Gov. Shapiro to deliver budget while seeking money for higher education and public transit

Gov. Josh Shapiro is set to deliver a second budget proposal to Pennsylvania lawmakers on Tuesday with a firmer grasp on how he wants to pursue several top priorities, his state in a relatively strong fiscal position and lessons learned from last year’s ugly budget fight.

Most details of the Democratic governor’s budget plan for the 2024-25 fiscal year, which starts July 1, remain under wraps. But Shapiro has made it clear he will seek more money for higher education and public transit agencies and possibly underfunded public schools.

He also wants to spend more money to attract major companies and seems ready to revisit the controversial item that helped sow a protracted budget fight last year: creating a new private school voucher program.

Shapiro’s first budget proposal disappointed many allies who felt it wasn’t bold enough. This year, he’s returning with bigger proposals based on recommendations from his task forces or appointees.

Shapiro faces a number of cost pressures, too, from health care for the poor to county-run mental health services.

One other difference this year is that Shapiro is expected to deliver his budget address to a joint session of the House and Senate in the Capitol Rotunda. Governors historically deliver the speech in the House chamber, but workers have put up scaffolding there to repair damage from a water leak a year ago.

Whatever Shapiro proposes will require passage from the Democratic-controlled House of Representatives and the Republican-controlled Senate. Appropriations Committee hearings start Feb. 20.

Here’s what to watch for Tuesday:

The budget basics

Shapiro will almost certainly propose an operating budget that spends above this year’s $45 billion approved plan.

That’s partly because an extra federal pandemic-era Medicaid subsidy, worth about $1 billion a year, is ending and Shapiro has said he wants to spend more money on several priorities.

Those include nearly $300 million more for public transit agencies, a roughly 25% increase, and a substantial, but undisclosed, increase for state-owned universities.

Shapiro also wants to spend big to attract large industrial facilities, such as a microchip factory, by getting large tracts of land permitted and prepared for construction.

“We need to invest if we want to compete nationally and internationally,” Shapiro said last month.

Also, pressure is on Shapiro to respond more fully to last year’s court decision that found Pennsylvania’s system of funding public schools violates the constitutional rights of students in poorer districts.

Last month, Shapiro’s appointees backed a non-binding recommendation to send $1.3 billion more next year to public schools, including subsidies for high-tax districts and school construction. He hasn’t said whether his budget proposal will reflect that recommendation.

The fiscal situation

Tax collections are meeting expectations and Shapiro has a strong cash cushion, for now.

The state expects to have $13 billion in cash when the fiscal year ends June 30, thanks to federal COVID-19 aid over the past four years and inflation-juiced tax collections that filled up the state’s treasury.

Meanwhile, a credit rating upgrade in November was Pennsylvania’s first since it drew six downgrades between 2012 and 2017, including two by each of the big three rating agencies, while grappling with entrenched post-recession deficits.

Still, Pennsylvania is running deficits again, using $1 billion in surplus cash to prop up this year’s spending.

The state also is saddled with a slow-growing economy and grim demographic trends showing a shrinking working-age population and a fast-growing retirement-age population that pays less in taxes and costs more to care for.

Shapiro’s priorities

Shapiro has made a list of items that he considers to be unfinished business.

That includes raising the minimum wage to $15 an hour, which Republicans have blocked in the Senate, and creating a new $100 million private school voucher program that Democrats in the House have blocked.

The voucher program is particularly radioactive for Democrats and Shapiro’s support for it sets him apart from other Democratic governors around the country.

Like 19 other states, Pennsylvania’s minimum wage is at the federal minimum of $7.25.

Taxes

Shapiro has said he will propose a budget that cuts taxes, without offering further details.

Shapiro and lawmakers in December approved an increase in the monthly fee on phone bills, from $1.65 to $1.95, to raise another $60 million for county 911 emergency response services.

Other cost pressures

School boards say they are paying too much to charter schools and Democratic lawmakers are pushing to restart a dormant program subsidizing school construction projects.

Meanwhile, providers of services for the intellectually disabled and autistic say the system is beset by underfunding and staffing shortages.

Counties say the safety-net mental health services they manage are in dire need of more money to create more beds and attract more counselors for waiting lists of people who need help.