Pennsylvania lawmakers have begun reviewing Governor Josh Shapiro’s proposed $51.5 billion state budget, sparking debate over spending increases, revenue projections, and long-term fiscal sustainability. The budget hearings, which began Tuesday at the state Capitol, come as the state faces a projected structural deficit and uncertainty over new revenue sources.
Shapiro’s proposal increases state spending by $3.6 billion—a 7.5% jump from the current fiscal year. This would mark the second-largest percentage increase in the past eight years, continuing a trend of rising state expenditures. Revenue Secretary Pat Browne faced tough questioning from legislators about how the administration plans to pay for these increases, particularly given projections from the Independent Fiscal Office (IFO) that differ sharply from the governor’s estimates.
The IFO has forecasted a nearly $3.4 billion structural deficit for the current fiscal year, meaning the state is spending more than it collects in revenue. While Pennsylvania began the fiscal year with a $6.6 billion surplus, continued overspending could drain it to $2.9 billion. For the upcoming fiscal year, the IFO projects revenue growth of just 1.7%, bringing in approximately $46.8 billion—far short of the governor’s $48.4 billion estimate. The administration’s higher revenue projections rely on policy changes such as taxing skill games, legalizing recreational marijuana, and revising corporate tax laws.
Sen. Kristin Phillips-Hill (R-Jacobus) challenged Browne on the $5.1 billion gap between the IFO’s revenue forecast and the administration’s estimates, questioning how the two projections could be so different. Browne argued that over a five-year period, such variances are common.
Democrats have placed significant emphasis on legalizing recreational marijuana and regulating skill games as potential revenue sources. However, several Republicans expressed skepticism about whether these measures would generate the anticipated revenue in time for the next fiscal year. Sen. Scott Martin (R-Strasburg), the Senate Appropriations Committee’s majority chair, warned against dismissing the existing structural deficit, reminding lawmakers that Pennsylvania is currently spending billions more than it takes in.
One area of contention is the administration’s reliance on Colorado’s marijuana revenue model to project Pennsylvania’s potential earnings. Unlike Colorado, Pennsylvania would not be an early adopter of recreational cannabis, as neighboring states—including New York, New Jersey, Maryland, Delaware, and Ohio—have already legalized it. Some lawmakers argued that Pennsylvania could capture cannabis revenue currently being spent out of state, but others cautioned that competition could limit financial gains.
Another proposal being debated is implementing combined reporting for businesses, which Browne had previously opposed when Pennsylvania’s Corporate Net Income Tax (CNIT) was one of the highest in the nation. With ongoing CNIT reductions, Browne now supports combined reporting as a way to promote fairness and reflect modern business operations.
As lawmakers continue budget discussions, they must weigh rising costs against realistic revenue projections. With federal funding uncertainties, a growing structural deficit, and questions surrounding new revenue streams, Pennsylvania faces a challenging fiscal year ahead.
