Shapiro’s 1st Pennsylvania budget stresses schools, reserves

Shapiro's budget proposal comes as Pennsylvania keeps taking in robust tax collections, leaving it with $11 billion in reserve cash.

An up-close photo of Josh Shapiro.

Pennsylvania Gov.-elect Josh Shapiro speaks with members of the media at the Pennsylvania Farm Show in Harrisburg, Pa., Wednesday, Jan. 11, 2023. (AP Photo/Matt Rourke)

Gov. Josh Shapiro is proposing a hefty increase in aid to Pennsylvania’s schools in his first budget delivered Tuesday to the Legislature, but the Democrat’s administration also emphasized prudence, saying a massive cash surplus will dwindle over time.

Shapiro’s budget proposal comes as Pennsylvania keeps taking in robust tax collections, leaving it with $11 billion in reserve cash, even as the administration faces demands for more money for schools, highways, and social services.

Spending would rise modestly while Shapiro is proposing no increases in income or sales taxes, the state’s two main sources of revenue.

Shapiro did not, however, repeat his call during the campaign to more than halve the corporate net income tax rate over two years, preferring instead to discuss it with lawmakers while his administration keeps an eye out for volatility in collections.

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Shapiro is also proposing no major one-time spending items using the reserve cash, although roughly $1 billion in new money for public schools will come with grants for mental health needs, security improvements and removing environmental hazards.

In his address to a joint session of the House and Senate, Shapiro promised to repay voters’ trust by showing that “government can be a positive, productive force for good.”

Using conservative revenue forecasts, Shapiro said his administration is prepared to weather difficult fiscal times.

But, Shapiro said, he is also making “investments to build an economy that works for everyone, to create safe and healthy communities, to ensure that every child receives a quality education and to protect real freedom.”

All told, Shapiro’s budget plan for the 2023-24 fiscal year that starts July 1 boosts spending to $44.4 billion, an increase of almost 4%.

It will require approval from the Democratic-controlled House and the Republican-controlled Senate.

Most of the new money will go to education, health care and social services.

His administration said it will seek no tax increases, other than a slight increase in an emergency services fee — from $1.65 to $2.03 on monthly telephone bills — to fund county emergency response systems.

On the flip side, Shapiro is proposing to eliminate taxes of 11% on mobile phone service — a promise he made during last year’s campaign. Shapiro raised another a pledge he made on the campaign trail and asked lawmakers to increase the minimum wage to $15 an hour next year from the federal minimum of $7.25.

Perhaps the most prominent feature of Shapiro’s budget is what he said would be a “down payment” on the billions of dollars that public school allies say are necessary to comply with a court decision that found Pennsylvania’s school funding system violates the constitutional rights of students in the poorest districts.

He is proposing an increase of $567 million — or about 7% more — for day-to-day school operations, plus about $100 more apiece for special education, mental health counselors, anti-violence grants, and removing environmental hazards in school buildings like mold, lead and asbestos.

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That cash, however, may disappoint public school advocates and the school districts that won last month’s landmark court decision. They had hoped for at least $2 billion to start.

Another big item is using surpluses from the Pennsylvania Lottery to increase property tax and rent subsidies for the elderly and disabled. Under Shapiro’s plan, the maximum rebate would expand from $650 to $1,000, while the annual income eligibility cap would rise from $35,000 for homeowners and $15,000 for renters to $45,000 for both.

In the meantime, good fiscal times could be ending.

The proposed budget will need to siphon about $2 billion from reserves, as tax collections are projected to dip.

A legislative agency, the Independent Fiscal Office, projects that Pennsylvania will soon return to its long-term pattern of deficits now that federal pandemic aid has been spent and inflation-juiced tax collections subside.

There are other cost pressures.

Shapiro’s budget seeks to send an additional $100 million to improve highways and bridges, while the administration sees how much federal funding it can get to fill a gap that PennDOT last year said was roughly $8 billion, or more than 50%.

Providers of services for the intellectually disabled and autistic say the system is collapsing as they close programs because of underfunding and staffing shortages. They are seeking an additional $430 million, or 15% more, in state aid, while Shapiro’s budget proposes about $120 million.

Counties say the safety-net mental health services they manage are in crisis, without enough beds or counselors for people who need help after demand spiked during the COVID-19 pandemic. Shapiro’s budget proposes about $20 million more, which may not be enough for counties that say they are working with the same amount of state aid as they received in 2012.

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