It may not have been the most timely state budget, but after weeks of negotiations – and even the threat of a budget impasse – Democrats and Republicans reached an agreement that all sides of the political spectrum are calling a historic step forward for the state of Pennsylvania.
The $45.2 billion state budget was signed into law by Gov. Tom Wolf earlier this month. It will usher forth major changes to education, tax law, election policy, the environment and a host of other areas that lawmakers and advocates have long been focused on.
Wolf said the budget package cements his legacy and commitment to increasing funding for public education and “results in a historic $3.7 billion in investments my administration has made in education at all levels over the last eight years.” Republicans also found reasons to celebrate, including the expansion of a private school scholarship program and a large allocation to the state’s Rainy Day Fund. House Speaker Bryan Cutler said the budget agreement reins in spending and makes “targeted investments that respect every taxpayer dollar.”
There’s a lot more to unpack within the bipartisan budget package, so let’s dive into the details of Pennsylvania’s spending plan for Fiscal Year 2022-23.
Businesses get a tax cut
For years, lawmakers have sought to lower Pennsylvania’s Corporate Net Income Tax rate, which taxed business profits at 9.99% – one of the highest rates in the nation. Republicans and Democrats alike said the high rate stifled business growth in the state, but lawmakers disagreed on how exactly to lower it.
Democrats, like Wolf, wanted to couple a CNIT reduction with tax law changes that prevented businesses from shifting profits to other states, like Delaware. Republicans were supportive of those provisions, resulting in multiple years where Wolf and legislators were unable to reach a consensus on lowering the state’s corporate tax.
This year, Wolf and lawmakers finally reached an agreement to lower the state’s corporate tax rate to 8.99% beginning on Jan. 1, 2023. From there, the rate will drop by 0.5% each year until the CNIT hits 4.99% in 2031.
Pennsylvania’s business community, which has pushed lawmakers especially hard to lower the rate this year, rejoiced at the news once Wolf signed the budget into law. Luke Bernstein, the president and CEO of the Pennsylvania Chamber of Business and Industry, called the move a “giant step toward making Pennsylvania more competitive.”
“We need to send a clear message that Pennsylvania is officially open for business, and by cutting the CNI rate in half – a goal that our organization and fellow chambers have worked toward for so long – we are doing just that,” Bernstein said.
Bernstein said the tax cut will allow the state to “further leverage the many attributes that truly make Pennsylvania shine as one of the best places in the world to work, live and raise a family – our prime location, world-class educational institutions, innovative and skilled workforce, and more,” he said.
State Sen. Pat Browne, who chairs the Senate Appropriations Committee, echoed Bernstein’s claims, saying the CNIT reductions will make the state more economically competitive.
“When considering tax structure, our state will be able to compete for all new business investment and relocation opportunities, and Pennsylvania will no longer be passed over, but in the competition for all new growth and employment,” Browne said, adding that Pennsylvania, “with the most impactful improvement to our tax structure in more than a generation, will be open for business.”
Investments in education
The new state budget also makes great strides when it comes to education, as it increases funding for public education and opens the door for more scholarships to help students attend private schools.
The budget includes a $525 million funding increase for basic education, a $225 million allocation for the state’s Level Up initiative, which doles out grants to poor school districts throughout the state, and increases in funding for special education, early childhood education, and career and technical schools. Lawmakers also approved the creation of a $100 million school mental health initiative that boosts funding for school safety and security efforts.
GOP lawmakers celebrated an expansion of the state’s Educational Improvement Tax Credit program, which provides tax credits to businesses that donate to scholarship organizations or other education-focused groups. This will make more scholarships available to students wishing to go to private schools or attend pre-K programs.
The new budget expands the EITC program by $125 million, an increase that at least one organization predicts will result in an additional 30,000 students becoming eligible for the scholarships.
“The increase in total deductions allowed through the program means that more than 30,000 additional low- and middle-income children will have opportunities they didn’t have before to obtain an education that meets their specific needs,” said Nate Benefield, a senior vice president at the Commonwealth Foundation, a free-market Harrisburg think tank. “Too often, politicians throw money into education programs that have no record of success or repeatedly fail to achieve desired results. These programs work. The money businesses invest in these programs will reap tremendous benefits for thousands of young people and the communities where they live.”
Republicans also secured a repeal of Wolf’s proposed charter school regulations, which they previously attempted to block because they felt that the regulations circumvented the legislature and would lead to confusion for charter schools and school districts.
The budget also directs $125 million in federal funds to the Pennsylvania State System of Higher Education to assist with the system’s redesign efforts – with PASSHE receiving a $75 million increase in their General Fund budget.
PASSHE Chancellor Daniel Greenstein said the system’s state funding will enable PASSHE to “fully move forward with the most impactful phase of our redesign – expanding opportunities and improving outcomes for all our students, including reaching students who have been historically underserved by universities and colleges generally.”
No fetal tissue issues
For a while, it looked like political drama surrounding fetal tissue research at the University of Pittsburgh could derail budget talks.
It started when House Republicans amended a bill designed to provide state funding for four state-related universities: Penn State University, the University of Pittsburgh, Temple University and Lincoln University. Republicans amended the bill’s language to include a provision that would have prohibited the University of Pittsburgh from receiving its state funding if it conducted medical research involving fetal tissue obtained from elective abortions.
