PA House Appropriations — 2026-03-12

What a glorious morning.

This is the day that, never mind, that was church, never mind. It is the last day of our budget hearings.

I would suggest that was worth a clap.

But seriously, we're grateful for all of our committee members, for their dedication over the last three weeks of budget hearings, and to all of our staffs for all of their work to prepare the members for these budget hearings. To the staffs at all of the different agencies that have come before us, as well as the staff here in Harrisburg, We are going to begin our hearing with the governor's budget office.

And so we will go ahead and get started and look forward to your answers Thank you Thank you Before we begin Secretary if you could rise

Secretary, would you like to begin with an opening statement or go directly to the question? Write the questions.

Thank you. Good morning. Thank you for being here today. First question for you is about the budget impasse. The 2025-2026 budget was passed on November 12th, which means it was four months and 12 days late. During that time, school districts, child care centers, counties, and other partners missed critical payments. Have you been able to quantify the impact of the impasse in terms of missed payments or lost economic activity?

Thank you for that information. And PA is constitutionally required to have a capital budget. What impact does a delayed capital budget have to your office's management of our capital programs?

and not potentially slow down payments to manage cash is important Thank you for your answers Thank you Chair Thank the gentle lady

Thank you, Mr. Chairman. Thank you, Mr. Secretary. Over the course of the last, really, year, two years, as we've been going through these hearings, a growing frustration within our caucus, and I think within this body, has been about the projections that the governor put out in his budget proposal. This year, the projections show a growth of about 0.78% in the budget for the next years going from 28, 29, 29, and 30. And we've talked to multiple secretaries. We've talked to DHS. We've talked to PDE. And all of them tell us that if Medicaid costs continue the way that they're going, if we actually follow the Supreme Court with the adequacy, this is their words, not mine, the adequacy funding, you're talking hundreds of millions, billions of dollars more of spending. Yet our overall budget projection has us at 0.78%. Is that a realistic projection?

So would you concede that 0.78% is not a good faith projection?

One of the most important things that we do within this legislative body is present a budget, vote on a budget, pass a budget, keep the Commonwealth going. Year after year, we're looking at things. It is critical for us to understand where the executive believes the expenses are going to be, not just this year, but in years going in future, so we can prepare. It's that way here. It's that way of business. It's that way for my constituents. We want to be able to plan and to plan effectively. But when we get bad faith numbers as it relates to projections, which is what this basically is, 0.78%, your own secretaries within the administration are telling us it's going to be more. And then when we ask them about the projections, you know what the response is? It's ask the budget secretary. It's ask the budget secretary's response. I guess my question to you are you familiar with what the spending is going to be in the Department of Education And if you not why are you the one putting the projections in the Department of Education

Just for the record here, I've been in office since 2019. And that year was a 5.3% increase to budget. The next year, 6.3%, 11.5%, 3.1% in 22-23, 5.8%, 23-24, 5.3%, 24-25, 25-26, 5.7%. proposed this year, 5.4%. And then the next four years out of projections is 0.8%.

Thank you. Gentleman, Representative Webster.

Yeah, sure. So as you had stated, we've started to address the adequacy gap. It was a bipartisan effort to create the adequacy formula. It was started at $526 million the first year that we had worked to address it and it increased to $565 million last year to the point that I had just tried to make. I think things change on a year-to-year basis. There was an agreement last year to increase the amount of dollars that go through the Ready to Learn block grant formula up to $565 million. We are again proposing, since that was the agreement with the General Assembly last year, to fund adequacy formulas. at $565 million again this year. And when the formula was created, the school code, it allocates dollars on an annual basis. So we are proposing the 565 for fiscal year 26, and we understand that there will be future conversations with the General Assembly on what the future of that funding looks like. But, you know, we are committed to work towards the seven-year gap. As far as the impacts of adequacy, I've also heard from districts about the importance of the dollars and do know that we're starting to get the reporting on what the districts are using those dollars for. I think 25% towards academic success, almost 20% for full-day kindergarten. So I think the dollars are being put to good use, and the governor has taken all of the above approach on workforce development, and we've made investments in a bipartisan manner in several areas, including pre-K, our school-age children, and then adult workforce. So I think it's all part of the broader workforce strategy to make sure that we're providing resources to schools so that our kids can adequately learn and become productive in the future workforce of Pennsylvania.

which ultimately leads to revenue growth. That coupled with our changes that we've made in the overall business climate in Pennsylvania under this administration, working with the General Assembly with our permitting reform and continuing to cut business taxes, as well as putting more money back in Pennsylvanians' pockets through new programs like the Working Pennsylvanians Tax Credit. I think all of that goes into consideration in a bright future for the Commonwealth and allows us to continue to build on those investments, which is what this budget does. That's my vision for this Commonwealth. Thank you.

