Budget hearings kicked off last week with a series of hearings in the House and Senate Appropriations Committees where lawmakers delved into various aspects of Gov. Josh Shapiro’s proposed budget for Fiscal Year 2024-25. Several of the hearings covered topics of importance to the business community, including the current and projected fiscal health of the Commonwealth, the governor’s economic development strategy, higher education, and the workforce.

Competing hearings with the Independent Fiscal Office (IFO) in the Senate and the Department of Revenue (DOR) in the House highlighted differing opinions regarding revenue projections. All told, the IFO is projecting about $8 billion less in revenue than the DOR over the next five years. IFO Director Matt Knittel attributed the IFO’s more cautious approach to historically low home sales and a slowdown in Personal Income Tax and Sales Tax collection growth. There was also lengthy debate about how much, if any, of the current surpluses should be used to finance next year’s spending plan. As it stands now, the IFO projects the $14 billion in reserves will be depleted within the next five years.

Of note, Revenue Secretary Pat Browne also reaffirmed his department’s new position allowing for the goodwill deduction in the bank shares tax in cases where holding companies combine, resulting in the combination of subsidiary banks. Secretary Browne first outlined this updated interpretation during his participation in our annual Budget Briefing on February 7. He noted that the Department did not hold the same position for acquisitions involving a non-banking entity (i.e. an “insurance company”).

Department of Community and Economic Development (DCED) Secretary Rick Siger also testified before both House and Senate committees. Secretary Siger provided more details regarding the governor’s recently announced economic development strategy. Much of the discussion centered on the governor’s $500 million PA SITES proposal, to fund site development and infrastructure to create shovel-ready sites. Some lawmakers expressed concern with the proposal to issue a bond to fund the program, citing the overall cost when interest is factored in and the availability of existing reserves. Several other lawmakers echoed calls by the PA Chamber to incorporate additional reforms to our business climate where Pennsylvania is falling behind – specifically, our tax structure, permitting process, and regulatory climate.

Pennsylvania State System of Higher Education (PASSHE) Chancellor Dan Greenstein also testified to the House and Senate committees. PASSHE has asked for a $36 million-dollar (6.5 percent) increase, to take its total appropriation to $624 million in this year’s budget. Chancellor Greenstein stressed that this increase would be critical in securing another tuition freeze at PASSHE schools. Members of the committee largely focused their questions on the governor’s recently unveiled higher education strategic plan. Greenstein continued to reiterate that he was not privy to the details of the plan, beyond the information that had already been made public by the governor. The Department of Education’s 2024 budget hearing is slated for March 5. It is widely expected that we will hear more details of the governor’s plan during that testimony.

Labor and Industry Secretary Nancy A. Walker faced questioning from the Senate Appropriations Committee regarding several issues, including prevailing wage laws and job classification, which could impede Pennsylvania’s utilization of federal funds for broadband expansion. Additionally, Walker addressed questions stemming from a recent PA Commonwealth Court decision that deemed the Commonwealth’s system for determining prescription drug prices in workers’ compensation unlawful – likely forcing employers to pay significantly inflated prices.