The Cards are on the Table in Governor Shapiro’s First Budget Proposal

When political insiders in Harrisburg are asked to describe what a Shapiro Administration might look like, a common word that rises above the others is: transactional. That quality was on full display during Governor Josh Shapiro’s nearly 90-minute budget address in front of a joint session of the PA House and Senate. For Republicans and business leaders, it was a bit of a roller coaster – some good, some bad, but now all the cards are on the table for the legislative chambers to negotiate a work product that can obtain 26 votes in the Senate and 102 in the House and earn Shapiro’s signature by June 30, 2023.

But the priorities of the Shapiro Administration didn’t begin with this budget proposal. Just days after being inaugurated, Gov. Shapiro gave business leaders and Republican lawmakers a sense of hope that Pennsylvania now had a business-aware executive when he signed an order to streamline permitting and licensing in the Commonwealth. The Democratic governor’s first budget proposal unveiled this week reinforced that hope by featuring several pro-growth initiatives, but it also brought with it a measure of caution over high spending levels and the inclusion of some tired, counterproductive notions like increased government interference in the wage market. 

“At least at the outset, the governor struck the right tone,” PMA President & CEO David N. Taylor said in reaction to Shapiro’s budget address. “Governor Shapiro correctly focused on several vital issues like regulatory reform, pro-growth tax relief, and job training/workforce development, which creates an opening for potential progress on business competitiveness. We look forward to engaging with the administration and state lawmakers as the budget process advances.”

Taylor said that the governor’s call for greater interference in the wage market was both unnecessary and counterproductive, sending a wave of inflation up the wage scale even as the workforce shortage is driving compensation higher. The cumulative spending increase under Governor Shapiro’s proposed plan is also a cause for concern, Taylor noted.

The governor’s $45.8 billion spending proposal marks a substantial six percent spending increase over last year. The governor and House Democratic leaders cite a surplus of $12 billion and $5 billion in the Rainy Day Fund. But Republican legislative leaders note that most of those funds come from a one-time inundation of federal pandemic dollars and, moreover, the Independent Fiscal Office (IFO) projects that even if spending stays the same over the next several years, the commonwealth will routinely spend more than it brings in. The IFO forecast shows that without new revenue or spending cuts, the state will spend through the $12 billion by 2027.

On this point, House Republican Whip, Rep. Tim O’Neal (R-Washington), said, “It is clear why this budget must be a starting point: It is because this spending plan does not match the reality of what Pennsylvanians are facing. In short, the budget offered by Gov. Shapiro today sets us on the road with unsustainable spending to a place where Gov. Shapiro will need to increase taxes in the future.”

“Inflation and the economy remain at top of mind for all Pennsylvanians and the Senate Republican Caucus is committed to strengthening the Commonwealth by restoring economic freedom and positioning communities to thrive,” said Senate President Kim Ward (R-Westmoreland) said in a press conference after the budget address. “There are some glaring items missing from Gov. Shapiro’s budget that prevent Pennsylvania from reaching its full potential by unleashing – not restricting – Pennsylvania’s energy resources and establishing a 21st century education system that focuses on retention by producing the necessary skilled workers to support an innovative economy.”

On the plus side, the governor created the aforementioned Office of Transformation and Opportunity to, among other things, accelerate and streamline licensing and permitting. He’s proposing a 50 percent increase in the state’s Manufacturing Innovation Program, a collaboration of Pennsylvania’s universities and manufacturers.

“We all know that our licensing and permitting process takes too damn long. Those delays make it harder for a barber to relocate his business, harder to finish a major infrastructure project, harder for nurses to start critical jobs in our hospitals,” Governor Shapiro said.

On the workforce development front, the budget would spend $24.7 million in job retention and recruitment efforts, aimed at attracting desperately needed workers along with $23.8 million more for workforce training and apprenticeship programs, and strengthening skills-building programs.

In his address, Governor Shapiro stated, “We’ve seen what other states are doing, and we need to get in the game. The next time a company like Intel looks to build a semiconductor factory in the United States, they should be looking at Pennsylvania. Whether folks in this room like me or not, the one thing I hope you can all agree on is that I’m competitive as hell – and I’m sick and tired of losing out to other states. We stand on the precipice of a major opportunity for energy and tech jobs – and Pennsylvania must lead the way by securing at least one regional hydrogen hub.”

While a candidate, Shapiro said that he would like to accelerate the reduction in the Corporate Net Income Tax Rate (CNIT). Under a law approved last year, the CNIT falls to 8.49 percent this year and to 6.49 percent in 2028.

But the governor is also calling for more than doubling the minimum wage from the federal level of $7.25 an hour to $15 an hour by January of 2024; a move that will make entry into the workforce more limited for training and starting wages while causing excessive inflationary pressures on an already artificially inflated economy.

Perhaps most disappointing is that fact that he’s seemingly in support of former Gov. Tom Wolf’s plan to join the Regional Greenhouse Gas Initiative (RGGI), a job wrecking compact of Northeastern and Mid-Atlantic states that imposes a carbon tax on energy producers, as his budget projects $600 million in revenue from the first year of auctions under RGGI. The Power PA Jobs Alliance, a coalition of labor, industry, and consumers, blasted the inclusion of the RGGI auction revenue in the budget projections.

“Just last week, our grid operator PJM Interconnection warned of future blackouts caused by state and federal policy, like the $800 million per year RGGI tax, which will cause the premature closure of reliable, baseload electric generation from coal and natural gas,” the group said in a statement. “Given candidate Shapiro’s oft-stated skepticism regarding RGGI, and its impacts on blue collar union jobs and low- and fixed-income families struggling to pay historically high energy prices, we were cautiously optimistic Governor Shapiro’s proposed budget would distance himself from his predecessor’s mistakes, not memorialize them.”

The Wolf RGGI electricity tax is now tied up in the state courts to determine whether or not the executive order is constitutional. PMA filed a “friend of the court” brief in the case, proving that the RGGI scheme is not a permissible administrative fee but in fact an unconstitutional tax.

Senate budget hearings are scheduled to run from March 20 through April 14; the House has yet to announce its hearing schedule. The constitutional deadline for final budget approval is midnight June 30, 2023.