9 takeaways from Pennsylvania’s 2024-25 state budget

The dust is still settling on Pennsylvania’s state budget for the 2024-25 fiscal year. The agreement, approved and signed into law 11 days after the state’s budget deadline, provides funding for everything from education to economic development. 

Below, City & State examines some of the big-ticket items included in the now-complete state budget and how lawmakers and officials are reacting to the multibillion-dollar budget package.

A $47.6B General Fund budget

The budget advanced by state lawmakers on Thursday has a General Fund spending total of $47.6 billion – an increase of 6.2%, or $2.72 billion, over the state’s 2023-24 budget.

That amount is lower than the total spending number outlined in Gov. Josh Shapiro’s 2024-25 executive budget proposal, which came in at $48.3 billion.

Education investments

Education funding has been top of mind for many state lawmakers in the wake of the Commonwealth Court’s 2023 decision that found the state’s public education funding system to be unconstitutional. 

According to a summary of the budget agreement, in addition to a $2.9% increase in basic education funding through the state’s Fair Funding Formula and a $100 million increase in special education funding, the budget provides new education subsidies in response to the court ruling. The new subsidies include a $493 million “adequacy investment” and a $32 million “tax equity” supplement, both of which will be distributed through the state’s Ready to Learn Block Grant initiative. In total, K-12 education funding was increased by more than $1 billion in this year’s budget. 

House Appropriations Committee Chair Jordan Harris, a Philadelphia Democrat, said the education investments alone were enough of a reason to back the budget, which was largely developed behind closed doors between Shapiro and state lawmakers. 

“Let me just give you a brief – a brief – reason why you should vote for this one,” Harris said on the House floor as he urged his colleagues to support the budget. “You should vote for this budget for the educational spending that is in it. Two, you should vote for this budget for the educational spending that's in it.” 

Eventually, Harris added two more reasons for its passage, saying that colleagues should support the budget “because at the end of the day, if our children can't read, or write, or do math, it is not necessarily their fault. It is the failure of the body to provide the resources that they need.” 

An expansion of two school choice tax credit programs

The budget agreement approved by state lawmakers on Thursday also includes a $75 million expansion of two school choice tax credit programs that have been expanded by lawmakers in recent budget cycles.

The caps on the two programs – the Educational Improvement Tax Credit and Opportunity Scholarship Tax Credit programs – are increased by $70 million and $5 million, respectively. The programs award tax credits to businesses that help fund scholarships for K-12 students to attend private schools.

Economic development programs

The budget agreement makes good on two proposals outlined in Shapiro’s executive budget proposal. The first is the creation of the Pennsylvania Strategic Investment to Enhance Sites, or PA SITES, program, which authorizes the Pennsylvania Economic Development Financing Authority to issue up to $500 million in bonds to provide grants to help municipalities and redevelopment authorities develop industrial sites.

The initiative, part of Shapiro’s statewide economic development strategy, seeks to encourage businesses to locate in Pennsylvania by providing grant funding for the development of pad-ready sites.

The budget also includes a $20 million allocation to invest in downtown areas and main streets and spur economic development in those areas. 

Net Operating Loss reforms

Legislation passed by lawmakers as part of the budget changes the state’s net operating loss policies. This provision allows businesses that suffer losses in a taxable year to carry those losses forward and deduct them from profits in future years. 

Prior to the passage of this year’s budget, Pennsylvania was one of two states – the other being New Hampshire – that capped deductions below the federal limit of 80% of taxable income. Under the budget agreement, Pennsylvania will gradually increase its limit on net operating loss carryovers from the current limit of 40% – by 10% each year – until the limit is expanded to 80%. 

State Senate Majority Leader Joe Pittman praised the budget for expanding the NOL carryforward limit, a change long sought by Republicans and the state’s business community.

“For years … we have looked for a solution to the issue of net operating loss,” Pittman said on the Senate floor. “What we’re talking about is unleashing investment and economic opportunity in every corner of this commonwealth to foster start-up businesses – to develop employers who create jobs.”