That put Pitt in a quagmire, as the research university uses fetal tissue to conduct research on medical treatments for conditions such as HIV, AIDS and cancer. The attempt to tie Pitt’s funding to its fetal tissue research prompted outcry from Democrats, many of whom said Republicans were trying to “extort” the university in a manner that would be detrimental to students.
“Denying funds to the University of Pittsburgh … punishes our Pennsylvania students most of all because every cent of the appropriation that my Republican colleagues are so eager to withhold is used to provide discounted tuition to more than 21,000 in-state Pitt students,” said state Rep. Austin Davis, a Pitt graduate.
Others, however, view the effort not as one to punish Pitt, but to help Pitt move away from using fetal tissue in its medical research. “My goal is not to stop the funding,” state Rep. Jerry Knowles, whose amendment was added to the bill, told the Pittsburgh Post-Gazette. “As a matter of fact, I want to help Pitt get themselves out of a problem they have created for themselves.”
Brown has long said that corporate tax cuts will make the state more economically competitive. / Senate Republican Photography
But the effort was ultimately thwarted, as Republican leaders instead advanced two separate bills – one with funding for Pitt, the other with language banning the use of fetal tissue – in a move that ultimately allowed lawmakers to advance budget-related legislation without much controversy.
Brightening rainy days
A few years ago, Pennsylvania’s budgetary reserves – often referred to as the Rainy Day Fund – were nearly bone-dry. Up until last year, there was just $243.5 million in the Rainy Day Fund – a figure that wasn’t going to keep the government powered for very long in the event of an emergency or financial catastrophe.
But in recent years, state lawmakers have made a concerted effort to bolster the state’s financial reserves, allocating $2.6 billion to the Rainy Day Fund last year, and adding another $2.1 billion this year. That will bring the fund to approximately $5 billion, which would cover the state’s General Fund expenses for 42.6 days, according to Pennsylvania Treasurer Stacy Garrity’s office.
Garrity said the decision to put more money in the Rainy Day Fund this year will put the state on sound financial footing. “Just a few years ago, Pennsylvania didn’t have enough in our Rainy Day Fund to cover even three hours of expenses,” Garrity said in a statement. “Now, thanks in large part to this $2.1 billion deposit, Pennsylvanians can have confidence that the Commonwealth has set aside enough to help protect our citizens and our economy in the event of a downturn.”
Garrity’s office cited a 2021 survey from the National Association of State Budget Officers, which found that the national median of state governments’ Rainy Day Funds would cover general government operations for approximately 43.4 days, putting Pennsylvania’s current total just under the national median.
Browne, the outgoing Senate Appropriations Committee chair, said Pennsylvania’s past Rainy Day Fund balances left the state vulnerable to any economic challenges that could have surfaced.
“Pennsylvania was poorly positioned to anticipate any inevitable future slowdown in our economy,” Browne said on the Senate floor before the chamber voted on the state budget, adding that the $2.1 billion deposit “brings Pennsylvania more in line with medium reserve balances of other states.” Browne added that putting more money into the Rainy Day Fund will help improve the state’s debt rating and make servicing the state’s debt less expensive.
Looking more broadly at the state budget as a whole, Browne said that it represents a collective effort from lawmakers and the Wolf administration to craft policy to the benefit of Pennsylvanians. “This is an example of the collective, cooperative, collaborative action that our constituents want from us,” he said. “This is governing.”
Consensus reached on election law changes
There may be no issue in the commonwealth that has gotten more attention among lawmakers, the public and the press in recent years than Pennsylvania’s election laws.
Following the 2020 election and a number of unsubstantiated and debunked claims of widespread, result-altering election fraud from former President Donald Trump and his allies, lawmakers set to work on crafting a range of reforms to the state’s Election Code. Republicans wanted more security measures, seeking universal voter ID, mandatory election audits and other measures, while Democrats preferred same-day registration and giving counties more time to count mail-in ballots ahead of elections.
What resulted after this year’s budget talks didn’t go nearly as far as either party probably would have liked, but it still will bring concrete changes to the state’s election process. Lawmakers and Wolf agreed to ban state and local governments from accepting third-party grants to fund election operations.
This is an example of the collective, cooperative, collaborative action that our constituents want from us.
State Sen. Pat Browne
This is an example of the collective, cooperative, collaborative action that our constituents want from us.
The policy prevents counties and municipalities from accepting money from organizations like the Center for Tech and Civic Life, a group affiliated with Facebook founder Mark Zuckerberg that provided grants to counties across the country – including in Pennsylvania – to help them safely carry out elections during the COVID-19 pandemic.
The use of third-party grant funds rankled conservatives in the General Assembly, who feared that such grants could influence how elections are run. Election officials, however, said the grants were pivotal in carrying out a presidential election during a global pandemic. This year’s budget deal appears to assuage both of those concerns at first glance, with the budget setting aside $45 million for a grant program that will help counties pay for election-related costs. That includes staffing, security, maintenance costs and election worker training, among other uses.
House Majority Leader Kerry Benninghoff hailed the agreement as one that could help restore trust in the state’s elections while also giving counties the resources they need.
“This bill – passed as part of the overall budget deal – provides landmark funding for our elections and gets rid of third-party financing that was both unaccountable and inequitably distributed, while guaranteeing state appropriations are used appropriately and with accountability,” he said.