Pennsylvania lawmakers are preparing for a difficult round of negotiations as they attempt to close a budget gap estimated at roughly $5 billion or more while crafting the state’s 2026–27 spending plan.
The challenge became clear Thursday at the state Capitol as legislators wrapped up hearings on Gov. Josh Shapiro’s proposed $53.3 billion budget. The hearings set the stage for negotiations between the Democratic governor and the divided legislature ahead of the state’s June 30 constitutional deadline to pass a spending plan.
Early exchanges between lawmakers and administration officials suggested the talks could become contentious.
Shapiro, a Democrat in his fourth year as governor and facing reelection, has proposed several new revenue sources to help close the gap. His plan includes legalizing adult-use marijuana, regulating and taxing skill games, modernizing the state tax system, and increasing sales tax and income tax collections by raising the minimum wage.
Budget Secretary Zachary Reber told lawmakers that failing to approve those measures earlier has already cost the state potential revenue.
“We have left about $3 billion off the table” by not adopting those policies sooner, Reber said during the hearing.
Reber acknowledged that projecting revenue from policies that have not yet been approved involves uncertainty.
“All revenue sources in the Commonwealth at one point were not in existence and were speculative,” he said.
Republicans on the committee pushed back, arguing the administration should not rely on hypothetical revenue sources when planning the state’s finances.
“We know the revenue sources that we have right now in front of us, and to deal in hypotheticals, I think, isn’t being responsible with the taxpayers,” said Rep. Jim Struzzi, the minority chairman of the House Appropriations Committee.
Pennsylvania’s divided government complicates the budget process. Democrats hold a narrow majority in the House, while Republicans control the Senate.
Last year’s negotiations became a prolonged standoff. Although the main spending bill was passed, the final budget process stretched 135 days beyond the June 30 deadline before being signed into law on Nov. 12.
The delay forced schools, counties, and human service agencies to wait months for billions of dollars in payments. Some organizations faced furloughs, program cuts, and borrowing costs while the state budget remained unresolved.
Reber said more than 100,000 state payments were delayed during the impasse.
Despite that experience, disagreements between lawmakers surfaced quickly during Thursday’s hearing.
Republican Rep. Josh Kail criticized the administration’s projections for future spending growth, calling them unrealistic.
“Bad faith numbers,” Kail said, pointing to recent spending increases of more than five percent annually while the administration’s projections assume growth of less than one percent in future years.
Reber responded that the projections are based on spending obligations the state already knows it will face.
Another major point of contention involves Shapiro’s proposal to draw $4.5 billion from the state’s Rainy Day Fund to help balance the budget.
Republican lawmakers warned that such a move would significantly weaken the state’s financial safety net.
Rep. Marla Brown noted that Pennsylvania’s current Rainy Day Fund balance could sustain government operations for about 56 days in an emergency. Under the governor’s proposal, she said, that coverage would drop to just 23 days.
Reber responded that states vary widely in how much they maintain in reserve. He noted that the national average reserve level among states is roughly 46 days.
Democrats also challenged Republicans to present alternative solutions for balancing the budget.
House Appropriations Committee Chairman Jordan Harris said lawmakers must identify ways to close the gap if they oppose using reserve funds.
“We have a gap to fill and if you don’t like taking money from the Rainy Day Fund, that’s fine,” Harris said. “But you have to show us how you’d balance this budget without cutting services and programs to our constituents.”
Negotiations are expected to intensify in the coming weeks as lawmakers attempt to reach an agreement before the June 30 deadline.