Other tax exemptions

The budget features several other tax law changes, including a few exemptions. Language in Senate Bill 654, the Tax Reform Code bill, will allow Pennsylvania residents to deduct student loan interest under the state’s Personal Income Tax. 

Another provision in the Tax Reform Code bill creates a state-level tax deduction for Pennsylvania residents who have received, and will receive, payments tied to the Norfolk Southern train derailment along the Pennsylvania-Ohio border. 

Higher education scholarships

Included in the budget package is funding for two new higher education scholarship programs. The first, the “Grow PA Scholarship Program,” will provide scholarships of up to $5,000 to students who are residents of Pennsylvania and agree to live in Pennsylvania for four years after graduation, according to Senate Appropriations Committee Chair Scott Martin, a Lancaster County Republican.Another scholarship program, the Grow PA Merit Scholarship Program, is designed to attract nonresident students to Pennsylvania. Martin said on the Senate floor that the program will “waive the difference between in-state and out-of-state tuition for nonresident students enrolled in high-demand educational programs who agree to work in Pennsylvania for four years after graduation.”

The scholarships are part of a larger “Grow PA” education plan outlined by the Senate GOP.

Missing pieces

The budget approved and signed into law by Shapiro certainly doesn’t include everything that the governor asked for in his budget address. The budget package does not tax and regulate so-called games of skill – video gaming machines that resemble digital slot machines or video gaming terminals that courts have ruled differ from chance-based gaming machines. 

Pennsylvania will also continue to lag behind many of its neighbors when it comes to legalizing cannabis for adult recreational use: The budget did not include any language to bring legal weed to fruition in the commonwealth.

After having the issue derail budget talks last year, it also appears that lawmakers and the governor were once again unable to find common footing on school vouchers that would have provided students in low-performing public schools with scholarships to attend other schools of their choice – as school vouchers were not included in the final budget product. 

Mixed reactions

The final budget project has expectedly drawn a mixed bag of responses from Pennsylvania’s divided legislature. House Speaker Joanna McClinton, a Philadelphia Democrat, said the budget agreement delivers on several Democratic priorities, including education funding and public safety initiatives. “It delivers for our students by making a robust down payment to address a generation of inequitable funding and creating opportunities for learners of all ages,” she said in a statement following the day’s budget votes.

Republicans in the state House, however, thought more could have been done to rein in state spending. GOP state Rep. Seth Grove, the minority chair of the House Appropriations Committee, cautioned that the budget could worsen the state’s structural budget deficit. “Make no mistake, this budget is entirely dependent on our budget surplus to stand up. It’s really no different … than dipping into your 401(k) to pay for your vacation today with no regard for your future needs – just because you have the money,” Grove said.

Pittman acknowledged that, from his perspective, the budget isn’t perfect but rather the result of Pennsylvania's politically divided General Assembly. 

“This is not a perfect budget. This is not a budget that, if I were crafting (it) unilaterally, I would have designed. But let me be clear: This is a product of divided government,” he said in remarks on the Senate floor. 

“Elections have consequences. Yes, we have an electoral mandate. We embrace that mandate. But the reality is, those who are at the budget table with us also have an electoral mandate,” Pittman said. “Our governor does have an electoral mandate. The House Democrat majority does have an electoral mandate, and it’s our obligation to figure out how, in divided government, we take those individual and unique electoral mandates and make it work.”“That’s what this is about,” he said. “This is about making it work.”

Shapiro, who signed the budget into law at a press conference on Thursday night, described the budget as a “major victory for the people we were all elected to serve.”

The governor highlighted the budget’s major investments in education, noting that it dedicates more than $11 billion in K-12 education. “That is $1.1 billion more than we invested last year – a record amount,” Shapiro said. “But we’re not just delivering more funding – we’re also fixing how we drive that money out to our schools.”

Shapiro echoed Pittman’s sentiment about divided government during his remarks on Thursday night. “We are the only state in the nation with a divided legislature, and that requires all of us to compromise. That’s exactly what Leader Pittman and (House Democratic Leader Matt) Bradford and I did at the table,” he said. “That’s the spirit that everyone brought to these conversations: to give a little bit, but to hang in there, to stay focused on making progress for the good people of Pennsylvania.”