Gov. Tom Wolf signed Pennsylvania’s new $39.8 billion state budget into law on June 30 and it was historic on many fronts. It came as the state transitioned out of the COVID-19 pandemic and was the first full-year budget approved by lawmakers since 2019. Lawmakers had a trove of federal funds to work with, thanks to a massive infusion of cash from President Joe Biden’s American Rescue Plan, which delivered nearly $7.3 billion in state aid to the Commonwealth. 

The budget includes significant investments in education funding; it stashed away billions for future budget budget cycles and it divvied out a portion of federal COVID-19 funds. But it has been both praised and criticized for what it contains and what it leaves out. 

So what exactly is in the 2021-22 state budget? Here’s everything you need to know.
 

Education

Perhaps no subject has gotten more attention this budget cycle than education. Wolf, in his annual, albeit unconventional, budget address, called for massive funding increases in education underwritten by an increase in the state’s personal income tax rate. Wolf wanted to run that funding – $1.15 billion – through the so-called Fair Funding Formula, which distributes new education money through a weighted, need-based system.

But even with an influx of federal dollars from the American Rescue Plan, Wolf did not get the $1.15 billion ask that he sought. Still, this year’s budget includes record levels of new investment in public schools. Here’s a breakdown: $300 million for basic education; $30 million for early childhood education; and $50 million for special education. 

“This budget includes the largest education funding increase in the history of this Commonwealth,” Wolf said. “That is a $416 million increase in our investment in high-quality education in every community across the Commonwealth. It shows every student that we care about their education and we care about their future.”

The budget also allocates $100 million to a new “Level Up” initiative that will direct resources to 100 of the state’s poorest school districts. The provision was authored by Allentown-area state Rep. Mike Schlossberg, a Democrat, who said the Level Up program will move the state one step closer to equitably funding public school districts.

“A fundamental tenet of any educational system should be that a student can get a world class education regardless of where they live. We have historically failed to meet that challenge,” Schlossberg said. “Our Fair Funding Formula does remarkable work in alleviating those differences.”

The budget for this fiscal year also expands the state’s Educational Improvement Tax Credit (EITC) Program, which allows businesses to receive tax credits of up to $750,000 per year if they provide financial contributions to fund scholarships for public and private schools. Under budget-enacting legislation passed by lawmakers, the annual tax credit cap for the program has been increased from $185 million to $225 million, which proponents say will increase the number of school choice scholarships students can use to attend private schools.

Charles Mitchell, president and CEO of the Commonwealth Foundation, a conservative think tank, said in a statement that the budget includes “the biggest expansion since the inception of the program two decades ago.”

“With a historic $40 million increase in the cap on donations, the EITC has nearly tripled in size under the Wolf administration, despite his resistance, growing from $60 million at the beginning of his administration in 2015 to $175 million today,” Mitchell said.

Expansion of the program came despite efforts from Senate Republicans to increase its funding from $185 million to $300 million. That legislation, Senate Bill 1, would have also expanded the cap on the Opportunity Scholarship Tax Credit (OSTC) Program from $55 million to $100 million. That measure has not advanced out of the state Senate.
 

Save it for a ‘Rainy Day’

The largest question looming over budget negotiations this year was how the state’s latest round of federal COVID-19 aid would be used. Since the bill was signed into law by President Joe Biden in March, there were plenty of ideas on how to use the $7.3 billion the state received from the American Rescue Plan. 

Democrats in the state House wanted to use $4 billion of the federal funds for direct assistance to businesses, infrastructure investments and property tax relief, while Senate Democrats similarly wanted to use $6 billion to aid struggling businesses, increase access to childcare and remediate school buildings.

But while Democrats had a laundry list of possible uses for the federal dollars, only $1.1 billion was allocated through this year’s budget – with the rest being stashed away for future needs. The budget also directs the entirety of the state’s budget surplus – $2.52 billion – into the state’s Rainy Day Fund. 

The $1.1 billion from the American Rescue Plan will go towards the following:

  • $377 million for pandemic response efforts 
  • $282 million for long-term living programs
  • $279 million for infrastructure improvements 
  • $50 million for higher education 
  • $50 million for affordable housing

With more than $5 billion in ARP funds being pushed into the future, the Republicans’ fiscal restraint angered many Democrats, who felt the budget surplus should have been used to help Pennsylvanians hit hardest by the COVID-19 pandemic.

“Where is the help? I thought folks in this place wanted to lower property taxes. I thought folks in this place wanted to keep small businesses and restaurants thriving. But here we are on budget evening and we have not held up our responsibility,” House Democratic Leader Joanna McClinton said during budget debates in June. McClinton urged her colleagues to address issues such as school funding, raising the minimum wage and access to broadband when lawmakers return in the fall.

But Republican leaders who negotiated the budget with Wolf said their reluctance to use the federal aid all in one year was a result of mistakes made in past budget cycles. 

Pat Browne, the state Senate Appropriations Committee chair, said conservative use of the federal funds is necessary to avoid budget deficits that occurred after the 2008 financial crisis.

