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What’s on the table as Pa. lawmakers attempt to end the budget stalemate

by Stephen Caruso of Spotlight PA |

The interior of the Pennsylvania Capitol in Harrisburg.
Amanda Berg / For Spotlight PA

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HARRISBURG — The divided Pennsylvania legislature is still seeking a compromise that would allow it to end the budget stalemate and authorize up to $1.1 billion in additional spending for home repairs, public defense, and more.

Still needed is code legislation to accompany the primary budget bill that Democratic Gov. Josh Shapiro signed in August. Democrats who control the state House and Republicans who control the state Senate have put forth vastly different proposals.

The upper chamber has proposed bare minimum language that would reauthorize a few uncontroversial programs involving the courts and health care.

The lower chamber, meanwhile, has advanced several code bills that would implement a slew of far-reaching policy changes, including slashing corporate taxes, expanding a private school scholarship tax credit, and creating a medical debt relief program.

Both the state House and Senate are back in Harrisburg this week, and have a chance to finish the budget. All three code bills are currently awaiting consideration by the upper chamber.

State Sen. Scott Martin (R., Lancaster), who chairs his chamber’s powerful Appropriations Committee, said Monday that state House Democrats’ bills blend pet projects with uncontroversial and necessary proposals.

He said the bills will “absolutely not” be passed by the upper chamber “as is.”

Here’s a breakdown of what both sides have proposed:

What are code bills?

Code bills are omnibus proposals traditionally passed alongside the appropriations legislation to direct how money is disbursed.

The bills amend the state laws that control taxation, spending, education, welfare, and other public services, acting as an instruction manual for the budget plan. They also function as vehicles for lawmakers to make long-sought policy tweaks and fund local projects in one fell swoop amid hectic budget talks.

While Shapiro signed a spending plan in early August, no accompanying code bills have followed. Since then, policymakers have split over whether the legislature needs to pass the bills for the government to function as usual. Democrats have downplayed the need for the bills, while Republicans have stressed their importance.

Amid pushback from state Senate Republicans, Shapiro agreed to hold off on spending about $1 billion from the state’s $44.4 billion plan without additional legislation.

The affected programs include a handful of small but important ones favored by Democrats, including the first-ever state investment in public defenders, money for a recently created state home repair grant program, and extra funding for the state’s 100 poorest school districts.

Those remaining dollars will be spent only if Shapiro signs code legislation, his administration said.

The fiscal code

Capitol insiders consider the fiscal code the most important bit of unfinished budget business.

In late August, the state Senate passed a 103-page fiscal code bill that would reauthorize some routine but critical programs while excluding Democratic priorities.

As Spotlight PA previously reported, the bill would release funding for three programs, including increased reimbursements for first responders, which EMS providers argue is a bare-minimum requirement in an underfunded industry.

The bill also includes codes for regular allocations to hospitals and for judicial fees that courts rely on, and for which state authorization had expired at the end of July.

It also would formalize approval of a suite of other programs that had already been moving ahead with their budget spending, and for which the state budget secretary has not said new codes were necessary. These include funding for community colleges, aid to public libraries, and reimbursements for schools to provide universal free breakfast.

State House Democrats amended the state Senate proposal to authorize home repairs and other in-limbo programs, as well as several caucus proposals. Those include:

  • Allowing Pittsburgh’s lapsed e-scooter pilot program to restart with a new provision requiring the collection of abandoned scooters and up to a $150 fine for both the operator and the company for not properly returning a scooter.

  • Setting up a state medical debt relief program that, according to its supporters, could forgive millions of dollars in patients’ obligations for pennies (the fiscal code creates such a program, but does not fund it).

  • Providing $100 million in state funding for adult mental health services through a series of grants for services like telemedicine, workforce retention and development, integrating behavioral health in substance use disorder treatment, and delivering psychiatric care in a primary care setting.

  • Amending a preexisting state grant program for sports marketing and tourism to allow for up to $25 million to be spent hosting and marketing an international sporting event. (Philadelphia is set to host World Cup games in 2026.)

The fiscal code bill passed the state House 121-82. It also includes funding for the commonwealth’s four state-related universities: Lincoln, Penn State, Pitt, and Temple.

Typically, state funding for these universities, which is used to reduce in-state tuition, requires approval from two-thirds of the legislature. That higher bar stems from a constitutional provision written in the 1870s to prevent state funds from being sent to questionable charities.

Such a bar requires state House Republican support, but the party has mostly opposed the schools’ funding, citing a mix of concerns about accountability and issues such as trans health care and fetal tissue research.

To get around this position, the state House-passed fiscal code would create a grant program for “institutions of higher education”; the language makes only the four schools eligible.

A separate bill that would allocate $642 million to the grant program, a 7% bump for the schools compared to last year, passed the state House 115-88.

