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2024-25 State Budget Rundown

On July 11, 2024 the PA House and Senate took a series of votes to finalize the state budget for the 2024-25 fiscal year. Below, find key highlights from the budget agreement and elements important to the business community:

Total Spend

  • Total General Fund spending of $47.6 billion for Fiscal Year 2024-25, representing a six percent increase in state spending over last year.
  • Spends $740 million less than what Gov. Shapiro proposed in February.
  • Makes a $740 million deposit into the Rainy-Day Fund, bringing the fund to over $7 billion.

Tax Changes

  • Maintains the current phase-down schedule of the Corporate Net Income Tax (CNI), from 8.49 percent to 7.99 percent in 2025.
  • Makes improvements to Pennsylvania’s treatment of Net Operating Losses moving forward by gradually increasing the amount companies are able to deduct using losses incurred after Jan. 1 2025.  Prospective Net Operating Loss deductions will gradually increase, reaching 80 percent in 2029.  Net Operating Losses incurred prior to Jan. 1, 2025 may still be used to offset tax liabilities by up to 40 percent.
  • Clarifies that any goodwill filed by banks with the Federal Deposit Insurance Corporation (FDIC) is excluded from the bank shares tax calculation. This resolves an issue where the Department of Revenue has denied goodwill deductions that involve combinations of bank holding companies which result in the combination of subsidiary banks.
  • Creates a tax credit for employer contributions to employees’ 529 tuition savings accounts.
  • Creates a tax credit for employer contributions toward employees’ child care costs.

Permitting Reform and SITES

  • Creates the Streamlining Permits for Economic Expansion and Development (SPEED) Program providing an option for third-party review of certain air, earth disturbance and water permit applications, establishing permit review timelines by DEP and conservation districts, as well as a permit tracking system.
  • Includes $400 million for the PA Strategic Investments to Enhance Sites (PA SITES) program, to fund site development and infrastructure to create shovel ready sites.

Energy and Infrastructure

  • Establishes a comprehensive regulatory framework for the deployment of carbon capture technology, which holds great potential to be added to Pennsylvania’s diverse energy portfolio.  Establishing a legal and regulatory framework for carbon dioxide capture, utilization and sequestration is vital to ensuring the deployment of billions of dollars in private capital, as well as potentially leverage federal infrastructure funding, to innovate in low-carbon manufacturing, agricultural and energy production projects.
  • Uses $80.5 million of the current surplus to make a one-time investment multimodal infrastructure projects through PennDOT.
  • Continues the phase-out of State Police funding from the Motor License Fund with a goal to fully phase down by 2026-27.
  • Implements a $200 user fee for electric vehicles that will scale up over time to ensure their contributions towards road and bridge infrastructure maintenance.
  • Includes $400 million for the PA Strategic Investments to Enhance Sites (PA SITES) program, to fund site development and infrastructure to create shovel ready sites.

K-12 Education

  • Adds roughly $1 billion in new K-12 public education funding. This includes:
    • $285 million to be driven out in the Basic Education Funding Formula.
    • A $100 million increase in special education spending.
    • $100 million for school facility upgrades.
    • A $526 million dollar increase in the Ready-to-Learn Block Grant.
      • $493.8 million of which will be driven out in a newly established “adequacy formula.”
      • $32.2 million will be granted to district with “high tax effort.”
  • Increases the allocation for the Educational Improvement Tax Credit by $70 million, from $470 million to $540 million. This includes:
    • A $50 million dollar increase for scholarship organizations.
    • $20 million more for educational improvement organizations.
    • Additionally, the Opportunity Scholarship Tax Credit will see a $5 million increase Uses $80.5 million of the current surplus to make a one-time investment multimodal infrastructure projects through PennDOT.

Higher Education

  • Establishes a Performance-Based Funding Council to create a formula for state subsidies to Pennsylvania’s research universities: Pitt, Penn State, and Temple.
  • Creates the Grow Pennsylvania Scholarship Program: $5,000 grants for Pennsylvania students who meet degree requirements and work in an in-demand occupation in the state after graduation.
  • Creates the Grow Pennsylvania Merit Scholarship Program: Offers in-state tuition to out-of-state students who commit to working in Pennsylvania in an in-demand occupation after graduation.
  • Creates a new State Board of Education with the authority to:
    • Mandate broad data collection.
    • Develop procedures for an institution of higher education to follow when the institution proposes taking action to discontinue operations
  • Includes new mandatory tuition and fee disclosure requirements for all institutions.

Workforce

  • Increases the Commonwealth’s investment in career and technical education by 21%, increases the investment in CTE Equipment grants, and makes it easier for qualified individuals to become a career & technical educator.
  • Incentivizes employers to reimburse employees for childcare expenses by creating the Employer Childcare Contribution Tax Credit to ease the burden of child care that strains the PA workforce
  • Expands the Pennsylvania Housing Affordability and Rehabilitation Enhancement (PHARE) fund to expand the availability of workforce housing in Pennsylvania.
  • Uses $80.5 million of the current surplus to make a one-time investment in transit operations, which is essential for many individuals to get to work.