“We do not want to empty the piggy bank and place the financial security of the Commonwealth in jeopardy when federal support is no longer available to us several years from now, as it was for us 2008 through 2010,” he said. “We saw significant financial challenges when the American Recovery and Reinvestment Act ended in 2011, which left the Commonwealth facing deficits for nearly a decade.” 

“If we do not plan accordingly to manage long term fiscal imbalance and use a larger percentage of the federal pandemic funding, we will experience the same financial problems we saw 10 years ago.”

With $1.1 billion in ARP dollars being distributed in this year’s budget, lawmakers will have more than $5 billion to use in the coming years – a sum that could make budgeting easier, though it’s also likely to stoke further debate over the best ways to allocate the funds in the year ahead. 
 

Election audit funding? Not so fast. 

Pennsylvania’s election laws have been under a national spotlight ever since the 2020 presidential election. Results trickled in late, and counties struggled to count and process mail-in ballots. The state was a constant target of former President Donald Trump and his allies, who challenged election procedures in court and made unsubstantiated claims about the election being fraudulent. 

Ever since, Republican lawmakers have made re-writing the state’s election laws a top priority of this legislative session. Wolf, though, has stood in the way of GOP plans to reform the state’s Election Code. In June, he vetoed a bill that would have mandated voters show ID each time they go to the polls and require county election voters to verify the authenticity of signatures on mail and absentee ballots. 

But even as that GOP attempt to overhaul the state’s election laws faced an uphill climb to get Wolf’s signature, Republican lawmakers nearly scored a victory when they placed money for election audits in this year’s budget. The state spending plan originally included an additional $3.1 million for Pennsylvania Auditor General Timothy DeFoor’s office, which was to be used for the creation of a Bureau of Election Audits. 

House Speaker Bryan Cutler, a Republican who sponsored separate legislation to create the bureau, told City & State in June that the proposal would have tasked an independent office with conducting audits, rather than having the Department of State continue to conduct audits of the elections it oversees.

“The idea that you've got the executive branch, who runs the election, also auditing the election, I don't think that that's necessarily a true check and balance,” Cutler said. “I think the best way to do it is to move it outside to the auditor general, like we do with every other governmental program.”

However, while the budget package included additional funding for the auditor general’s office to create the Bureau of Election Audits, it did not include Cutler’s language to set parameters for how the bureau operates.

A spokesperson for Cutler told City & State that the speaker’s office did not believe language was needed to authorize the auditor general to conduct election audits. “The Auditor General has the authority to perform his duties as he sees fit. He certainly has the authority to audit our election processes and systems, just as the previous occupant of his office did,” Mike Straub, a Cutler spokesman, said.

Wolf used his line-item veto power to reject the funding increase, fearing it would be used to “relitigate” the 2020 presidential election amid calls from Trump and other Republicans to audit the results.

Although Wolf quashed the funding set aside for election audits, Pennsylvania Republicans are still weighing whether or not to commence a retroactive audit of the 2020 election. According to an AP report, Senate Republicans met for a private briefing on the possibility of investigating last year’s election, led by state Sen. Doug Mastriano, a Trump ally. 


Code bill changes

The state budget is never just line items and funding allocations – it also includes a raft of policy changes that are stuffed into so-called “code bills,” which serve as legislative guidelines to how various funds should be used. 

For example, included in this year’s Public School Code bill was a provision that will now allow college athletes in Pennsylvania to make money off of activities that utilize their name, image, or likeness. That change means that student athletes can now cash in on the use of their name or other identifying factors on sports jerseys, in video games or on trading cards. 

State Sen. Scott Martin, chair of the Senate Education Committee, said the provision will put Pennsylvania schools on a level playing field when it comes to recruiting. “This is critical for collegiate athletic programs in Pennsylvania so they will not be put at a competitive recruiting disadvantage after July 1, as many states will be implementing enabling rules,” he said.

This year’s code bills included a number of other major policy changes, including the repeal of a major regulation that would have expanded overtime eligibility for Pennsylvania workers. 

The overtime expansion was sought by the Wolf administration, which said last year that the regulation would have resulted in new overtime eligibility for more than 80,000 workers. Wolf nearly traded the overtime rule for a minimum wage increase in 2019, but the bill died in the House and the governor continued to move the overtime expansion through the regulatory process.

According to a report from the AP, repealing the overtime rule was part of a trade to secure the $100 million needed for the “Level Up” initiative that will drive out funds to the state’s poorest schools.

Multiple new tax breaks were also created under this year’s budget, including breaks for flight simulators, and a sales and use tax exemption for the purchase of computer equipment to be used at a state-certified computer data center. 

Additionally, the state’s Independent Fiscal Office will now be required to conduct dynamic scoring of all proposed legislation that will have an impact on taxpayers of $50 million or greater. Under the provision, the IFO will be required to provide analyses that take into account the behavioral responses of taxpayers and other potential impacts from the legislation.