Federal uncertainty complicates Pa. budget haggling over transit, education

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5 days ago

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HARRISBURG — Competing priorities and possible federal cuts to Medicaid are complicating negotiations as top Pennsylvania lawmakers attempt to hammer out a budget deal by the June 30 deadline.
The Republicans who control the state Senate say their biggest concern is overspending. With the state facing a structural deficit, they see a need to pick priorities.
'Whether it's education, whether it's transit, whether it's Medicaid, whether it's transportation infrastructure, there's going to be a need for a ranking of those priorities,' Majority Leader Joe Pittman (R., Indiana) told Spotlight PA, 'because we're not going to be able to reach them all.'
Democrats who control the state House say their counterparts haven't offered many solutions that could lead to a compromise on those issues in a divided Harrisburg.
'Whether it's our health system, the minimum wage, cannabis legislation — at some point, whether it's the public or the press, someone needs to say, 'When will the Senate be heard on these issues and what are they for?'' Majority Leader Matt Bradford (D., Montgomery) told Spotlight PA.
Democratic Gov. Josh Shapiro's opening budget pitch in February called for spending $51 billion next fiscal year, and would require the state to use $4 billion from its cash reserves to balance the books.
The state has about $11 billion in reserves it built up over the pandemic; at current spending rates, those dollars will run out sometime in 2026.
Pennsylvania runs a structural deficit, spending more than it takes in year over year. Previous budgets approved by members of both parties have routinely increased spending and used accounting tricks to balance the books instead of making sustainable changes, like spending cuts or new taxes. But Pittman said his top priority this year is putting the books in order.
'If we don't make some changes soon, in a few years, we're going to have some very unpleasant conversations in this building,' Pittman said.
He pitched cuts to Medical Assistance, the state's health insurance program for low-income individuals, noting that the cost has rapidly ballooned. He specifically wanted to reduce eligibility and expand cost sharing for weight-loss drugs like Ozempic.
While members have proposed new sources of revenue, the biggest ones — the legalization of recreational marijuana and the regulation and taxation of skill games — are politically complicated, and getting just one into a budget deal this year would be a major achievement.
Instead, most of Harrisburg's biggest debates involve various factions of lawmakers competing for a slice of the budgetary pie.
Public transit agencies are facing budget deficits due to a rise in remote work and an end to pandemic-era federal aid.
These agencies range from rural services that bring aging customers to grocery stores, to sprawling, intercounty bus and rail systems. SEPTA, the transit agency that serves Philadelphia and its suburbs, faces the worst fiscal headwinds. That has made its financial plight a big political issue for Democrats, who overwhelmingly represent SEPTA's service area.
If it doesn't get more state funding, SEPTA says it will cut its current service levels in half starting in late August. Such cuts would lead to longer commutes, could hurt property values, and would end game-night subway service to Philadelphia's sports stadiums.
Shapiro wants to send an additional $292 million in sales tax revenue to these agencies.
State Senate Republicans have so far rejected the call, saying they'll only agree to a funding boost if it comes with a new, dedicated source of state revenue and more money for roads and bridges.
Pittman told Spotlight PA that SEPTA and transit allies' public warnings of the potential impact of cuts for the city and region appear to be 'a way to try to manufacture a crisis.'
'I think the state taxpayer has been quite generous so far,' Pittman said, adding that he was 'very open to giving the counties that use the service more flexibility to manage this issue on their own.'
While it is a major issue for many of their constituents, Democrats have so far refrained from making transit the centerpiece of their comments about the budget.
State Rep. Ben Waxman (D., Philadelphia) described that as a political tactic, saying Democrats 'cannot forget that there's a lot of other things that will be talked about … Would I vote for a budget that included SEPTA, but defunded Philadelphia public schools? No.'
'Senate Republicans want to back us into a corner and give themselves more power, and I don't want to give them that,' he said.
In 2023, a state court ruled the commonwealth's public education funding system was so inequitable that it violated some students' constitutional rights. Lawmakers agreed on a fix the following year.
They adopted a formula that routes extra money to 348 schools with 'adequacy gaps' — defined as the difference between the amount a district spends per student and the amount that district would need to spend to serve each child at an acceptable level.
Last year's budget put $500 million toward these poor schools, and estimated that nine years of these payments would be necessary to close the gap.
If lawmakers don't continue making this kind of investment, the plaintiffs who brought the original school funding case say they'll go back to court.
This year, Shapiro again called for about $500 million in adequacy payments, though he asked for significantly smaller increases for K-12 and special education than last year's budget included. State House Democrats are on board with that approach, though many public education advocates have said more funding is necessary.
State Senate Republicans say they have reservations, though their precise vision for how the education funding scheme should change remains unclear. Pittman told Spotlight PA that he thinks the state is spending too much money on public education, period.
'We have invested historic levels of funding in public education,' he said. 'We continue to spend more money to educate fewer students. We cannot sustain, in my opinion, the level of growth that has occurred over the last three or four years now, and we have to take a hard look at figuring out how we can contain those costs overall.'
State Rep. Pete Schweyer (D., Lehigh), who chairs his chamber's Education Committee, said his caucus just introduced a bill that would make a slate of changes to Pennsylvania's much-scrutinized cyber charter schools, including a flat tuition rate, which would reduce the amount public schools must pay to cybers for students who opt to attend them.
