Compromises on education spending, tax cuts, and transit headline Pa.’s $47.6B budget

This story originally appeared on Spotlight PA.

Pennsylvania lawmakers have sent Gov. Josh Shapiro a $47.6 billion budget that increases public education spending, funnels new dollars into economic development, provides a one-time boost for transit systems, and creates a new college scholarship program.

Education defined budget conversations more than any other issue this year, as lawmakers grappled over how to handle a state appellate court ruling that found the commonwealth unconstitutionally underfunds public school districts.

The final deal boosts K-12 education funding by more than $1 billion. Much of that increased investment is targeted at the state’s poorest school districts, though the total is less than what Shapiro, other Democrats, and advocates say is needed.

The deal between the Democratic governor, narrowly Democratic-controlled state House, and Republican-led state Senate was finished two weeks after the June 30 deadline and coalesced after a string of talks that ran late into the night.

“This agreed upon budget delivers on bipartisan priorities to invest in our students, create safer communities, grow our economy, cut taxes and costs, responsibly spend taxpayer dollars, and build a better future with more freedom and opportunity for all Pennsylvanians,” Shapiro said in a statement.

The final budget is also notable for what it doesn’t include. It doesn’t cut the personal income tax or appropriate taxpayer money for private school vouchers, as state Senate Republicans wanted. Nor does it OK any of the revenue-generating ideas pitched by Shapiro, like legalizing recreational cannabis or regulating slot-like skill games.

Here’s more on what the budget does and doesn’t do:

More money for transit

Whether to increase funding for public transit systems emerged as a late sticking point in talks.

Transit systems across the country have warned of an impending fiscal cliff as federal stimulus dollars run out. The issue is especially dire for large systems like Philadelphia’s SEPTA and Pittsburgh’s PRT, which have said they would have to cut services if they didn’t get more state money. Systems in every corner of the commonwealth say they are similarly stressed.

In his February budget address, Shapiro pitched a $283 million increase for buses, subways, and medical transportation, an idea first proposed by state House Democrats. State Senate Republicans expressed skepticism, saying such an increase would need to be tied to more aid for roads and bridges or funded by an independent revenue source.

GOP leaders at one point suggested regulating and taxing slot-like skill games — already seen in corner stores and taverns across Pennsylvania — and using the revenue to fund transit, but gaming’s complicated politics sank the idea.

Still, the issue remained a top priority for state House Democrats. The final deal provides a one-time boost of $80.5 million to transit agencies.

“I don’t see how we can leave businesses and transit users in the lurch,” state House Majority Leader Matt Bradford (D., Montgomery) told Spotlight PA on Tuesday.

Site development dollars and permitting reform

State lawmakers did approve one of Shapiro’s key asks: $500 million to provide grants or loans to developers or local government agencies so they can prepare sites for industrial or mixed-use projects.

His administration will hand out $400 million to applicants, while the rest will be handled by a state board with legislative appointees.

Shapiro has argued the program will help make Pennsylvania more competitive as a location for economic projects with other states. State Senate Majority Leader Joe Pittman (R., Indiana) countered that quicker permits would be more helpful.

In the end, Pittman also got his wish, as lawmakers approved a streamlined process for businesses to apply for certain air, water, and land disturbance permits. Under the program, the state Department of Environmental Protection will select a third-party expert to review an applicant’s permit request if the applicant pays for an expedited review. The agency must also set up an online portal so applicants can view permit statuses.

State dollars for solar schools

Lawmakers also agreed to fund a grant program to help schools, community colleges, and technical schools pay for solar energy projects and levied a new fee on electric vehicles to raise revenue for road maintenance.

The $25 million grant program will be administered by the Department of Community and Economic Development, and the money will be used to pay for equipment, permitting fees, and other related costs.

The project is also designed to take advantage of federal tax credits for solar energy projects. State Rep. Elizabeth Fiedler (D., Philadelphia), the bill’s author, has estimated that these credits would cover between 30% and 50% of installation costs that aren’t covered by the state appropriation.

