Pennsylvania's state budget will be late. Here's what that means

HARRISBURG, Pa. — State lawmakers say they're still far apart on reaching a budget deal as the clock ticks ever closer to their deadline of the start of a new fiscal year on Tuesday. Still, the true impact of that missed deadline for most Pennsylvanians won't be felt for weeks.

Top lawmakers and Gov. Josh Shapiro are meeting behind closed doors to strike a budget deal on how the state should spend approximately $50 billion in state funds over the next year, as the state faces a major budget shortfall in the 2025-26 budget cycle that is predicted to worsen in the years to come.

Shapiro proposed a $51.5 billion budget in February that would increase spending for Medicaid, education, and more, while proposing to add new revenue streams to help pay for these increases by legalizing recreational marijuana and regulating skill games.

House Democrats, who control the chamber with a one-seat majority, have approved measures to implement much of Shapiro's policy goals that they believe make critical investment and encourage economic growth — a view Senate Republicans do not share.

Budget talks this year are especially challenging in the politically split legislature, and as the state faces a $5.5 billion budget gap, with spending set to outpace revenue by that amount next year. That means lawmakers would need to tap into its more than $10 billion in reserves or surpluses, cut spending and services — or raise taxes. Besides the new revenue generators on skill games or marijuana, no new taxes or increases this year have been proposed.

Lawmakers often blow past the June 30 budget deadline with little immediate consequence, but try to reach a deal as close to it as possible.

Despite the deadline, leaders are expected to continue negotiations throughout the week. It could be days, weeks, or even months before the General Assembly passes — and Shapiro signs — a spending deal.

What are the top sticking points in the state budget this year?

Shapiro, House Majority Leader Matt Bradford (D., Montgomery), and Senate Majority Leader Joe Pittman (R., Indiana) are the main negotiators at the table. They are deciding how the state should invest taxpayer funds and fulfill obligations to the state's most vulnerable: its children, people with disabilities, and more. These investments reflect what Pennsylvania's state government prioritizes most.

But there are sticking points.

For Shapiro and Bradford, both Democrats who hail from Montgomery County, a top priority is increasing mass transit funding by $292 million this year, including for SEPTA and Pennsylvania's other transit agencies.

SEPTA has already voted to slash service and increase fares in anticipation that Harrisburg does not come through, as Pittman has made clear that any new spending for mass transit needs to also increase funding for Pennsylvania's roads and bridges, and he wants to see SEPTA make several changes before he supports it.

Pittman has also cautioned that Shapiro's proposed $2.5 billion increase to Pennsylvania's Medicaid programs will limit any other new investments the state can make in its current financial position.

There also remains a wide swath of opinions on how Pennsylvania should regulate and tax skill games, the slot-machine look-alikes that have proliferated around the state in the last five years in convenience stores, bars, and fraternal organizations. Some lawmakers want to ban the machines, like Philadelphia City Council voted to do. Shapiro proposed taxing them at the same rate as slot machines, 52%, and estimates the currently unregulated and untaxed industry would bring in at least $369 million in additional revenue. Others agree with skill game industry officials, who want to regulate them at a much lesser rate.

Just over a week before the budget deadline, Pittman said there was still no framework for a deal and that lawmakers would miss their constitutional requirement of starting the new fiscal year with a balanced budget.

There's also some discussion about approving a six-month stopgap budget while Congress finalizes President Donald Trump's megabill tax and spending package — albeit, not at the negotiation table, yet.

Senate President Pro Tempore Kim Ward, R-Westmoreland, said she would support a six-month budget, as 40% of Pennsylvania's total spending each year relies on federal funds that may or may not be coming through, including potential Medicaid cuts.

What happens when Pennsylvania's state budget isn't on time?

The state budget allows the state to pay its bills and send out its funds. The longer it takes to approve, the longer some school districts, county governments, and nonprofits have to wait, and will need to dip into their own savings or take out loans to stay afloat.

Most Pennsylvania residents, however, are unlikely to feel the impact of a late state budget for many months, if at all.

The County Commissioners Association of Pennsylvania, for example, on Friday urged lawmakers to move quickly on approving a state budget, as counties rely on state funds to pay for their expansive behavioral health services, among other programs.

Without these funds, county governments will be forced to "front the cost of services, delay or suspend programs, and divert already limited local revenues to plug growing gaps," according to a news release.

School districts around Pennsylvania may start feeling the impact within two weeks of a late budget, said Mackenzie Christ, a spokesperson for the Pennsylvania School Boards Association, in an email.

If districts are to receive their July subsidy from the state, it must be submitted to the state treasurer for disbursement by July 15, Christ said. If there is no budget deal by then, districts will likely need to borrow funds to cover payroll and other state-mandated obligations, as districts usually have only enough in their reserves to cover a few weeks of no state funding.

This is not Shapiro's first time with a tricky budget deal — though it is the most financially challenging.

In 2023, after issuing a line-item veto on a school voucher deal he helped strike with Senate Republicans, GOP leaders withheld sending him the final budget bill for his signature for months. The state Senate did not return until August to send the main spending bills to Shapiro, and $1.1 billion did not get sorted out until December.

But it was nowhere near the state's longest budget impasse.

In 2015, Shapiro's predecessor, Democratic Gov. Tom Wolf, went nine months until reaching a deal with GOP lawmakers who controlled the House and Senate. While state government employees continued to receive their paychecks, the school boards association estimated that districts had to borrow $900 million to stay afloat, incurring more than $50 million in interest and fees.