Thank you, Mr. Chairman, Mr. Secretary. Thank you for being here. Real quick, I've got a couple quick IT questions for you to help me understand what's going on. So this year is the second year in a row the governor has been requesting the new enhanced enterprise security. I think he got $10 million last year. Look for another $10 million this year. To strengthen and expand existing cybersecurity infrastructure, can you just briefly, like, touch on why you need that twice in a row and why we can't do that now with existing IT infrastructure?

Gotcha. Real quick, can you touch on the differences between CodePA, OAs, IT services, and then the enhanced enterprise? Just like 10,000. Enterprise security. Enterprise security, yeah, yeah, yeah, just real quick.

Do you know roughly how much the Commonwealth were spending total on IT?

Yeah, okay, through like outside contracting and all that too?

All right, cool. So going back to that enterprise system lifecycle, we have that it's to support the required mitigation of technology platform and to end its supported lifecycle. I feel like this is like the Katy Perry song. It's hot, then it's cold. It's yes, then it's no. It's in, then it's out. For fiscal 26, 27, it was 31.3, and now it's back up to $100 million. Can you just help me out on that? I don't understand what's the shift and then the timelines.

You like that. I want my time back too, sir.

Gotcha. And then so you said it's at the end of its 20-year life cycle. So rough guesstimate, when are you planning to phase that out sometime in the next 27, 28 timeframe?

Okay. Got it. And then last but not least, just to follow up on my colleague, Josh Cale Pryor, yeah, talking to the DHS secretary, you know, she was kind of obtruse when we were asking her about budgeting. Obviously, we know the H.R. 1 thing is going into effect, but as state legislators here on the state level, not the federal level, trying to plan onto the out years, it's a problem. You know, that's 42% of our budget. It's increasing by minimum. I've been here 10 years. It's increased 5% each year. Do you think that your projections are going to cover the Medicaid increases at a minimum? Because she was saying that's like $200 million, and that's pretty close to over 1% of the projection.

great thank you Mr. Chairman thank you Mr. Secretary

Good morning.

My question is around missed opportunities and past revenue proposals. The 2026-2027 budget projects that there would be a shortfall of approximately $4.7 billion. The governor's budget proposes four revenue generators. One, adult-use cannabis. Two, closing the Delaware loophole. three skilled games tax, and four minimum wage increase to help address our budget needs. However, this is the governor's fourth budget proposal and has called for all of these in the past. Looking backwards, how different would our budget picture look today if the legislature had enacted these proposals when the governor first called for them?

So as I understand your answer, you said that if we would have enacted these proposals when the governor first called for them, we would have profited $3 billion to date. That's correct. Thank you.

Thank you, Chairman. Secretary, thank you for being with us. So as of the end of February, the Rainy Day Fund posted a balance of $7.63 billion, which could sustain the Commonwealth for about 56 days. and the Office of Government Finance or Officers Association actually recommends 60 days. So we have a little ways to go with building that balance. Before the Senate Appropriations Committee, you stated that if the governor's budget would be enacted and we used approximately $4.5 billion that would be needed to balance his spending proposal, You estimated that the operational abilities of the Rainy Day Fund would be down to just 23 days.

In addition to sustaining the operations of the Commonwealth, the healthy balance of the Rainy Day Fund has had an undeniable effect on our credit ratings. In fact, the governor himself has stated that, quote, reasonable fiscal management of taxpayer dollars led to those very credit upgrades. What are the financial benefits of the credit upgrades we received?

And there are differing opinions on what an appropriate amount is. There are different organizations who say less than the 60, but the national average is around 46.

So let me ask you this then. If we withdrew $4.5 billion, which is what the governor is proposing, how would that impact our ratings?