Alcohol Sales

  • Allows private sector establishments to sell Ready to Drink beverages (RTDs), which are growing in popularity but currently may only be sold in state stores, denying local convenience stores and supermarkets the ability to respond to their customers and sell these products.

PA Chamber Issues Statement on 2024-25 State Budget Agreement

HARRISBURG – Today, Pennsylvania Chamber of Business and Industry President and CEO Luke Bernstein made the following statement on the passage of the 2024-25 state budget:

“On behalf of Pennsylvania’s business community, the PA Chamber thanks the General Assembly and Gov. Shapiro for passing a budget that takes important steps to make Pennsylvania more competitive. This budget includes several key legislative priorities that the PA Chamber has long championed, including eliminating Pennsylvania’s Startup Tax by raising the cap on net operating losses, modernizing our permitting processes, and advancing workforce initiatives. These provisions will help attract new economic opportunities, expedite project approvals so that businesses can grow and create jobs, help employers address workforce challenges, and equip Pennsylvanians with the skills needed for the future.”

Pennsylvania’s 2024-25 state budget addresses several of the statewide business community’s top priorities:

Permitting Reform

The budget includes significant improvements to state permitting processes that will reduce delays in development and business expansion projects. The reforms include allowing employers to work with third-party professionals to help facilitate the review of applications for many key permits, establishing timeframes for responses, and measures for easier and more transparent tracking of permit applications. These reforms will streamline the permitting process, further encouraging investment and job creation, and help ensure that the newly authorized funding for the PA Strategic Investments to Enhance Sites (SITES) Program is successful in preparing business sites for development.

The PA Chamber has worked closely with state legislators, particularly state Sen. Kristin Phillips Hill (R-York), who has advocated for permitting reform for many years, as well as Sen. Lisa Boscola (D-Lehigh), Rep. Martina White (R-Philadelphia), Senate leaders Kim Ward (R-Westmoreland) and Joe Pittman (R-Indiana), Gov. Shapiro, industry leaders, building trades, and other advocates to advance many of the bipartisan permitting reforms included in this budget.

Tax Reform

This budget gradually eliminates Pennsylvania’s Startup Tax by prospectively improving the tax treatment of net operating losses (NOLs), which allows businesses to carry losses forward and deduct them against future profits to reduce their tax liability so they can reinvest in their business and people. This change will ultimately align Pennsylvania with the federal standard and the rest of the country. As a result of this change, Pennsylvania will be a more attractive destination for new and growing businesses.

The PA Chamber has made improving the treatment of NOLs a top priority, working closely with Sen. Greg Rothman (R-Cumberland) and Senate leaders Ward, Pittman, and Scott Martin (R-Lancaster), as well as a bipartisan group of allies that also includes Sen. Ryan Aument (R-Lancaster), Sen. Nick Miller (D-Lehigh), Rep. Paul Friel (D-Chester) and Rep. Josh Kail (R-Beaver). We look forward to continuing this work with lawmakers, including efforts to improve the treatment of existing NOLs for Pennsylvania businesses that invested in the Commonwealth despite a challenging tax climate. The budget also continues the phasedown of the Corporate Net Income Tax, which will be further reduced from the current 8.49 percent rate to 7.99 percent in 2025.

Workforce Development

The budget also advances initiatives to build a skilled workforce. Initiatives include increasing the Commonwealth’s investment in career and technical education (CTE) and making it easier for qualified individuals to become CTE educators; incentivizing employers to reimburse employees for childcare expenses; creating scholarships for students who choose to enter in-demand fields; increasing the Pennsylvania Housing Affordability and Rehabilitation Enhancement (PHARE) fund to expand the availability of workforce housing in Pennsylvania; and increasing transportation funding to help Pennsylvanians get to work.

What’s in the Fiscal Code Bills?

When the Pennsylvania Senate reconvened on Aug. 30, Senators passed two separate fiscal code bills designed to advance the budget process and drive out the approximately $1.1 billion in state funding that still awaits authorization after Gov. Josh Shapiro signed the main state budget earlier that month.

The larger of these two bills, House Bill 1300, designates funding for a wide array of state programs. It authorizes certain fund transfers and directs support for education, healthcare, and emergency services.

House Bill 1300 provides $295 million in Ready-to-Learn Block Grants for school districts across Pennsylvania, which supporters are calling a crucial step toward supporting quality education and empowering innovation at the local level. The bill also designates $261 million in state aid for community colleges, a two percent increase over last year’s funding levels.

Moreover, House Bill 1300 extends $65.4 million in funding to the Pennsylvania State System of Higher Education (PASSHE) for early repayments on existing debt associated with campus buildings at the Penn West trio in California, Clarion, and Edinboro. The bill also ties state aid for PASSHE to a tuition freeze for academic years 2032-24 and 2024-25, aiming to alleviate the financial burden on students and promote access to higher education.

Additional educational allocations include $70 million in state aid for libraries; $14.5 million in funding for career and technical programs; and $11 million in grants for school safety initiatives in non-public schools. The bill also empowers the Pennsylvania Department of Education to direct up to $7 million in undistributed funds toward school districts under financial distress.