That, he noted, would bring 'significant savings for our school districts.'
Schweyer said he is 'smart enough to know that budget season is budget season, anything can happen.' But he said he doesn't plan to compromise on adequacy funding.
'I'll just point to how we got here in the first place — 30 years of chronically underfunding the poorest school districts,' he said. 'If we change the formula, we're going right back into court, and we all know it.'
So-called sin taxes are the only major sources of new revenue lawmakers have pitched for this budget, but the path to a compromise requires crossing political minefields.
The question of how to tax skill games, for instance, is one of Harrisburg's longest-running special interest wars. It remains heated.
These slot-like terminals have sprung up, unregulated, in bars and convenience stores across the state. Through years of court fights that have ultimately allowed them to keep operating, supporters have argued the devices help small businesses stay afloat, while opponents say skill games cut into the state's regulated gaming revenue and open a door to problem gambling.
Brick-and-mortar casino owners are among skill games' staunchest opponents. Both they, and skill games operators, have spent hundreds of thousands on lobbyists and campaign donations to protect their share of the multibillion-dollar industry.
Riven by internal differences over the debate, state Senate Republicans were relatively slow to stake out a position on regulation. Leadership released a proposal in May that pitches a 35% tax on the machines alongside an unspecified assessment — to be set by the state Department of Revenue — to cover the cost of regulating them.
In a letter to lawmakers last week, representatives for Pennsylvania's 17 casinos said they welcomed the measure as a starting point for negotiations.
But a spokesperson for Pace-O-Matic, a Georgia-based firm that makes skill games machines, said in a statement soon after the bill's release that it 'intentionally imposes an unreasonably high, anti-business tax rate that could devastate small businesses and organizations that count on the supplemental revenue the games provide.'
The industry's favored bill proposes a levy of 16%. The casino representatives, who pay a 54% rate on their slot machines, called Pace-O-Matic's ideal rate 'miserly.'
State House Democratic leaders haven't united behind a skill games proposal, deferring to Senate Republicans to start talks on the issue. Still, members of the lower chamber's majority caucus also have a wide range of opinions on the best approach — from high taxes on the machines to stricter crackdowns aimed at limiting their use.
Legalizing recreational marijuana would require navigating a similarly treacherous political path.
State House Democrats launched an opening salvo in that negotiation, passing a bill to legalize adult-use cannabis and sell it through state-run stores, similar to Pennsylvania's liquor model.
The bill was summarily rejected in the state Senate, failing to pass its first committee vote.
Bradford, the state House majority leader, said any further action will need to originate in the Senate. Bradford specifically urged state Sen. Dan Laughlin (R., Erie) — a longtime legalization advocate and chair of the committee that would handle the bill — to advance his own proposal.
'He has the opportunity now to immediately and expeditiously move a marijuana legalization bill,' Bradford told reporters after a state Senate panel rejected the House's preferred approach. 'I look forward to him getting those votes … and sending something over.'
Laughlin has been noncommittal about when he and state Sen. Sharif Street (D., Philadelphia) will introduce their bill, saying the two have been 'making tweaks and going back and forth with the Legislative Reference Bureau' on language.
State Sen. Marty Flynn (D., Lackawanna) said he plans to introduce a bill designed to be more appealing to existing medical marijuana companies than the doomed state store bill was.
Flynn said he wanted to give the state Senate a concrete option and 'have a vehicle in place' in case the legislature decides to act before the June 30 budget deadline.
'They can't say that no one introduced anything,' Flynn told Spotlight PA.
Pittman has not signaled that cannabis legalization is a priority in upcoming budget negotiations. He declined to say whether the issue is on the table, instead dismissing the state House bill as a 'completely unserious proposal.'
Pennsylvania's budget is undergirded by a lot of federal money. By June 30, the commonwealth is projected to receive $50 billion in federal funding for the current fiscal year, accounting for 40% of the state's operating expenses.
These dollars flow to things like education and transportation. But human services line items, which include programs like SNAP and Medicaid, are by far the biggest recipient category, accounting for 70 cents of every federal dollar received by the state government.
This money could be at risk. While the details are in flux, President Donald Trump and congressional Republicans have indicated that they plan to cut Medicaid, a low-income health insurance program administered by the states and funded partially with federal dollars.
If they move forward with such a plan, Pennsylvania would need to make corresponding cuts or fill the hole with state revenue. And the price tag may be hefty.
According to a rough analysis that the progressive Pennsylvania Policy Center conducted before federal Republicans formally passed their sweeping tax plan, the state would be on the hook for at least $133 million more in costs in 2026 if the federal cuts were enacted. That total, the center noted, would only grow in the coming years.
The GOP tax plan hasn't passed the U.S. Senate, and could change significantly before becoming law.
But financial uncertainty remains in Pennsylvania, and one option for dealing with it would be passing a short-term budget to keep the state government's lights on until Trump signs a spending bill. The legislature made a similar move in 2020 due to the COVID-19 pandemic.
State Senate Appropriations Chair Scott Martin (R., Lancaster) told Spotlight PA that a partial budget might make sense.
'I will never shut the door on that,' Martin added.
However, such a move would only delay big decisions on the state's finances, not eliminate them. Bradford told reporters in May that any talk of temporary budgets is 'premature.'
'I think we have an obligation to pass a budget,' Bradford said, adding: 'I think we should do that by June 30 or shortly thereafter.'
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