But this budget would not make us stable, as you've implied. So you're saying that you don't think it would impact our ratings?

does that sound like fiscally responsible management of taxpayer dollars to you?

Well, with some of the programs that are being introduced, they're obviously going to increase interest rates.

Okay. Thank you.

Hello. Good morning. Thank you for being here with us. It's good to see you this morning. I just wanted to – I have a couple of questions. The first one I just want to clarify from the previous round. When we're talking about the state's bond rating, which is the— Representative, can you move the mic a little closer? There? There we go. Thank you. I was saying great things, too. Thank you, Chairman. It was another Katy Perry reference. Okay. So I just quickly want to address the previous speaker's comments just around bond ratings. Is it just the rate, and the bond rating for folks following at home, it's how lenders determine the credit worthiness of the state of Pennsylvania, and it impacts the rate at which we can borrow money. Is that bond rating set just on the rainy day fund, or are there other factors as well, like, let's say, passing an on-time budget?

So, okay, just shifting gears, I wanted to ask, you know, recently the Commonwealth has made a fairly significant shift in how we fund arts organizations. We have had some pushback. We have a lot of arts and cultural organizations in my district. There's a lot of concern about some of the new policies. And I'm wondering, has the Pennsylvania Council on the Arts conducted any assessment of the fiscal needs of Pennsylvania's arts and culture organizations? And if not, will the administration undertake such an assessment to inform funding decisions in the future?

Yeah, I would strongly encourage that. We have just an incredibly diverse, you know, community here in Pennsylvania in our arts and culture community. And there's just really, really important organizations that are struggling at this time because of federal cuts. And it's just very important that we make very deliberate decisions around, I think, funding for the arts. And I would just really urge the administration to look at that. So thank you so much.

Thank you, Mr. Chair. I'd like to shift a little bit from the budget numbers and talk a little bit about permitting reform and dollars supporting that program. Last year in November 2025, the General Assembly, we passed Act 45, which was fantastic permitting reform. You know, two key elements within that. I mean, there are a number of parts, but the first was that publicly posted all permits within the department. And then the second was instituting a permit progress tracking system. So we know that OTO, the Office of Transformation and Opportunity, has primarily been responsible for collecting the data and creating the catalog, which is great. So now, where do we find the funding in this budget program moving forward to maintain that program? Where is it in the budget?

Yeah, Code PA appropriation. Yes, Code PA has been funded in a variety of different ways over the last few years.

Yeah, and that's, I think, what we're trying to better understand, not that I am oppositional at all to the ground that we're gaining because we're doing good things. But so what will be the office or who will be the office for this next step to develop the permit tracking system? Will that be OTO? Is it going to be Code PA?

So the quantity of those funds, the dollars, where will we find those in the budget?

Okay, excellent. I really appreciate that. We're just trying to sort through because there's a lot of new things, and I'm struggling to find where these programs all fit in and, you know, who's driving them. Because then the governor mentioned a new plan in his budget, the grid, right? And that was this accelerated permit, the governor's responsible infrastructure development, which is interesting. He named it after himself. But is the OTO, the Office of Transportation and Opportunity, are they going to be the lead office with grid?

I'm with you on all those, And, you know, we want Pennsylvania contractors doing this work. We want, you know, new natural gas power plants are going to help, you know, reduce energy costs. So who is ultimately in charge? Because if the governor's office is using, you know, its own executive office funds or dollars twisting back and forth, and then the governor goes, like, we want these sustained accelerated permits to remain within DEP or DCED. You know, so it's great that you brought up data centers, but will – so is the FastTrack process going to be under OTO? Because something permanent needs to continue to drive this success.

