Gov. Shapiro To Unveil Budget Pitch In Harrisburg On Tuesday

As he faces reelection, Gov. Josh Shapiro is expected to address rising housing costs, increased energy demand, and unfinished business from prior years when he unveils his budget pitch to state lawmakers on Tuesday.

A number of challenges loom for the Democrat: a divided state legislature that has passed relatively few laws, a looming structural deficit, and pressure to address a range of issues — from education and transportation funding to recreational cannabis legalization to regulating slot-like skill games.

While increased revenue is critical, the governor is not expected to propose any increases for broad-based taxes, such as sales and income levies.

His address before a joint session of the General Assembly on Tuesday kicks off talks on how to approach those issues ahead of the June 30 budget deadline. Shapiro’s first three budget deals all missed that deadline — the recent impasse lasted more than four months, with both sides boasting of wins in the end.

The speech also gives the governor a chance to highlight issues and themes beyond the state’s bottom line, similar to the president’s annual State of the Union address.

In this election year — in which both parties will be trying to flip a legislative chamber — lawmakers could face pressure to finish a deal earlier than in the past. Here’s what to watch for.

Financial pressures

Pennsylvania faces several expensive propositions in this year’s budget that, combined, put incredible pressure on the state’s already strained finances.

Public transit agencies say they are in crisis. Poor public schools won a court case that found they were unconstitutionally underfunded. Counties say they need a boost to deliver long-neglected mental health services. And President Donald Trump’s cuts to federal health care and food aid mean the state must either pay more or risk low-income families losing access to both in coming years.

Additionally, the state’s aging population is driving up the human services budget, according to the Independent Fiscal Office.

Last fiscal year, Pennsylvania brought in $46.4 billion in revenue from sales, personal, and corporate income taxes, as well as other levies. Lawmakers approved a $50.1 billion budget to fund education, health care, and public safety programs, among others.

The difference between revenue and spending was covered by the state’s cash reserves and transfers from specialized funds and agency reserves. Lawmakers pulled money from the “couch cushions of bureaucracy,” state Senate Majority Leader Joe Pittman (R., Indiana) said last year.

The budget deal also left the state with a roughly $8 billion rainy day fund. Without new revenue or cuts, that fund could be exhausted by the 2027-28 fiscal year, according to the IFO.

“My hope is that the governor will recognize that large requests for massive spending increases are not realistic,” Pittman recently told Spotlight PA

Still, he sees some space for costs to cease climbing. For instance, with the closure of two state prisons, Pittman thinks the state’s corrections budget could potentially be flat-funded.

He also said he was “very encouraged” by the administration's estimates of hundreds of millions of dollars in savings from reducing access to weight-loss drugs for Medicaid patients, which were “much more” than state Senate Republicans' own projections. As such, he thinks human services costs could grow at a less steep rate than in previous years.

Meanwhile, many legislative Democrats are advocating for their own priorities, such as raising reimbursement rates for home care workers.

Any deal would require bipartisan support. Democrats narrowly control the state House, while Republicans have a majority in the Senate.

Returning to skill games and recreational cannabis

On the revenue side, growth has been curtailed by an ongoing reduction in corporate income taxes and a ballooning set of tax credits and exemptions for private school scholarships, data centers, film production, and more. The most direct, albeit politically difficult, solution to boost revenue — a broad-based tax hike — appears to be off the table.

“Taxes absolutely will not be part of this budget,” state House Majority Leader Matt Bradford (D., Montgomery) told Spotlight PA.

Instead, the legislature will likely look, as it has for the past few years, at regulating and taxing two popular industries: recreational marijuana, which is currently illegal; and skill games, whose legality is currently being decided by the state Supreme Court. Each measure could bring in hundreds of millions of dollars annually.

Last year, House Democrats passed a bill that would legalize recreational cannabis and authorize selling the substance through state-run stores, similar to how the commonwealth sells liquor.

Supporters of the bill argue this method would prevent existing medical cannabis companies from dominating the market and shutting out small, local sellers. Senators in a key Republican-led committee voted the legislation down, saying that it’s untested, and could create logistical difficulties and unfairly exclude existing companies.

Legalization talks reached a standstill during the budget impasse, but some advocates hope lawmakers will find consensus this year.

Meredith Buettner Schneider, executive director of the Pennsylvania Cannabis Coalition, said that while she doesn’t think Shapiro’s budget proposal will “spring anything into action,” in terms of legalization, she’s found that more lawmakers are “open to the conversation.”

“We’re not talking about if we’re going to do it. We're talking about how we’re going to do it,” Buettner Schneider told Spotlight PA.

Last year, Shapiro estimated his cannabis tax would bring in $536.5 million in revenue in the first fiscal year.

Another major option is taxing and regulating skill games, the slot-like devices that have appeared in thousands of the commonwealth’s taverns, corner stores, and social clubs.

Lawmakers have consistently failed to agree on the right tax and regulatory regime for the games despite a decade of debates, with individual policy prescriptions depending on their personal views on gaming, hunger for new revenue, and allegiances to the state’s feuding gaming interests.

In last year’s budget address, Shapiro proposed a tax rate of 52% on skill games’ gross revenue, similar to that levied on casinos, which see these games as unregulated competition threatening their bottom line. His administration estimated it would bring in about $368.9 million in revenue in its first fiscal year.