Josh Shapiro
Governor Josh Shapiro in his Capitol office during a recent interview. He released the first budget plan of his administration Tuesday. Photo by Tom Gralish / The Philadelphia Inquirer.

By Stephen Caruso of Spotlight PA and Kate Huangpu of Spotlight PA

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HARRISBURG — In his first budget proposal as Pennsylvania’s chief executive, Gov. Josh Shapiro is calling for $1 billion in new education spending, permanent state funding for public defenders, and an expansion of a shrinking rebate program for older people.

The $44.4 billion proposal — a 3.6% spending increase over the current fiscal year — is based on what the Democrat called “conservative” future revenue estimates in a Tuesday speech to the legislature. He said his plan attempts to preserve Pennsylvania’s flush coffers to avoid future tax increases or budget cuts while replacing federal monies with state dollars to fund a number of pandemic-era policies.

Flanked by the General Assembly’s first female chamber leaders — state House Speaker Joanna McClinton (D., Philadelphia) and state Senate President Pro Tempore Kim Ward (R., Westmoreland) — Shapiro called it a “commonsense budget” that is a “reflection of our reality.”

“And nothing gets done unless a majority in her chamber and in her chamber agree,” Shapiro said.

The Shapiro administration declined to release a copy of the full budget ahead of the governor’s address Tuesday, giving reporters only excerpts in a break from the Wolf administration’s tradition.

The speech kicks off four months of public hearings and private meetings between the executive and the divided legislature. Republicans control the state Senate, and Democrats have a razor-thin hold on the state House.

The deadline for a spending deal is June 30.

Some of Shapiro’s big proposals will likely have wide bipartisan appeal, such as raising the income threshold for a state property tax and rent rebate program for seniors from $35,000 to $45,000 a year.

He wants the program’s income threshold to be indexed to inflation, which would allow some seniors to benefit from the program even as their Social Security payments also rise with inflation.

He also proposed millions for a number of small-dollar workforce development initiatives. The biggest is a $24.7 million tax credit — capped at $7,500 over three years per individual — for anyone who earns or moves to Pennsylvania with a teaching, nursing, or law enforcement certification as of January 2023.

Shapiro’s pitches to make pandemic-era programs permanent include the rebate expansion, free school breakfasts for all students, and increased state reimbursements for many human service providers.

He also pitched a number of smaller, targeted priorities, from a mental health hotline for farmers to 384 new state troopers to the elimination of the state cell phone tax — one of Shapiro’s campaign promises.

Other issues could be trickier for Shapiro to navigate as he tries to shepherd his budget through Harrisburg’s divided legislature.

A recent Commonwealth Court ruling held that Pennsylvania’s education system underfunds poor districts and directed the governor and legislature to come up with a solution — a major undertaking.

Shapiro is calling for $567 million in new basic education funding for the state’s public schools — or roughly 8%, an increase that is little more than the rate of inflation — with hundreds of millions also going to special education, school safety, and mental health.

The number falls far below the investment of billions that some Democrats and public school advocates argue is necessary to meet the challenges raised by the Commonwealth Court ruling.

A budget to ‘weather a storm’

Central in any conversation about state budgeting is revenue: How much money will state taxes and other cash sources yield in the coming years?

That answer changes depending on who you ask.

The governor’s office and the Independent Fiscal Office, a state agency created by the legislature, both make projections of the state’s revenue and spending. These projections form the basis for budget discussions among the governor and legislators.

Everyone agrees on the fundamentals. Pennsylvania has a roughly $12 billion surplus this year, including $5 billion that lawmakers had socked away in the commonwealth’s rainy day fund.

But the end of pandemic-era federal spending on human services — such as Medicaid and the Supplemental Nutrition Assistance Program, whose costs are split with the states — as well as expenses from the state’s aging population are seen by all political sides as looming financial challenges.

Shapiro said he would invest $16 million in SNAP, specifically to bolster food benefits for seniors and people with disabilities. The total value of benefits lost is higher — an average of $181 monthly for the nearly two million Pennsylvanians who use the program.

Whether the loss of federal dollars will bust future budgets is up for debate.

Legislative Democrats have argued that gloomy future estimates, particularly from the IFO, are too pessimistic about revenue.

They argue their key priorities, like pumping billions of new dollars into the state’s public schools, could stimulate economic and population growth in the coming years that could further grow the state’s coffers.

In its most recent report on Pennsylvania’s fiscal health, the IFO projected that even if spending stays the same over the next several years, the commonwealth will routinely spend more than it brings in. Its forecast shows that without new revenue or spending cuts, the state is on track to eat up its current $12 billion cushion by around 2027.

In his address, Shapiro called the agency a “notoriously cautious group of economic forecasters.” However, the governor said his office is using an even more conservative revenue estimate than the agency’s so the state is “prepared to weather a storm should it come.”

This matches legislative Republicans’ concerns, who have raised red flags about Pennsylvania’s potential for future structural deficits and argue that spending should change little in order to avoid painful budget debates in years to come.

This story will be updated.

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