Pa. Gov. proposes $51.5 billion budget, seeks new funds for schools, transit

Pa. Gov. Josh Shapiro is seeking more money for public schools and public transit with his third budget proposal to lawmakers.

Shapiro also pushed for legalizing marijuana for a new revenue stream and introducing taxes on skill games, which have long been viewed as competitors to casinos and lottery contests.

Shapiro's budget proposal asks for $51.1 billion for the 2025-26 fiscal year beginning July 1.

About $2 billion more would go to toward human services, including medical care for the poor, and another $1 billion more would go toward K-12 schools and higher ed.

The proposal holds the line on personal income and sales tax rates, but uses about $4.5 billion in reserve cash to balance the budget.

Passage will require approval from Pennsylvania’s Democratic-controlled House and its Republican-controlled Senate.

Shapiro is under pressure from education allies and Democratic lawmakers to marshal billions more for schools in response to a court decision that found Pennsylvania’s system of public school funding violates the constitutional rights of students in the poorest districts.

Most of the new education money — $526 million — is viewed as part of a multiyear, multibillion-dollar response to a court decision that found that Pennsylvania's system of public school funding violates the constitutional rights of students in the poorest districts.

The budget proposal holds the line on personal income and sales tax rates, the state’s two largest sources of income. But it instead uses about $4.5 billion in reserve cash to balance — the second straight year of multibillion-dollar deficits.

Tax collections are projected to increase by $2.3 billion to $48.3 billion, or 5%, but a large portion of that rests on whether lawmakers will go along with several proposals by Shapiro.

That includes raising almost $1.2 billion from legalizing adult-use marijuana, expanding how the corporate net income tax is applied and introducing taxes on the skill games that are viewed as competitors to casinos and state lottery contests.

He noted that there are 70,000 unregulated skills machines across the state.

"If we want Pennsylvania to compete and win, we need to take some of the money going into those slots and put it in our state coffers so we can maintain our reserves and keep building on our progress," said Shapiro.

He said the funds raise by taxing skills games, the state could fill a funding gap that skills games create by reducing income the lottery could otherwise receive and said the money could be used to grow the state's general fund.

"We’ve been putting this off for too long. It’s time to regulate and tax skill games and protect the interests of our Commonwealth," the governor said.

His budget would include $368 million in revenue in 2025-26 from the regulation and taxation of skill games.

Shapiro also made another pitch to legalize marijuana to skeptical Republican lawmakers. Shapiro noted that he has spoken to leaders in other states where adult-use cannabis is legal and learned that as many as 60% of their customers are coming into the state from Pennsylvania.

"We’re losing out on revenue that’s going to other states instead of helping us here," Shapiro said. "We’re losing out on an industry that, over the first five years, will bring in $1.3 billion in new revenue to our Commonwealth."

Also, Shapiro has long been adamant about preventing cutbacks by the Southeastern Pennsylvania Transportation Authority, the Philadelphia region’s public transit agency that is still struggling to regain ridership lost during the pandemic.

Republicans resisted giving Shapiro his full request last year, prompting him to divert one-time federal highway funds to stave off near-term service cutbacks and fare increases.

With this new budget, Shapiro hopes to add in a new $292.5 million for mass transit initiatives.

During his budget address on Tuesday, Shapiro also pled for state lawmakers to increase the state's stagnant minimum wage, as well.

"We’ve spent so much time passing laws to put more money back in people’s pockets by cutting taxes. How about we put more money in people’s pockets by raising their wages?" asked Shapiro. "Let’s raise the minimum wage to $15/hour."

The plan also seeks to shave reimbursements to cyber charter schools, saving nearly $400 million in payments by public schools, and close two state prisons, with the state's 24 prisons at about 82% capacity.

Shapiro does have a cushion of about $10.5 billion in reserve, thanks to federal COVID-19 relief and inflation-juiced tax collections over the past few years. Shapiro's proposal would leave about $6.4 billion of that unspent.

This year's $47.6 billion spending plan required about $3 billion of surplus cash to balance, eliciting warnings from Republicans that the state must slow the pace of spending or risk depleting its surplus within several years.

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Follow Marc Levy on X at: https://x.com/timelywriter