And then who for the accelerated permitting which we all want for these data centers to get to go who trumps who Because you have three agencies can you know somebody got to be in charge uh i mean the fast track process is um is managed by oto and oto works

secretary thank the gentleman representative bellman thank you chair and thank you mr secretary

So as the governor mentioned in his speech and has shown in the proposal, There are a variety of areas in which we're trying to make items or purchases more affordable for Pennsylvanians. In specific areas, we're talking about in the housing area, the governor signed an executive order asking for the administration to develop the first housing action plan, which was just released a few months ago. You know, there are legislative and regulatory proposed other policy changes that would help with affordability in that space. But then also we had called for the creation of a critical investment, critical infrastructure fund. What the purpose of that would be would be to, you know, add to – add housing stock, I think simple supply and demand. The more that there is available, the more affordable prices could become. He's also called for a plan on – in the energy space as well, which would be, you know, working closely with the utility companies as well as the PUC and understanding that there's in transparency areas there. But then also that critical infrastructure fund would be utilized to help potentially bring new energy to the market as well as the lightning plan that the governor had called for last year has some changes in that as well to the EDGE tax credits, which would also benefit bringing additional energy to the grid. I think the budget also continues some of the other tax cuts that we have made for Pennsylvanians. We expanded the child-dependent care tax credit under this administration in working with the General Assembly, as well as creating the new Working Pennsylvanians Tax Credit, which is putting money directly back in Pennsylvanians' pockets to help with controlling costs.

Yep. So under this administration, the General Assembly had passed legislation to increase the eligibility for property tax rent rebate, and it is now tied to an inflationary index, so it will continue to grow as Social Security income or other income sources grow for our aging population so that they don't income out of the program. We're estimating a little over $300 million in property tax rent rebate payments in fiscal year 26. The General Assembly in last year's budget had also made a change to the funding mechanism for that while the operations are funded for the property tax rent rebate program are funded out of the lottery fund. The property tax relief fund actually pays for the program itself and the payments to seniors.

Thank the gentleman, Representative Mustelo.

No. Code PA appropriation funds projects and operations of Code PA. They have personnel staff, the people who are actually doing the work. That is what Code PA is funded by. OTO, as I mentioned in a previous testifier, a questioner, is funded out of the DCED GGO.

Department of Community and Economic Development's GGO operation.

is out of? Code PA. Okay.

$3.7 million is the dedicated amount towards the actual tracking program that we were discussing. The actual appropriation for Code PA is increasing by just over $3 million. And so we anticipate utilizing some existing, some of the existing funds just based on savings for other operations, personnel costs, et cetera, and still have some of the funds that were previously appropriated both in the appropriation as well as the transfer that I'd mentioned from other agency funds.

So OTO and Code PA work collaboratively across the enterprise, so they work with multiple agencies. The actual permanent review as well as the economic development engine and strategies are managed by the existing agencies. So DCD continues to be the main economic development agency for the Commonwealth and works closely and collaboratively with OTO. And OAIT still manages the overall infrastructure. Code PA is building new online platforms that would have otherwise in previous years been contracted out and saving money there. And DEP still manages the actual permitting process.

I don't understand your question. So the budget appropriates dollars, and the normal fiscal oversight of dollars resides with the budget office, comptroller's office, and then eventually with Treasury.

All general fund appropriations are treated the same. We have the same process for everything with oversight and DEP dollars, the operations of OTO, and the projects overseen by Code PA all follow the same process.

Thank the gentlelady, Representative Fleming.

So our budget, I'll back up a little bit, our budget allocates the state share employer contribution for SIRS as well as state share contribution for the PSIR system. And the budget that we had proposed funds it at the actuarially recommended rate for the current system. We made good strides in ensuring that we're meeting our actuarial duty in those systems, and we've gotten our funded liability in those systems up over the last 10 years. Specifically to pre-Act 9 COLA, I think the fiscal note, at least that I've seen, would increase the needs in those funds across both of them by about $170-ish million a year. and I think it would just be important that we're in direct communication with both the systems on what the impacts to the funded liability would be and the changes that would need to be there and then ultimately what this body and the Senate provide in additional appropriations to cover any of those costs.

So the housing action plan was developed with thousands of stakeholder input over many roundtables, and the recommendations that came out of that were a direct result of those conversations. The specific changes as it relates to ordinances, I think would also fall under changes that we're proposing to the Municipal Planning Code, which is obviously an enacted statute by the General Assembly and would require those changes. So I think the normal legislative process that would have buy-in from a variety of stakeholders into any of those changes would be important. And I think that would be an opportunity to ensure that the constituent that you represent have some buy-in to the process.

