The state Capitol in Harrisburg. (Capital-Star file)
Two weeks ago, Gov. Josh Shapiro proposed a $51.5 billion state budget for the 2025-2026 fiscal year. That’s roughly $4.5 billion more than the commonwealth is set to spend during the current fiscal year.
Before lawmakers dive fully into negotiations over next year’s spending, budget hearings offer a chance for them to question Shapiro’s cabinet secretaries and their staff about what their agencies would do with the money allocated to them, and how they’re already using state resources. It also offers a stage for lawmakers to praise or scorn initiatives.
While Shapiro has asked lawmakers to create new sources of state income by legalizing and taxing recreational cannabis and unregulated video skill games, his budget would still require lawmakers to authorize spending the state’s surplus revenue and taking $1.6 billion from the rainy day fund, based on revenue projections.
Revenue Secretary Pat Browne was the first to be questioned by the Senate Tuesday morning. The Department of Revenue is responsible for collecting and distributing state taxes, including personal income tax, business taxes and special levies on items like motor fuel. It also provides projections on future revenue, which the budget is partially based on. The department proposed budget for the 2025-2026 fiscal year is relatively small, at $230 million, but it’s responsible for effectively ensuring that every other state agency gets the resources allocated to them.
Here’s some of what lawmakers focused on Tuesday:
Minimum Wage
Along with setting spending targets for each government agency, Shapiro’s budget included several policy proposals. Onewould see the state raise its minimum wage to $15 an hour. Pennsylvania’s current minimum wage is $7.25, and has not been raised in more than15 years.
Browne noted that doing so would affect around 750,000 Pennsylvanians who are currently making less than $15 an hour. Browne said his office projects the move would bring the state $102 million, with roughly $40 million from increased personal income tax revenue and $60 million from additional sales tax revenue.
Republican lawmakers have long opposed efforts to raise the minimum wage to $15, citing concerns for small business owners and nonprofit organizations.
Sen. Jarrett Coleman (R-Lehigh) noted only a relatively small number of Pennsylvanians would be affected by the minimum wage increase.
“It’s like one out of 100 folks are actually making the state minimum wage,” Coleman said. And he noted many of those may likely include service industry workers “who possibly aren’t reporting their tips.”
Browne said the move would bring Pennsylvania more in line with surrounding states. And while wages are rising for low-income earners, the state has a chance to offer a hand to those at the bottom of the scale.
“This proposal would have affected 1.7 million people just several years ago. Now it will affect 750,000,” Browne said. “The market is deciding where this should be and I think, as a matter of policy, it’s fair for us to step forward and try to catch up with the market in regards to what the low end is.”
Cannabis, minimum wage and school funds: Shapiro proposes $51.5 billion budget for 2025-2026
Questions about cannabis and skill game taxes
Lawmakers raised concerns about declining lottery revenue, and in particular a decline in scratch-off ticket sales. Revenue from the state lottery goes into a special fund that, along with paying out winners, helps fund social services for seniors.
Allison Morgan, executive deputy secretary of revenue, said she was hopeful some of Shapiro’s proposals could reverse declining lottery funds.
One is to regulate skill games and place a 52% gross tax on revenue from them. Morgan said skill games, which are unregulated, have likely eaten into the scratch-off market share, with would-be players opting to use the video machines instead. Shapiro has called for 5% of the tax on skill games to go to the lottery fund, and the rest to the general fund.
Morgan said she would like to see lawmakers mandate businesses with skill games also become lottery retailers “so we can compete in that space,” she said.
The governor’s budget estimates $350 million in revenue from skill games in the next year if they’re legalized.
GOP senators questioned how realistic the proposed revenues on cannabis and skill games are, especially considering there is little infrastructure in place.
“We would have to have legislation enacted yesterday and have a rollout plan that could be done next week,” Sen. Tracy Pennycuick (R-Montgomery), said about projected skill game revenue. “We all know Pennsylvania is not known for being quick in anything.”
Browne noted there is already infrastructure in place for similar taxation to skill games in casinos.
Sen. Joe Picozzi (R-Philadelphia) raised similar questions about the rollout of a cannabis program, and whether it could actually begin being sold and taxed in the next fiscal year.
Shapiro proposed a 20% cannabis sales tax and estimated that $536 million in revenue could be made in the first year.
“Other states have ramped this up relatively quickly,” Browne said. “If we were starting with nothing and we didn’t have a system within the Department of Health and the department of [agriculture] to regulate medical marijuana, I think the concerns would be more significant.”
Lawmakers scrutinize accuracy of revenue projections
While the Department of Revenue is responsible for projecting future revenues that the governor’s office uses as a basis for its budget plan, they’re not the only ones doing that sort of accounting.
The Independent Fiscal Office, an independent agency that provides economic analysis for lawmakers, also has revenue projections for the next five years, and estimates $4.5 million less than the Department of Revenue, which is part of the Shapiro administration.
When he was a Republican lawmaker, Browne led the creation of the Independent Fiscal Office.
Sen. Kristin Phillips-Hill (R-York) questioned Browne on how the projections wound up so different.
Browne noted his agency’s estimates are less than 2% less than what the IFO projects, which he said was within professional actuarial standards.