State leaders say Pennsylvania’s budget will be late. Divides over public transit, skill games, and final spend numbers have kept negotiations cordial but slow.

Pennsylvania’s fiscal year restarts, annually, on July 1st. So there’s a legal obligation to pass a state budget by June 30th. House Democrats and Senate Republicans must work through their differences (and the influence of campaign donors and advocates) to decide how to spend your tax money.

The pressure of a fiscal deadline creates a battle royale season in Harrisburg-- policy and funding debates that built up in the legislative session are settled in the summer heat.

“I'm not as frustrated as I have been in the past,” said Rep. Jordan Harris, a Philadelphia Democrat who chairs the House Appropriations Committee.

This is the third year Pennsylvania is negotiating a budget with this divided legislature. Stability has built rapport. 

“Our staff have been talking and exchanging communication, sharing documentation with each other,” Harris said.

Senate Republican leader Joe Pittman though says debates over skill games and final spend numbers are making for slow progress.

“I see no practical way that a budget will be completed on June 30th. It's just a functional reality,” Pittman told press earlier this week.

What Are They Working With?

Pennsylvania is estimated to generate $46 billion in revenue for the 2025/26 fiscal year, according to the state’s Independent Fiscal Office. In February, Democrat Gov. Josh Shapiro proposed a $51.4 billion budget— spending $5.4 billion more than what the state makes.

Pennsylvania does have $10.5 billion in surplus/savings funds (around $3 billion free to spend and $7.5 billion in a rainy day fund meant for emergency situations). Those funds can be used to cover the difference between revenue and spending.

Republicans oppose that approach.

“Those are one time dollars that cannot be relied on for recurring expenses,” Pittman said.

The current 2024/25 budget that Senate Republicans and House Democrats approved last year has a $3.5 billion deficit.

Even with the national economic ups and downs of the spring, Pennsylvania’s revenue has stayed steady with estimates, and the state is expected to wrap its fiscal year with revenue generation close to what was originally expected in the budget.

Revenue Generators

Shapiro proposed legalizing adult-use cannabis and regulating skill games as new ways to generate revenue. Policy around both topics would include hefty taxes on the products and potential license fees.

Another revenue generator Shapiro proposed was enforcing combined reporting for businesses in Pennsylvania. The policy would require businesses that operate in multiple states to pay taxes on all their earnings, not just earnings made in Pennsylvania.

If the governor’s versions of the policies passed, his office estimates the state would generate an additional $700 million in this budget year.

Senate Republicans say cannabis won’t be legalized this year and they oppose a combined reporting law. The caucus is currently infighting on how to regulate skill games (which are gambling machines now common to see in gas stations, bars, and VFWs— that some public officials say increase criminal activity in communities).

Shapiro says he still wants to see cannabis legalized this year. House Democrats say they have sent multiple budget related bills to the Senate, and they have “been waiting patiently to see what the Senate can pass”.

 

Where Could the Money Go?

Shapiro’s budget proposal for this year keeps much of last year’s spending, while increasing spending significantly in areas like public transit and education.

“We have a Commonwealth Court ruling that says how we fund education is unconstitutional,” Harris said. "We have to continue to address that."

Shapiro proposed around a $650 million increase in K-12 education spending.

He proposed a $292 million increase to public transit funding. Republicans in the House and Senate say a public transit fund increase should be paired with a roads and bridges fund increase.

All 67 counties in the state have some form of public transit (in rural counties, para transit services are available for the elderly and people with disabilities). Democrats are emphasizing the topic’s importance to tourism— with a world cup, NFL draft, and America’s 250th birthday coming to transit dependent cities in 2026.

“Mass transit helps fuel the economic engines in Pennsylvania,” Harris said.

Medicaid expenses are also estimated to increase by around $2 billion in the 2025/26 fiscal year. The state has less people enrolled in Medicaid compared to COVID years, but those who are still enrolled have more severe healthcare needs. Those needs paired with continually rising healthcare costs creates a state budget demand partially outside of state control.

“If that number really is a $2 billion increase, I can tell you that there's not going to be a lot to talk about otherwise,” Pittman said, referencing the Republican caucus goal of limiting the state budget deficit.

Pittman says the legislature can tweak state-level Medicaid policies to “contain” costs (such as tightening restrictions on who can get Ozempic prescriptions). However, federal policy plays a major role in how much states pay into the Medicaid program. Lawmakers say expected changes at the federal level make state expenses harder to predict.

A 6 Month Stop-Gap Budget?

Senate President Kim Ward, a Republican senator from Westmoreland County, has described this year’s budget negotiations as the “most challenging” she’s experienced in her 17 years of state senate work, according to a spokesperson from her office.

Ward has floated the idea of a “6 month stop-gap” budget. The senator referenced it could let the state respond to federal policy changes. Appropriations Chair Scott Martin, a Republican senator from Lancaster County, is not opposed to the idea.

Pittman told press this week he wants to avoid a 6 month budget and does not believe this year’s process requires that level of stalling… yet. The senate leader also said that if a 6 month budget happened, it would be more the result of state level impasses than federal uncertainty.

Multiple leaders in the House Democratic caucus have said they oppose a 6 month budget and that legislative leaders are capable of passing a full year budget in a timely fashion.

Not All About the Money

Politicians often use the fiscal pressure of the state budget deadline to negotiate on non-budget policies that can be ideologically controversial. This year, topics like a minimum wage increase, energy regulations, cyber charter reform, and hospital ownership have been discussed.