Gov. Josh Shapiro’s 2024-25 Budget Proposal: By the Numbers
On Feb. 6, 2024, Governor Josh Shapiro delivered his second Budget Address, outlining key public policy priorities and summarizing his proposed budget for the fiscal year beginning July 1, 2024. The following are highlights of particular relevance to the PA Chamber and the employer community:
Budget Proposal Overview
Total proposed spending is $48.3 billion, which represents a 7.1 percent (or $3.2 billion) increase over what was enacted last year. Some legislators expressed concern that the proposal would rely on more than $3 billion in reserve funds to balance the budget and that the FY 2023-24 budget already has a $1.3 billion structural deficit.
Proposed Changes in PA Tax Structure
The governor’s proposal includes continuing the planned phase down of the Corporate Net Income Tax (CNI), which was reduced to 8.49 percent on January 1 of this year and is scheduled to be reduced to 7.99 percent on January 1, 2025.
The plan does not call for any other changes to Pennsylvania’s tax structure. Notably, it does not include a proposal to eliminate the sales tax and gross receipts tax on cell phones, which the governor proposed last year and remained unfinished business at the end of the year.
Public Safety and Transportation Funding
The proposal continues the phase out of State Police funding from the Motor License Fund with a goal to fully phase down by 2026-27. The proposed reduction for 2024-25 is an additional $125 million.
The governor also proposed increasing the amount of sales tax revenue that is earmarked for public transportation by about $280 million, which would bring total public transportation funding by the state to $1 billion, or the equivalent of 9.43 percent of sales tax collected by the commonwealth.
DEP and Permitting Reform
The governor is requesting $10.5 million in additional funding to support staffing, including 40 new positions, and to modernize operations to speed up the permitting process for businesses. He also proposes an additional $11 million for well-plugging activities, $2.5 million for 15 new positions in the Energy Programs Office to focus on transmission planning and environmental justice, and $1.5 million to expand PFAS testing capabilities.
Education Spending
Total K-12 education spending would increase over $1.5 billion dollars, nearly $1.1 billion of which would go towards basic education, with $872 Million infused in a new adequacy formula recommended by the Basic Education Funding Commission and $200 million through the existing Basic Education formula. Additionally, the proposal calls for a $50 million dollar increase for Special Education, $100 million for school mental health grants, $300 million for school repairs, $30 million for the Pre-K Counts program, and significant increases for various other programs such as adult literacy, dual enrollment, and school safety. The proposal does not call for the implementation of the Pennsylvania Award for Student Success or an increase in the Education Improvement Tax Credit.
Higher Education
The governor’s budget address outlined his recently unveiled plan to reform Pennsylvania’s higher education system. Under this plan, Pennsylvania’s state-owned schools and community colleges would operate under a shared partnership, receiving a total increase of $127 million, or 15 percent. Thaddeus Stevens College of Technology is also recommended to receive a 15 percent increase, or $3 million.
Funding for the state-related universities, which are proposed to receive a $30 million or five percent increase, would be driven out through a new grant program at the Department of Education and would no longer be subject to a two-thirds vote for passage.
The governor proposed to establish a performance-based funding model to distribute funding to public colleges and universities that considers outcomes and incentivizes helping students to earn credentials in fields facing workforce shortages, such as education, nursing, and advanced manufacturing.
In addition, Pennsylvanians making less than the median year household income would pay no more than $1,000 per semester for a full, normal course load at a PASSHE school or community College and a $1,000 increase in PHEAA assistance for all students.
Workforce Development
In addition to a $2.4 million increase for career and technical education, the governor calls for an additional $2.2 million for industry partnerships, a $2 million increase for a new one-stop-shop career pathways site to ease the complications of job seeking, $2 million to aide businesses in implementing skills-based hiring, and a $2 million increase for foundations in industries to support internships at Pennsylvania companies. The proposal also asks for funds to create a new portal to help military veterans more easily reenter the workforce. The proposal also seeks to increase funding for “PHARE” through the reality transfer tax, which is used to create, rehabilitate, and support affordable housing.
Economic Development
The proposal includes several new funding initiatives related to the governor’s recently announced economic development plan. The largest proposal is $500 million for a newly created PA SITES Fund, to fund site development and infrastructure to create shovel ready sites. PA SITES would be funded by a $500 million bond issuance, which would be paid through a $15.4 million general fund appropriation, which annualizes to $45.2 million.
The governor’s proposal also creates a new $20 million PA Innovation line item to support entrepreneurs scaling their products, innovation, and research; creates a new $3.5 million Regional Economic Competitiveness Challenge to provide planning grants for regional growth strategies; increases funding for marketing to attract tourists by $15 million, and proposes eliminating the Keystone Communities program and replacing it with a new $25 million program called Main Street Matters.
Regional Greenhouse Gas Initiative
The governor’s budget proposal does not include any fees generated from Pennsylvania’s potential participation in RGGI, which would impose a carbon tax on energy producers. This proposal is currently pending in the Pennsylvania Supreme Court.
Proposed Mandated Minimum Wage Increase
As part of his budget plan, the governor proposes a government mandated wage increase to $15/hour for non-tipped employees and $9/hour for tipped employees, effective January 1, 2025.
Recreational Marijuana
The governor proposes allowing adult use cannabis effective January 1, 2025 and assessing a 20 percent wholesale tax and sales tax at retail, which he projects would generate $15 million in the first year, increasing to $250 million by FY2028-29.
Skill Games
The governor also proposed putting skill games under regulations by the Pennsylvania Gaming Control Board and assessing a 42 percent tax on the daily gross gaming revenue from skill game machines. The governor estimates this tax would generate $150 million in the first year, annualizing to $315 million.
PA Human Relations Act
The governor called on the Senate to pass the so-called “Fairness Act,” legislation passed by the House to add sexual orientation and gender identity as protected classes under the PA Human Relations Act, Pennsylvania’s anti-discrimination legislation. Notably, the House-passed bill proposes to expand the PHRA further by adding the phrase “perceived” to apply to all protected classes.
As negotiations continue, the PA Chamber will continue to advocate for a responsible state budget that makes wise investments and sets the Commonwealth on a path toward greater competitiveness and fiscal prosperity.