Democratic Gov. Josh Shapiro, joined by Lt. Gov. Austin Davis, signs the main budget bill in August.
Commonwealth Media Services
Democratic Gov. Josh Shapiro, joined by Lt. Gov. Austin Davis, signs the main budget bill in August.

Tax code

State House Democrats have also advanced an original bill that would rewrite the state’s tax laws. The legislation includes several proposals championed by Republicans and business groups, including reducing the state’s corporate income taxes to 4.99% by 2026, rather than 2031 as currently planned. The bill would also double the cap on the operating losses corporations can deduct from their taxes to 80%, matching federal tax law.

The proposal also mandates combined reporting, which applies to companies that are incorporated out-of-state, to capture more of their income in-state for tax purposes. It has been a top Democratic priority for years.

An analysis by state House Democratic staff estimates the proposed changes would cost the state about $1.6 billion in revenue over the next two years.

The inclusion of combined reporting is “a poison pill,” Pennsylvania Chamber of Business and Industry CEO Luke Bernstein said in a statement last week. He encouraged the passage of the bill without combined reporting.

State Senate Majority Leader Joe Pittman (R., Indiana) called the tax bill “intriguing” and a “step in the right direction” in a separate statement. He did not say if he would bring the bill up for a vote.

The Democrats’ tax code would also:

  • Create a state-earned income tax credit capped at 25% of the recipient’s federal credit, which aims to benefit low-income individuals and families. A similar program was projected to cost the state $1.4 billion over the next five years.

  • Expand the state child care tax credit from 30% of child care expenses to 50%, maxing out at $5,000 annually for one child and $10,000 for multiple children. A similar program was projected to cost the state $1.1 billion over the next five years.

  • Increase state funding for public transit from 4.4% to 6.4% of annual sales tax revenue starting in 2024. An analysis by state House Democratic staff estimates that will boost state transit funding by $311 million next year.

  • Create a tax incentive in Reading that allows a developer’s state taxes to instead pay off construction-related debt within a yet-to-be-determined zone. The state already has established a similar improvement program in Allentown.

  • Expand the state’s film tax credit program by $50 million a year to $150 million.

  • Create a $15 million a year tax credit for biotechnology firms that build a new facility in Pennsylvania worth at least $500 million and that create at least 250 jobs.

The tax code passed the state House in a party-line 102-101 vote.

School code

As with the fiscal code, Democrats took a simple school code proposal from the upper chamber and expanded it with several priorities.

State Senate Republicans passed a school code in September that would OK using $100 million in federal stimulus money on school mental health programs. It also proposes to change how the state distributes tens of millions of dollars in school safety grants. Republicans' proposed system, backed by Shapiro, would give more power to the state Commission on Crime and Delinquency, which includes gubernatorial and legislative appointees. It passed unanimously.

State House Democrats amended that bill and nearly doubled its length, adding in several new proposals. Most notably, the bill would expand two state tax credits, EITC and OSTC, that give breaks to individuals or corporations who donate to private school scholarship funds. Those credits, which are GOP priorities, would grow from a combined $400 million to $550 million each year.

The proposal would also require that the Pennsylvania Department of Education collect and release data on scholarship recipients’ and applicants’ household income, disability status, and original school district, among other information — a measure aimed at making the notoriously opaque programs more transparent.

In a report last week, the Independent Fiscal Office, a legislative budget analysis agency, said that it was “unable to determine if the tax credit substantially enhances educational opportunities to all Pennsylvania students due to statutory limits on data that may be collected related to the program.”

The proposed expansion of any of the credits drew the ire of at least one Democratic-aligned group, the state chapter of the American Federation of Teachers, a union that mostly represents educators in urban districts.

In a statement, AFT-PA President Arthur Steinberg called the bill “extremely disappointing.”

"The ongoing effort to divert tax dollars away from transparently administered traditional public schools is supported primarily by the wealthy individuals and corporations who receive tax breaks from these programs and those who benefit from the lack of accountability provided by private and for-profit institutions,” Steinberg said.

The bill would also:

  • Set up a $75 million program to remove lead, asbestos, and mold from school buildings. Accompanying language in the fiscal code orders the governor to transfer the money from unused dollars sitting in departmental reserves.

  • Create a state grant program for student teachers. The already passed budget authorized $10 million for such a program, but it is among the provisions that have been stalled without code bills.

  • Require the Pennsylvania Department of Education to distribute DNA sample kits to all parents with a child in first grade who request one. The kits are purported to help find lost children, but reporting has suggested that they haven’t helped in any missing child cases.

  • Create an online, statewide database of open school jobs through the state Department of Education.

  • Require school districts to submit data on job vacancies to the state Department of Education, which must publish the information online.

  • Repeal a state law that bans teachers from wearing religious garb in the classroom.

The Democrat's expanded proposal passed the state House 106-97.

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