylvania’s energy policy.  Along with these matters are efforts to generate new sources of revenue through the regulation of skill games (the look-alike slot machine games found in convenience stores, bars and taverns) and the legalization of adult-use cannabis.

Looming over the upcoming 5 months of budget deliberations is the uncertainty emanating out of Washington, DC, and whether various federal programs that help to fund Pennsylvania programs will have their funding reduced or eliminated.

Governor Shapiro’s proposed 2025-2026 Fiscal Year budget proposes a state spending amount of $51,474 billion, an increase of more than $3.5 billion (7.5%) from the current 2024-2025 Fiscal Year.  Governor Shapiro’s proposal relies upon a $1.6 billion transfer from the state Rainy Day Fund to balance his spending plan.  Governor Shapiro’s spending plan also proposes the following new revenue and tax modifications to generate revenue to balance his spending plan:

  1. Legalizing adult-use cannabis:  $536 million
  2. Gaming Expansion (skill games):  $368 million
  3. Accelerating CNI rate reduction:  $264 million
  4. Increase the minimum wage to $15/hour:  $51 million
  5. Reform of Financial Institutions Tax:  $97 million

Other components in Governor Shapiro’s proposed 2025-2026 Fiscal Year spending plan include:

  1. $10,000,000 to provide a rate increase for early intervention providers in birth to age three programming.
  2. $55,000,000 to support workforce recruitment and retention grants for licensed childcare centers.
  3. Proposing a new $50,000,000 PA Innovation program to incentivize development in the life sciences industry.
  4. $10 million increase for the Transfer to Municipalities Financial Recovery Revolving Fund to provide additional resources for communities that require additional support with the end of federal pandemic relief funding.
  5. A new $1,000,000 appropriation for Veterans Small Business Assistance.
  6. $334 million for Pre-K Counts, an increase of 5.4%.
  7. $8.23 billion for Basic Education Funding, an increase of $75 million from the current fiscal year.
  8. $1.34 billion for the Ready To Learn Block Grant, an increase of $526 million (64%).
  9. $1.52 billion for Special Education Funding, an increase of $40 million (2.7%).
  10. $3,000,000 to provide feminine hygiene products at no cost to students in schools.
  11. $40 million to the Student Teacher Stipend Program, a $20 million increase.
  12. $13,707,000 to the Office of Attorney General for the Joint Local-State Firearms Task Force, which operates in the city of Philadelphia
  13. $10,000,000 for a new initiative to maintain access and services for patients in rural Pennsylvania hospitals
  14. $20,000,000 for a new hospital initiative to ensure patient safety and hospital access.
  15. $20,000,000 in continued additional investment for County Mental Health base services funding
  16. $23,350,000 to support primary health care practitioners through the repayment of educational loans and the expansion of residency opportunities
  17. $4,000,000 to create an All-Payer Claims Database, which will provide greater transparency around healthcare costs by collecting medical claims, pharmacy claims, dental claims, and eligibility and provider information from public and private payers
  18. $661 million to Pennsylvania’s State System of Higher Education (PASSHE), and increase of $40 million.
  19. $290 million to Pennsylvania’s Community College system, an increase of $13 million.
  20. $60 million to be split among Penn State, Pitt, and Temple universities through a performance-based funding system that the Performance Based Funding Council will develop.  Non-performance-based funding for each university will remain at 2024-2025 Fiscal Year levels.  The performance-based funding system will not impact Lincoln University, and funding is proposed at $21.8 million, an increase of $1.1 million.
  21. $50 million for housing stock restoration, replacing the Whole Homes Program funded by the Federal American Rescue Plan Act.  The budget proposes $10 million for a first-time homebuyer grant program to support housing.
  22. $14.5 million to fund four new Pennsylvania State Police Cadet classes.

Other policy priorities highlighted in Governor Shapiro’s budget address include:

Energy:  Restating the priority of the Governor’s “Lightning Plan,” which includes:

  1. RESET Board – Pennsylvania is one of only 12 states with no state entity to oversee the siting of important energy projects.  The Reliable Energy Siting and Electric Transition (RESET) Board would streamline the process for building energy projects by speeding up siting and permitting decisions.
  2. PACER – The Pennsylvania Climate Emissions Reduction Act (PACER) would establish a cap-and-invest program as an alternative to the Regional Greenhouse Gas Commission (RGGI).  Under PACER, PA would set its own carbon emissions cap and invest proceeds (from credits sold to release emissions) in electricity bill assistance and energy efficiency and clean energy projects.
  3. PRESS – The Pennsylvania Reliable Energy Sustainability Standard (PRESS) would modernize PA’s outdated Alternative Energy Portfolio Standards (AEPS), incentivizing innovation in nuclear and renewable energy.
  4. Community Energy – This proposal would make it easier for communities, including agricultural producers and low-income residents, to jointly share energy resources to reduce utility bills.  For example, farmers could collectively invest in methane digesters to produce energy for their farms, reducing reliance on utility companies and lowering their energy prices.
  5. Rebates to Reduce Household Energy Costs – This proposal would update Act 129 of 2008 to increase rebates for the purchase of energy efficient appliances.

Space Optimization and Utilization Plan (SOUP)

  1. The Department of General Services (DGS) will use SOUP to reduce its overall footprint by consolidating and existing leased space, promoting shared spaces among agencies, utilizing resources efficiently, and fostering collaboration and adaptable workspaces.
  2. The goal of SOUP is to maximize the use of long-term office spaces, promote collaboration, and make it easy for staff to work from any Commonwealth location by creating attractive places to work that encourage employee engagement while reducing lease costs.
  3. Over the next 10 years, these initiatives will result in net savings of $45,000,000.

Minimum Wage:  Increasing the minimum wage for non-tipped workers to $15/hour and $9.00/hour for tipped workers.  The increase will take effect January 1, 2026.

Public Transportation Funding:  Increase the amount of sales and use tax revenue transferred to the Public Transportation Trust Fund from 7.68% to 9.43% to increase funding for public transit.  The budget also proposes eliminating $50 million of expenses in the Motor License Fund, making an additional $50 million available for road and bridge projects.

Legalizing Adult-Use Cannabis:  Legalizing the sale of recreational marijuana on January 1, 2026, would generate $536 million in Fiscal Year 2025-2026.

Legalizing, Regulating, and Taxing Skill Games:  Capping the maximum number of VGT and skill game machines at 40,000 and taxing them at a 52% tax on gross revenues.

Reducing the Corporate Net Income Tax Rate from 7.99% to 7.24% in 2026, 6.49% in 2027, 5.74% in 2028 and 4.99% in 2029.  Governor Shapiro’s proposal also calls for eliminating the “Delaware Loophole.”

Financial Institution Taxes:  Proposes the elimination of the Bank and Trust Company Shares Tax, Mutual Thrift Institution Tax, and Private Bank Tax and subjecting these companies to the Corporate Net Income Tax.

Attached is a copy of the individual budget line items in Governor Shaprio’s proposed 2025-2026 Fiscal Year budget. Proposed_2025_2026_Executive_Budget

In addition to the information on Governor Shapiro’s proposed 2025-2026 Fiscal Year Budget provided earlier today, you can find the details of the Governor’s spending plan at the following links:

This link will also provide access to additional budget-related items that may be of interest to you and their specific section. We have listed the corresponding section numbers to specific items of interest to you below.

 

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