The PA State Budget Review
GENERAL OVERVIEW
On Thursday, July 11, 2024, the Pennsylvania General Assembly passed its 2024-2025 fiscal year state budget. After a contentious negotiation process between Republicans and Democrats, state lawmakers delivered a $47.6 billion budget eleven days after its mandated deadline. Governor Josh Shapiro signed into law the multibillion-dollar budget, which is an increase of 6.2% from last year's yet falls short of his $48.3 billion proposal.
The largest debate throughout negotiations was about education funding. After a court order found the state's public education funding unconstitutional, the Basic Education Funding Commission worked to deliver a 2.9% increase in basic education funding, as well as increases in education subsidies and special education funding. Higher education also played a big role in the negotiations, with two new scholarship programs being announced. The Grow PA education program was a victory for Senate Republicans aiming to attract more young people to live and work in Pennsylvania.
A year after the House passed the Solar for Schools legislation, the Senate finally approved it, allowing school districts to access funds from the federal Inflation Reduction Act to install solar panels on their buildings. The Fiscal Code provided $25 million for grants to access federal funding for up to 30% to 50% of the cost of solar installations.
In a substantial win for the business community, the net operating provision allows businesses whose deductions exceed their gross income in a taxable year to deduct them from their profits in future years. Pennsylvania's net operating loss carryover will increase by 10% each year from its current limit of 40% until it reaches the federal limit of 80%.
This budget continued to decrease the Corporate Net Income tax rate from 8.49% to 7.99%. Shapiro's new tourism campaign, the "Great American Getaway," had a big win in the budget, with the Department of Community and Economic Development directing $19.3 million to the Office of Tourism to promote the “Great American Getaway” brand and other tourism initiatives across the Commonwealth.
While the historic budget has implemented much-needed investments in Pennsylvania, many proposals suggested by Governor Shapiro still need to make the final cut. The Governor's progressive ideas, including medical marijuana and raising the minimum wage, were excluded from the final plan. Of the major losses in the budget, public transportation took a huge hit. The Governor proposed a $282 million annual increase to help transit companies recover from ridership losses over recent years. SEPTA is expected to receive an additional $50 million, and Pittsburgh Regional Transit will receive $17 million.
The two largest public transit systems have previously warned of the need for additional funding before their federal funds run out. Additionally, to address SEPTA's public safety concerns, an additional $1.2 million will go towards the state attorney general's office to address crime in the transit system.
Senate Republican Leaders, including President Pro Tempore Kim Ward, Majority Leader Joe Pittman, and Appropriations Chair Scott Martin, stated that the budget agreement is a win for working families, job growth, and investments in programs showing real resident results. Governor Shapiro seemed optimistic in his response to signing the budget. He called this investment a historic bipartisan win for education, economic development, and public safety while not increasing taxes.
EDUCATION HIGHLIGHTS
This year, the legislature was tasked with fulfilling the Commonwealth Court's decision regarding the unconstitutionality of education funding. In response, this year's budget increased K-12 education funding by over $1 billion. A new supplemental funding stream of $500 million will specifically go toward the most underfunded school districts. To incentivize new teachers, PA will allow citizens who are eligible to work in the United States but may not be citizens to become teachers.
The Pennsylvania Commission on Crime and Delinquency received $11.5 million for BOOST, which provides grants for schools and community nonprofits to operate programs for at-risk youth outside of school time.
Higher Education reform, another Shapiro administration priority, was accomplished in this budget. A new state board of higher education will include business and labor representatives and be charged with creating a new strategic plan and vision. In addition, in response to the closing of UARTS, there are new procedures that schools must follow.
Additional highlights include:
$100 million for school facilities improvements;
$100 million towards the cyber charter reimbursement program;
$3 million in funding towards a new feminine hygiene products program;
$10 million towards a Student student-teacher stipend program;
$100 million for mental health and physical safety grants;
New pilot program for cell phone-free schools;
The education improvement tax credit was increased by $72 million, and the $750,000 cap and tax credit limit for contributions to scholarship organizations for economically disadvantaged schools were eliminated;
There is a new Grow Pennsylvania scholarship of $5,000 for students who study in-demand fields and stay in PA after graduation.
HUMAN SERVICES HIGHLIGHTS
Human Service providers and nursing homes received increased funding in this year's budget. Specifically, intellectual disabilities and autism providers saw a 7% rate increase that will help attract more individuals to the profession. $2.6 million was invested to continue addressing maternal mortality in the Commonwealth, and skilled nursing homes will receive an additional $120 million annually. Although counties received a $20 million increase in community mental health base funding, that is not enough to provide services needed across the Commonwealth.
Additional highlights include:
$5 million to the Medicaid Day One Incentive MDOI payment, which supports nursing homes that serve high-Medicaid populations;
$2.5 million for domestic violence services;
Increase in Hospital's obstetric and neonatal intensive care funding;
A 9% increase in subsidized childcare programs that helps low-income families pay their childcare fees.
ECONOMIC DEVELOPMENT HIGHLIGHTS
Economic Development was a significant focus of the Shapiro Administration's proposed budget. The final budget included many programs to attract new businesses to Pennsylvania through strategic incentives and reforms, such as the PA Sites program. These included new or enhanced tax credits for companies contributing to their employees' college savings accounts or childcare expenses. In addition, the Office of General Services will expand its contracting opportunities for small and diverse businesses.
Additional highlights include:
Pennsylvania Housing Affordability and Rehabilitation Enhancement Fund—This program increases housing funds by $10 million yearly until the fund reaches $100 million in 2027;
Funding for the Attorney General's new organized retail theft task force;
A new Mixed-use revelation fund will increase corridor mixed-use development and leverage public and private resources;
A new PA Sites program that authorizes the Commonwealth to issue bonds up to $500 million for new funding for site development to attract new business. Funding is available to multiple economic development organizations, industrial development authorities, or for-profit agencies;
$20 million for the Main Street Matters program that supports small businesses and commercial corridors.
Additional funding:
$2.5 million in new funding was approved for legal counsel for tenants
The State's Homeless Assistance Program received a $5 million increase.
Increased the tax credit allocation for the Neighborhood Assistance Program (NAP) from $36 million to $72 million. Increased the tax credit to $1 million, from $500,00 for a business firm that contributes to less than four projects and for a firm that contributes to four or more projects.