HARRISBURG — Key Pennsylvania lawmakers ended a third week without a finished budget on a relatively sunny note, saying publicly that closed-door negotiations were progressing.
“I feel good about where the conversations are going,” state Senate Appropriations Committee Chair Scott Martin (R., Lancaster), a top budget negotiator, told reporters Thursday morning.
Democratic Gov. Josh Shapiro similarly told reporters, “We're going to get there soon.”
“I'm feeling optimistic,” he said after meeting with state House Democrats on Monday, echoing comments he made on June 30. “We're not there yet. We're going to keep at it.”
But privately, two Capitol sources were less confident, saying that Shapiro and fellow Democrats remain far from the state Senate’s Republican majority on an appropriate spending number.
Meanwhile, storm clouds are looming. As the impasse drags on, school and county administrators say they’re getting worried about missing state payments.
Shapiro opened talks in February with a $51.5 billion proposal that would provide hundreds of millions of dollars in additional state funding to poor school districts and mass transit agencies.
Earlier this week, state House Democrats sent the upper chamber a bill with $1 billion less in spending; state Senate Republicans gutted the bill in a procedural move Wednesday.
It’s a sign that, while there's no deal, lawmakers are preparing to move quickly when they reach a compromise.
Martin nodded to the divide in his Thursday remarks, noting that his caucus has questioned the state’s long-term fiscal health throughout the ongoing budget cycle.
“It’s not easy, but it’s been engaging,” Martin said. “We’re going to try to wrestle this into place the best we can.”
Late budgets have become the norm in Harrisburg. But when impasses stretch longer than a week or two, local governments and nonprofits that rely on state money to pay their bills invariably begin to worry.
Pennsylvania’s 500 school districts face particular fiscal uncertainty. Cash reserves vary from district to district and may be earmarked for capital expenses like new school buildings, rather than operating expenses like staff salaries and utilities.
Jennifer Hoffman, a school director for the William Penn School District in Delaware County, said at a July news briefing organized by the state school boards association that she has received constant questions about the impasse’s impact on things like after-school programs and athletics, to which she has only been able to answer that she doesn’t know.
“It does undermine public confidence when I have to sit up there and say, ‘Not sure about this, not sure about this, not sure about this,’” Hoffman said.
A spokesperson for Pennsylvania's Department of Education told Spotlight PA that the agency would not be able to make payments for adult basic education and the Early Intervention, Pre-K Counts, and Head Start programs on July 21, which is when payments for these programs are made each month.
If there’s no deal by July 31, PDE will also miss payments for special education and community colleges. And if there’s no deal come Aug. 28, more substantial payments will be missed, including for basic K-12 education.
Higher education faces similar uncertainties. The state’s university system announced its first tuition hike in seven years, citing the unfinished budget, according to the Philadelphia Inquirer.
The same goes for buses, trains, and trolleys. Already, the state’s two largest agencies — SEPTA, serving Philadelphia and its suburbs, and Pittsburgh Regional Transit, serving Allegheny County — have approved budgets that will slash service if no deal to raise transit funding comes through.
John Buffone, a spokesperson for the County Commissioners Association of Pennsylvania, which represents local officials statewide, said state payments are due in August for county services like child welfare, mental health, and substance use disorder programs.
“Without a finalized state budget, those payments are in limbo,” Buffone told Spotlight PA in an email.
Where do talks stand?
In its latest proposal, the state House left intact many of Shapiro’s key pitches — like more money for poor school districts — by reducing spending on a few line items across a handful of agencies, including human services. The House proposal would have also taken dollars out of a number of obscure state bank accounts, such as one funded with royalties from gas drilling on state land that pays for conservation projects, to cover agency operating revenues like staff salaries.
The bill would also cut a number of economic development programs that fund numerous projects across the state. Beyond routing extra money to schools, nonprofits, firehalls, and other recipients, these programs can be politically useful for legislative leaders, who can ask agencies to direct those grants to recalcitrant lawmakers’ districts to help win support for a budget deal.
Two sources familiar with talks said state Senate Republicans had made Democrats an opening spending offer that suggested even deeper cuts to Shapiro’s proposal.
Pennsylvania has roughly $11 billion in cash reserves, an amount built up over the pandemic due to elevated tax returns and increased federal assistance. However, the state’s expenses — particularly for human services, due largely to the commonwealth’s aging population — have historically outstripped its revenues
Shapiro’s February budget pitch would require spending about half of those reserves to balance the budget, which is constitutionally required. But once the one-time windfall depletes, which could happen as early as the next fiscal year, lawmakers will face the politically difficult choice of either decreasing spending or raising new revenue.
The specter of those future talks haunts this year’s prolonged debate.
On the revenue side, Shapiro pitched legalizing recreational marijuana and taxing and regulating slot-like skill games, an unknown number of which are now housed in neighborhood bars and social clubs.
GOP leaders have flatly shot down legalizing recreational marijuana as part of this budget, but are open to regulating skill games to raise hundreds of millions of dollars in revenue.
However, there isn’t a consensus on that issue among state Senate Republicans, some of whom are closely allied with the machines’ manufacturers and proprietors. Regulating skill games also requires lawmakers to challenge a well-heeled lobby that’s attacked swing district senators.
Both parties have also expressed interest in varying tax reforms, from expanding the sales tax base to closing corporate tax loopholes, but these proposals face political challenges of their own.
The commonwealth’s financial demands are great. From elder care to rural hospitals to public transit, multiple groups say they need additional money soon to avoid cuts and closures — let alone the state’s standing obligations to public education and low-income health care.
Even top lawmakers have acknowledged that talks are dragging.
State House Appropriations Committee Chair Jordan Harris (D., Philadelphia) told reporters Monday morning that “we are past the time we should have had a budget done.”
“What I'm concerned about is all of the students and teachers and school districts who need to know what they're going to get,” Harris said, adding, “I'm concerned about all of the folks who ride mass transit throughout this commonwealth, and their concerns about how they're going to get to work.”
Spotlight PA’s Katie Meyer contributed reporting.
Correction: This story has been updated to correctly summarize the state House budget proposal.