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josh shapiro budget Credit: Governor Tom Wolf via Wikipedia Commons

How Gov. Josh Shapiro Should Address the Pennsylvania Budget

On Tuesday, Gov. Josh Shapiro will deliver his annual budget address. In this speech, the governor will lay out his economic vision for Pennsylvania. Though we don’t know what’s in the budget this year, last year’s budget provides several economic indicators to watch closely.

Last year, Shapiro and the General Assembly approved $47.6 billion in General Fund appropriations—a 4.9 percent increase. Unfortunately, this spending increase resulted in a $3.6 billion deficit, which will only grow unless lawmakers act quickly.

Year after year, out-of-control spending has eroded the General Fund, which is on pace to run out of money this fiscal year.

What’s Causing the Deficit?

Spending continues to drive the deficit. In fact, projections suggest spending will continue to outpace revenue for the next five years.

Medicaid spending is a major cost driver. Despite restored eligibility checks after the COVID-19 pandemic, Medicaid enrollment remains high. This funding drives Pennsylvania’s Long-Term Living and will reach unsustainable levels in the near future.

Long-Term Care alone will grow three times faster than overall revenue in the next five years, according to current projections.

Education spending also represents a significant portion of the state budget. Last year’s budget included a $1.3 billion increase in state spending on K–12 education.

Education spending increases despite school districts hoarding billions in reserve funds.

Pennsylvania now spends about $4,100 more per student than the national average.

What Should Shapiro Propose?

To safeguard taxpayers and make Pennsylvania thrive, Shapiro and the General Assembly must:

  • Leave the Rainy Day Fund alone
  • Protect families and businesses from tax increases.
  • Control cost drivers.
  • Fund students, not systems.
  • Make Pennsylvania “competitive as hell.”

Leave the Rainy Day Fund Alone

First and foremost, lawmakers must avoid draining the Rainy Day Fund. The Pennsylvania Consitution strictly limits when lawmakers can dip into state savings.

Plus, the fund’s current balance helped improve the state’s credit rating. Rating agencies have warned against draining state reserves.

Protect Families and Businesses from Tax Increases

Deficit spending only increases the likelihood of future tax hikes. Lawmakers must enact the Taxpayer Protection Act (TPA). The TPA would guide how much the budget should grow based on inflation and population growth. For example, if the inflation rate is 2 percent and the population grows 2 percent, the budget could only grow 4 percent.

Control Cost Drivers

More than one million adults receive Medicaid benefits with few strings attached or state oversight. Lawmakers must:

  • Enact work and community requirements for able-bodied adults using Medicaid.
  • Increase the frequency of Medicaid eligibility reviews.
  • Audit long-term care and managed-care providers to ensure quality.
  • Identify policies that raise costs without improving the quality of care for seniors.

Fund Students, Not Systems

Despite historic increases to statewide tax-credit scholarship programs, far too many Pennsylvanian students lack educational options. The demand for EITC and OSTC outpaces the supply.

Once a national leader, Pennsylvania lags behind compared to other states increasingly adopting and enacting new school choice programs.

Despite claims to the contrary, school choice won’t rob public education funding. For example, the Lifeline Scholarship Program—which would provide scholarships to students attending Pennsylvania’s lowest-performing schools—is a small investment with large implications, especially when compared to statewide education spending.

Make Pennsylvania “Competitive As Hell”

Shapiro regularly brags about how “competitive” he is.

Despite the governor’s ambitions, Pennsylvanians continue to vote with their feet.

One possible solution to bring people back is comprehensive tax reform. Pennsylvanians, like most Americans, continue to move to lower-tax states. By reducing the tax burden, Pennsylvania lawmakers can make our state a more hospitable destination.

Another solution: regulatory reform. Excessive regulations inhibit economic growth and prosperity. With more than 164,000 regulations on the books, Pennsylvania is the 14th-most regulated state nationally.

Pennsylvania’s number-one export is electricity. But the state’s regulatory burden keeps prices high for businesses and consumers.

Shapiro has flirted with excessive measures like Pennsylvania joining the Regional Greenhouse Gas Initiative (RGGI). Programs like RGGI would add costs to an already overregulated sector. Moreover, such programs aren’t necessary. Despite concerns about climate change, Pennsylvania successfully increased its energy output and reduced emissions—the best of both worlds.

A Better Pennsylvania

Governor Shapiro has a unique opportunity to make Pennsylvania more attractive to businesses, workers, and families. For Pennsylvania to thrive, Shapiro’s budget address must champion educational freedom, energy dominance, fiscal responsibility, and tax and regulatory reform.

America’s story began in Pennsylvania, yet our state has fallen behind. Families are leaving for better jobs, educational options, and quality of life in other states. But policymakers can usher in a new era of prosperity for Pennsylvania. The Commonwealth Foundation recently released our vision for a Better PA. Click here to learn more.