(The Center Square) – How to build a financial bridge across the vast chasm between Pennsylvania’s potential spending and revenue figures – gauged at roughly $5 billion or more – will be a major challenge as budget negotiators gear up to work on a 2026-27 spending plan.
That much was clear in the state Capitol on Thursday as lawmakers concluded hearings on Gov. Josh Shapiro’s $53.3 billion spending proposal, setting the stage for negotiations that will aim to produce a deal by the June 30 constitutional deadline. There was partisan sniping, indicating the upcoming process may be far from smooth.
Shapiro, a fourth-year Democrat who is up for re-election, wants to generate new revenue by having the Legislature legalize adult-use marijuana; regulate and tax so-called skill games; modernize the tax system; and boost sales tax and personal income tax collections by raising the minimum wage. On Thursday, Budget Secretary Zachary Reber testified that “we have left about $3 billion off the table” by not enacting those items earlier when Shapiro first proposed them.
Reber acknowledged it was “speculative” to quantify revenue sources that have not yet been approved. But, he said, “All revenue sources in the Commonwealth at one point were not in existence and were speculative.”
Republican Rep. Jim Struzzi of Indiana County, minority chairman of the House Appropriations Committee, called that a stretch.
“We know the revenue sources that we have right now in front of us, and to deal in hypotheticals, I think, isn’t being responsible with the taxpayers,” he said.
Democrats control the House and Republicans control the Senate, and last year’s budget process was a partisan mess. Start-and-stop negotiations involving leaders of both chambers and the Shapiro administration went 135 days beyond the deadline. The main budget bill was passed and signed into law on Nov. 12.
Billions of dollars in payments to schools, counties, and human service agencies were held up. There were furloughs, program cuts, and lots of borrowing and lost interest income around the state.
On Thursday, the bitter experience appeared to remain fresh. Reber said more than 100,000 state payments were held up during the impasse.
Nonetheless, each side was already calling out the other for hypocrisy or alleged questionable practices.
“Bad faith numbers” is how Republican Rep. Josh Kail of Beaver County described Shapiro’s financial projections for the years beyond 2026-27. The projections for each year show anticipated spending growth of less than 1% per year – while Kail ticked off the far-larger actual growth numbers for some recent years, including 5.7%, 5.3% and 5.8%.
Kail said it was critical to have reasonable future-year projects for planning purposes. Reber told him the projections “are based on what we know for sure we will be paying.”
Another sore spot for Republicans is the Shapiro proposal to get one-time financial help by taking $4.5 billion out of the so-called Rainy Day Fund, the name for the state’s de facto emergency savings account. Republican Rep. Marla Brown of Lawrence County said the $7 billion-plus currently in the fund would sustain state operations for 56 days, but the proposed drawdown would leave enough for “just 23 days.”
Reber told the national average among states is a stash that will last 46 days, and there are differing opinions on what the proper level should be.
Republicans were called on the carpet by Democratic Rep. Jordan Harris of Philadelphia, the Appropriations Committee chairman who ran the hearing.
“We have a gap to fill and if you don’t like taking money from the Rainy Day Fund, that’s fine. But you have to show us how you’d balance this budget without cutting services and programs to our constituents,” Harris said. “It is easy to be critical without giving a solution.”