I think the actual ordinances would be up to under the designation that you're speaking to. Apologies, I was talking about the Municipal Planning Code. But under the designation that you're speaking to, I think it's part of a broader strategy to ensure that access to housing is available. And I think certainly the details around what the designation would look like, I think, are still in discussion. And I think there's opportunity to kind of shape what the ultimate designation looks like. But I think on the face, the whole point of the Housing Action Plan was to ensure that we had stakeholder buy-in on what the future of housing looks like and the needs for communities but also for businesses as it relates to making sure that we have workers and an ability to attract workers to different areas. So I think it's an across-the-board approach that we're looking to take on all things housing that ultimately benefits everybody.

I view those two things as, while they can move on concurrent paths, I don't view those two as specifically needing to do one to get the other. The vision for the Critical Infrastructure Fund is to develop additional housing. And to your question about where that would live, we've proposed for the program itself to live in the Office of the Budget and work in a similar capacity as the current RCAP program, which is also run by the Office of the Budget. It would generate interest in programs, it would generate interest in a variety of areas, including energy and housing development, and the merits of those projects would be what would dictate where the dollars go.

So you are correct. We did propose a step-down rate of reliance on the motor license fund in last year's proposal and ultimately in negotiations with the General Assembly and the fiscal position of the general fund, it was decided not to continue, not to enact that step-down. We have not proposed that step-down. The whole reason for the step-down that we were proposing and we were on that path was to provide additional dollars for road and bridge projects as well as match federal dollars that we were receiving. We believe the proposal that we had put forward does allow us to meet our match obligations for federal funding. And to date, just as a result of those actions, we have freed up about $625 million for additional road and bridge projects. And even at current law, it would free up over the next five years a total of $2 billion extra for road and bridge projects.

Yeah, so this was actually part of our first year in remap when we had worked specifically with PCCD and DCED and the Department of Corrections with the whole intent of making sure that the dollars that we're providing, that the General Assembly appropriates, that gets used by communities, is being utilized as efficiently and effectively as possible. And I think in conversations with PCCD, we had noticed that there were certain restrictions on each of the two programs, and it was just more beneficial to the communities, the counties, and other entities that utilize these dollars to have more flexibility. So that's what the thought process was behind it. It would be treated more like a block grant rather than one specific funding stream for one specific purpose and another funding stream for a different purpose combining them and giving ultimate flexibility to the locals Thank you Mr Secretary Thank you Chair Thank the gentleman Representative Barton Thank you Mr Chairman and welcome Secretary Reber

Yeah, so to your point, energy is a backbone of the economy. We have, to your point, cleared an obstacle that the General Assembly had viewed as an obstacle to energy growth in the Commonwealth. The governor has put forward his plan last year on potential ways to attract new energy. I referenced one of those, and that was changes to the EDGE tax credit, which would open up some additional incentives to bringing new energy to the grid. And the critical infrastructure funds that we had just spoken to about would also provide some additional potential resources to large-scale projects to bring additional energy to the grid. I think overall the governor's stance on energy is all of the above types of energy. He had, as part of the lightning plan, had proposed differing changes to the AAPS to coordinate energy types. And I think his stance on permitting as well, in concert with the General Assembly and making changes to our permitting process, I think all open us up to additional investments in the future. And I would just also say that the steps that we've taken, not just in the permitting space, but just in the overall business climate in reducing our corporate net income taxes and bringing businesses here, which then ultimately those businesses need energy, it all kind of plays together and is all part of the overall economic development strategy of Commonwealth. Well, the corporate net income taxes are still only going to get us to 4%, right, at 2031, right?

So I think on that question, I would just say I think we're in a position now where that policy is no longer in place. And I think it's important that we move forward from where we are. And the policies that we've enacted and the path that we're on with our economic development strategy are good things to recommend to CEOs for investments. And it's working, as you're seeing in other areas, like the Eli Lilly announcement, J&J announcement, and some of those other big developments that are occurring because of the path that we're now on.

Thank the gentleman, Representative Malagari.

So I think, you know, just based on the intricacies of that funding source, I think we would have to look at what changes to the existing, I think, their floors and percentage bases. I think so we would have to look at the revenue streams coming in from those insurance proceeds. But then, you know, also we've proposed new revenues just from a general fund side. So I think, you know, there are opportunities just across the board on new revenues, specifically the ones that we had proposed that we think are some common sense policies for potential future investments. Obviously, we had proposed what those investments could look like and where they go. But as I said before, it's a negotiation process with the General Assembly on shared priorities on what ultimately makes it into a final enacted product.

