Democratic Gov. Josh Shapiro is asking the Pennsylvania legislature to legalize recreational cannabis, tax popular gaming terminals, and direct more than $500 million to the state’s poorest schools as part of his $51.4 billion budget plan.

The governor’s latest budget pitch would send an additional $290 million to the state’s public transit agencies, invest more in a new student-teacher stipend, and set a base tuition rate for cyber charter schools.

In his hour-and-a-half-long address, Shapiro also threw his support for the first time behind bipartisan proposals to expunge certain eviction records and increase state oversight of private equity acquisitions of hospitals and nursing homes. In addition, his full budget proposal includes a sweeping energy plan that targets emissions while offering industry tax credits.

“These are commonsense Pennsylvania priorities that I know we all share,” Shapiro told state lawmakers gathered in the Capitol. “Some of us may have a different approach to these objectives, but we’ve got to work at it together.”

The state will enter the coming fiscal year with about a $3 billion surplus in its general fund, which works like the state’s checking account, and about $7 billion in its rainy day fund, which functions as a savings account.

The Shapiro administration projects that the state will bring in $46.6 billion in tax revenue in the next fiscal year, although revenue appears to be slightly underperforming those projections. To pay for the governor’s $51.4 billion plan — which proposes an 8% increase over current spending — the state would be required to use the last of its surplus and take about $1.6 billion out of its rainy day fund.

That proposed spending immediately received heavy opposition from the GOP-controlled state Senate, whose members pointed to Pennsylvania’s long-running structural deficit.

“We don’t have the money,” President Pro Tempore Kim Ward (R., Westmoreland) told reporters after Shapiro’s address. “It’s irresponsible to spend what we don’t have. Because in the end … people here are going to pay higher taxes.”

Budget projections are never exact. Lawmakers all tend to bake in slightly different assumptions about how revenue will rise or fall, or how expensive massive programs will end up being. Senate Republicans argue that even without factoring in his new spending proposals, Shapiro is overestimating revenue by billions of dollars over the next five years, compared with projections from the state’s Independent Fiscal Office.

Caucus leaders told reporters they thought Shapiro could cut additional costs by trying to lower spending on Medicaid, and by looking more closely at per-pupil education spending.

State House Democrats pushed back, with Rep. Jordan Harris of Philadelphia, who leads the chamber’s powerful Appropriations Committee, saying, “My question to my colleagues is, well, if we can't afford that, then what is it that you're willing to cut?”

“We're saying, ‘Let's make targeted and strategic investments that benefit us, while also making sure that we are creating a business climate here in Pennsylvania where businesses want to come,’” Harris said.

More money for public education, no voucher proposal

Apart from mandatory state spending bumps on federal programs like Medicaid, one of the biggest financial obligations lawmakers have in the budget is education. That has been particularly true since 2023 when a state judge ordered lawmakers to fix widespread spending inequity in public schools.

The budget passed last year included an estimate of how much money Pennsylvania will need to send to poor schools to fulfill the terms of that ruling: $4.5 billion. It put about $500 million toward that specific need, which lawmakers have termed an “adequacy gap.”

This year, Shapiro is proposing that another $526 million go toward closing the adequacy gap.

Donna Cooper, a former state secretary of policy and planning under former Democratic Gov. Ed Rendell, told Spotlight PA she sees that number as “a terrific way to start the negotiation.”

“When I was in the governor’s office, going in with $526 million for the poorest school districts — that would have been a dramatic policy. That’s spectacular,” she said.

But despite commending Shapiro for prioritizing poor districts, Cooper also said his proposal would put Pennsylvania on a path to fill the adequacy gap — and meet the terms of the court ruling — too slowly.

If the commonwealth makes investments of roughly this size annually, it’s on track to fill the gap in about nine years. Cooper and other advocates think it should happen in four. The longer it takes, she said, “the more we are robbing the fortunes and futures of our kids.”

Shapiro also wants an additional $75 million to go to basic education and another $40 million for special education — significantly smaller increases than what were included in last year’s budget.

That was a particular point of concern for some education advocates. The Education Law Center and Public Interest Law Center, two groups that brought the initial school funding suit, argued in a joint statement that the numbers for basic and special education “fall far below the rate of inflation.”

“Underfunding other line items will prevent many school districts from ever reaching adequacy, as they use that funding to fill budget holes, rather than investing in new school staff and programs,” they wrote.

Other asks in Shapiro’s proposal include $25 million for school infrastructure projects, $15 million for Pennsylvania’s Pre-K Counts program, and $20 million for a relatively new student-teacher stipend program.

The plan also includes some policy changes, most notably for cyber charter schools. The number of students who attend these schools has ballooned since the pandemic. They are funded using almost the same decades-old formula as brick-and-mortar charter schools, which public schools argue badly overfunds them.

Shapiro is proposing a statewide, per-student base rate of $8,000 for all cyber charters, an approach he also pitched last year. Tuition, which public schools pay to charters, is currently based on district spending and varies widely.

State Senate Republicans have repeatedly pushed to increase students’ access to alternatives to public schools, arguing for increasing funding for tax credits that fund scholarship programs or authorizing a controversial school voucher program.

Shapiro supports using taxpayer money to fund private school vouchers, but he did not include such a proposal — which temporarily derailed last year’s budget — in his plan.

GOP senators criticized Shapiro for “not delivering” on the voucher program.

“We're going to work to deliver educational opportunities for every child," Ward said.

How to pay for it all?

Shapiro is proposing two major new sources of revenue to cover some of these costs: legalizing recreational marijuana and regulating slot-like skill games. Both were also included in last year’s budget proposal.

His marijuana legalization proposal calls for a 20% tax on wholesale cannabis, the same rate as his plan last year. Shapiro says this will bring in $536.5 million in revenue in the first fiscal year, counting one-time licensing fees, an increase from projected revenue in Shapiro’s address last year.

Another proposal would tax and regulate skill games, slot-like gaming devices that have popped up in bars, clubs, and convenience stores across the commonwealth.

In his budget pitch, Shapiro proposed a 52% tax on the gross revenue of skill games, as well as on similar video gaming terminals that are allowed only in truck stops. The 52% rate is roughly what casinos pay in slots taxes, and is markedly higher than the 42% tax Shapiro included in his budget pitch last year.