House Bill 1300 also makes notable investments in health and public safety. The bill designates $20 million for counties to support mental health services and increases the state trooper complement by around 400 troopers, up to 4,410, to bolster law enforcement capabilities.

Furthermore, the legislation helps ensure fair compensation for first responders by adjusting state reimbursement rates to the greater of Medicare or Medicaid rates. House Bill 1300 also provides certainty to nursing care facilities by requiring the Department of Human Services to base each facility’s case mix rate on the data used to determine rates for Fiscal Year 2022-23.

Other provisions include the redirection of $150 million from the Game Fund, created by oil and gas drilling rent and royalty payments on state game lands, to the Clean Streams Fund. The bill also raises the payment in lieu of taxes which several state agencies make to rural municipalities to $2.40 per acre and transfers $31 million from the Medical Marijuana Program Fund to the General Fund, reallocating resources to support broader state initiatives.

The other bill the Senate passed on Aug. 30, Senate Bill 757, focuses on two majority caucus priorities excluded from Gov. Shapiro’s enacted budget: the creation of the Pennsylvania Award for Student Success (PASS) scholarship program and an expansion of the Educational Investment Tax Credit (EITC).

Several priority issues Democrats raised in budget talks – including $100 million in supplemental funds for the state’s 100 poorest schools, $10 million in stipends for student teachers, $100 million for school mental health services, and $175 million for the Whole-Home Repairs program – received no allocation under either bill. It is likely these programs will remain a focal point when the House returns to session.

2023-24 State Budget Rundown

On July 5th, the PA House voted to concur on a state budget bill the Senate passed the week before. The House vote came after Gov. Shapiro released a statement vowing to line-item veto a $100 million educational scholarship program negotiated by Senate Republicans and his administration.

As of this writing, however, the path to a finalized budget agreement remains unclear:

  • The budget bill cannot be sent to the Governor for his approval until it is signed in the Senate, which isn’t scheduled to return to session until Sept. 18;
  • The House and Senate must still reach an agreement on various code bills that are passed in conjunction with the budget and dictate how funding is allocated;
  • Additionally, other budget-related bills, like funding for Pitt, Penn State, Lincoln, and Temple remain unresolved.

Below, find key highlights from the budget bill and elements important to the business community:

Total Spend

  • Total General Fund spending of $45.5 billion for Fiscal Year 2023-24, representing a 6 percent increase in state spending over last year.
  • Spends nearly $400 million less than what Gov. Shapiro proposed in March, and $1.5 billion less than what the House passed in early June.
  • Makes a $500 million deposit into the Rainy-Day Fund, bringing the fund to over $5.6 billion.

Tax Changes

  • Maintains the current phase-down schedule of the Corporate Net Income Tax (CNI), from 8.99 percent to 8.49 percent in 2024.
  • The Department of Revenue will receive an increase of more than $17 million for Technology and Process Modernization to complete system upgrades.
  • Expands eligibility and maximum rebates under the Property Tax Rent Rebate Program for seniors and persons with disabilities.

Education Funding

  • Adds roughly $800 million in new K-12 public education funding. This includes:
    • $567 million more for basic education subsidies.
    • $100 million more for “Level Up” supplements for low-income school districts.
    • $50 million more for special education
  • Includes $125 million for school safety grants and $100 million for student mental health.
  • As previously noted, the budget as passed by the Senate contained $100 million for Pennsylvania Awards for Student Success (PASS) scholarships – providing students in the lowest 15 percent performing schools with financial assistance to attend a private or parochial school. Gov. Shapiro reversed course and announced his intention to line-item veto this funding.
  • Senate Republicans say the budget also includes a $150 million increase for the Education Improvement Tax Credit (EITC), however this will need to be enacted in subsequent legislation.

Infrastructure

  • Continues the phase-out of State Police funding from the Motor License Fund with a goal to fully phase down by 2026-27. The reduction this year will be $125 million.
  • Provides $1.7 million within the Department of Environmental Protection (DEP) to support improvements to the permitting process.
  • Allocates $112 million in royalties from oil and gas drilling on state game lands for State Park and Forest Infrastructure Projects, double the amount that was allocated last year.

Workforce

  • Increases the Department of State’s operating budget by $3.2 million, which includes funding for occupational boards dedicating funds to licensure system modernization and upgrades.
  • A nearly 50 percent increase in Child Care Services to help low-income families afford childcare.
  • Includes increases for existing workforce development programs, including a $14 million, or 13.3 percent, increase for career and technical education and a $3 million increase to the apprenticeship training program through the Department of Labor and Industry (L&I).
  • A $3 million appropriation to the Foundations in Industry program through the Department of Community and Economic Development (DCED) will increase apprenticeship and pre-apprenticeship programs.
  • A $3.5 million appropriation to the Schools-to-Work program through L&I will support partnerships between career and technical education students and employers.

What’s Not In

  • Governor Shapiro had proposed a $15/hour minimum wage, which is not included in the budget.
  • The governor also proposed legalizing recreational marijuana, which is not included either.