I appreciate that.

Thank you, gentlemen. Representative Reichert.

Yeah, I think a good example is Code PA, which we've talked about before. The whole idea behind Code PA was, you know, developing systems that are beneficial to the residents of the Commonwealth to better interact with their government. Through the website, through online, that just doesn't eliminate the bureaucracy or reform the bureaucracy. It just makes the bureaucracy somewhat more accessible online. It doesn't change the fact that, you know, a person can't email in these forms to certain agencies. It doesn't change the fact that, you know, PennDOT doesn't want to explore different ways that, you know, they don't want to talk to the U.S. Department of State and how they process marriage license code. PA just improves the online experience, but it doesn't do anything to fix the bureaucratic red tape that a lot of people are experiencing on a day-to-day basis.

I mean, Code PA can be utilized for those things, and they are working on additional projects than just a permitting tracker. They can build and have developed forms for agencies. I can't speak to a specific program or form because everything is dictated in a different manner. Some have federal requirements, if it's a federal program, that certain hard copies be retained or provided. I will also say, though, in my time in the various agencies that I've served, there have been process improvement projects. There have been cutting down on the need for physical copies of applications. I can speak specifically to the RCAP process and say that we've gotten rid of the need for a very laborious submission for formal applications for the project. We've gone from a 23-tab application to a 10-tab application, so we've cut out information that we otherwise weren't utilizing. So we are constantly, as an administration, looking at process improvement, and I always welcome conversations around what that looks like, and I'd be happy to have those conversations directly with you.

Again, we budget projections on personnel costs based on in-place collective bargaining agreements and actual costs that we know are going to occur. and that is for various reasons, one being to maintain our position in those negotiations and not setting specific expectations. But even the COLA itself is by statute. I mean, we know that that's going to occur, but it's not reflected in this budget ask, in the budget projections. And we do work across all agencies to make sure that we're trying to keep our personnel costs in check and believe that we've made good strides in going from at least what we've proposed in previous years and those appropriations down to a lower increase. So, you know, we will continue to work towards that.

Thanks, General Representative Guzman.

So if the revenue proposals that we had proposed are not enacted, then we collectively as the General Assembly and the administration during negotiations have difficult decisions. need to be made. And I think, you know, unfortunately, those who are hurt are everyone who relies on those dollars. The constituencies that you would reference, the schools, the county governments, nonprofits, businesses. I'm happy with the progress that we've collectively made as an administration in working with the General Assembly on the investments in each of those areas and believe that we're seeing those pay off in Pennsylvania as attractive to businesses. And, you know, we want to make sure that people want to move here, stay here, build a career here, build lives here. So I think it's very important that we continue to make those investments, which is why we had proposed the revenue sources that we had proposed. So if we don't pass those revenue sources, we've got to come up with either four to six billion dollars worth of cuts. And so if we were to freeze and or cut every agency outside of education and Human Services, State Police, PennDOT, Corrections, Agriculture, DEP, all of them.

As you had mentioned, most of the appropriations of the general funds are to education and human services. So collectively, the appropriations outside of those agencies would be small. I think there would still have to be some reliance on the existing surplus.

Mr. Chairman, can I just add to that, please?

Thanks, gentlemen. Representative Rigby.

So the historical practice in budget proposals, at least under this administration, has been to increase resources during the even year election cycles. I don't believe it would be a conflict because we don't tell people how to vote. We tell people the importance of voting and the methods and timelines around voting. So I don't believe there's a conflict just because he is on the ballot for re-election this year. But, again, in historical practice, we have increased. And if you go back to our 2024 budget proposal, we had proposed increases in the even year, out year, fiscal years, and it is for that purpose. We know that there's better turnout. There's more interest in voting. So just making sure that people know how to vote, what methods are available is important.

Sure. I'm happy to work with the Department of State to get information on what their intended utilization of those dollars would be. I don't – I do not – I leave election matters to the Department of State. They operate the Bureau of Elections and have the responsibility of ensuring fair, safe elections across the Commonwealth. But I'd be happy to talk with the secretary and come back with a proposed plan for those dollars.