The legislature also approved a fixed, annual electric vehicle fee. Currently, electric vehicle users self-report the amount of energy they use to the Pennsylvania Department of Transportation and pay a tax based on that amount.

Moving forward, EV users will be charged a flat fee: $200 in 2025, $250 in 2026, and then an amount determined by PennDOT annually. The revenue recouped will be used to pay for highway and bridge maintenance.

Some environmental advocates and lawmakers pushed back against the bill, saying that it would disincentivize consumers from purchasing EVs, which emit fewer pollutants. However, the bills passed both chambers with large majorities as many lawmakers said they viewed the fee as an equitable payment for using the state’s roads. Pennsylvania funds road and bridge maintenance through a gas tax.

Political bickering over state-related funding may end

Several changes to Pennsylvania’s higher education system also made it into the final deal, though the legislature did not adopt an ambitious overhaul of Pennsylvania’s higher education system pitched by Shapiro.

Lawmakers approved a new scholarship program, proposed by Republicans, that gives students in an “approved course of study,” like nursing or education, up to $5,000 per academic year. They must stay and work in Pennsylvania after graduation for 12 months per grant received.

Shapiro wanted to combine the systems that oversee Pennsylvania’s 10 state-run universities and 15 community colleges and eventually cap tuition at $1,000 per semester for many families. That plan didn’t make it into the final deal, but lawmakers did agree to create a new State Board of Higher Education, which will develop strategic plans for the systems and recommend ways for schools to coordinate.

That board will also include a new council tasked with making recommendations about how to assess performance and distribute funds to Pennsylvania’s four state-related universities: Lincoln, Penn State, Pitt, and Temple.

The council is part of a plan to significantly change the way funding is approved for those schools. Currently, two-thirds of the legislature must approve the funding. Moving forward, the council will come up with a new metric to dole out funding based on performance. Lawmakers have directed council members to consider factors like graduation and student retention rates.

Approving funding for the state-related universities has become increasingly difficult in recent years. Using the two-thirds vote requirement, Republicans have blocked funding for political reasons, including protesting fetal tissue research conducted at the University of Pittsburgh and trans health care provided by Penn State.

Tax cuts and credits

A top priority for the business community is included in the deal: allowing companies to reduce their tax liability by increasing the percentage of annual operating losses they can carry forward.

Republicans argued that the increased deduction, which will match what is allowed under federal law by 2028, will help businesses get through their first few years.

“I was always told by my mentors, you’re going to lose everything you got the first year, and the second year you hope to break even and the third year you might make enough money to pay your bills,” state Sen. Greg Rothman (R., Cumberland) said. “And then you start making money.”

The budget also gives employers tax credits if they help employees pay for child care expenses or match an employee’s contribution to a state-run college savings plan. It also creates a state tax deduction for student loan interest.

The deal includes a bevy of tax credits targeted at politically popular industries and causes. Lawmakers approve such credits as a compromise instead of increasing state spending.

The deal expands an existing credit for companies that burn waste coal and creates a special zone in Reading in which taxes paid by developers can instead be used to pay down any debt taken out to build in a pre-defined neighborhood.

One loser? Cryptocurrency companies, which will no longer be eligible for a tax exemption that encourages the development of data centers in Pennsylvania.

Shapiro, who put a rare spotlight on housing in his budget address, got some key wins in the area.

The budget increases the amount of realty transfer tax revenue that goes to an affordable housing program, boosts state homelessness aid by $5 million, and provides $2.5 million to fund legal protections for low-income tenants facing evictions.

“We believe in a better Pennsylvania,” state Rep. Lindsay Powell (D. Allegheny) said at a news conference last week. “We believe in a better America, where everyone has a safe place to call home.”

Katie Meyer of Spotlight PA contributed reporting.

Spotlight PA is an independent, nonpartisan, and nonprofit newsroom producing investigative and public-service journalism that holds the powerful to account and drives positive change in Pennsylvania.