Thank the gentleman, Representative Kincaid.

I don't have a specific amount of time. I can say that it was all done in-house. There was no outside counsel for any of those suits. So it would have all been borne by the existing resources available to Office of General Counsel So the Attorney General said that part of his decision was if you choose to take one case you have to choose to leave another one

You mean specifically non-federal government-related cases?

I mean, we have a finite amount of attorneys internally, and we have made it a practice to not use outside counsel. So in theory, we do try to make sure that we're providing all of the services that the agencies need through our Office of General Counsel. But obviously, their time could otherwise be dedicated to other services.

I think ultimately that is a decision of the appropriators in the General Assembly on what a final product looks like. We obviously work closely with the Attorney General on a variety of instances and have had a good working relationship. but we could always use additional resources. We try to budget accordingly and appropriately but that's ultimately a decision of the General Assembly and appropriation process.

Yeah, so as a farmer myself, I absolutely see value in agricultural industry in Pennsylvania. The ag preservation program is critically important to ensure that farmland remains farmland for future generations. The ag industry is one of, it kind of teeters back and forth between tourism and agriculture, the biggest industry in Pennsylvania. Obviously, we have our founding on agriculture. And, you know, Secretary Redding has been a vocal proponent of urban agriculture and expanding agricultural opportunities into urban settings. We've had urban agricultural-type grants as a result of funding that has been appropriated by the General Assembly in concert with the Farm Bill. And I think, you know, open to further conversations on what the status and the future of the ag preservation program looks like. I do know that, you know, there are certainly way more demand than there are resources available. I think the funding for that comes from cigarette tax transfers, I believe, at the moment. So I think, you know, any conversations around expansion of that program would be beneficial to the Commonwealth.

And the use of those revenues are up to negotiations and conversation of shared priorities with the General Assembly. I will say from an agricultural standpoint, we view adult-use cannabis as a new potential crop and growth opportunity for our farming community. and I think just given the current situation with tariffs and otherwise impacts on our farming community, having the ability to diversify crops and enter new markets is going to be important. So that is why we actually propose to put it in the Department of Agriculture because we believe it is a future agricultural commodity and opportunity for our farming community.

Thank the gentlelady, Representative Alsemer.

Yeah, sure. So as I mentioned, we have taken a very detailed approach in things like remap and looking at all of our existing programs within agencies and making sure that the dollars that are made available by the General Assembly are being put to their intended purpose and being fully utilized. That's why in some of the other ones that I've talked about with EDGE, those are unutilized. We're talking about making changes to actually utilize them. In the case of the Education Improvement Tax Credit, as you note, there are four programs underneath that umbrella, economically disadvantaged schools, the EIO, pre-K, and K-12 scholarships. Out of those four, the only one that has been fully utilized up to its actual cap underneath the school code legislation is the EIO program. Overall, in fiscal year 24, there was about $103 million of the allocated resources that went unused. And we believe that there's opportunity to readjust the caps to make sure that the programs are being fully utilized, and that's what we're proposing.

It would simply be changes to the existing caps in the school code, so I can provide that.

It has been a long-standing impedance on the administration to be able to collect data as it relates to those programs. There is specific information that has been allowed to be collected and no other information was allowed by law. I do know that in, I believe, the school code in 2024, there were some changes to reporting, so I can check in with the Department of Community and Economic Development to see if that is something that we're allowed to collect.

Thank you, sir. Thanks, gentlemen. Representative Salzberg.

Because schools receive federal funding, they are subject to federal single audits. And so there are federal auditing components that go into consideration with school districts. We have, to your point, we have started doing selective audits just based on our capacity and our ability to do those. our audits you know obviously we cover all agencies under the governor's jurisdiction with our bureau of audits so there's a lot of potential audits to go around but we have been increasing our staff within the bureau of audits to be able to try to take on some additional school audits we work very closely with the department of education and and identifying potential risks and factors that would otherwise open up the ability for us to perform performance audits on state dollars. So it's a management of resources, you know, working and having good relationships with all 500 school districts and our collaborative process with the Department of Education.

No, no. Our Bureau of Audits is not anywhere near the size and scope of what the Auditor General would have had in that. But again, we are building up our audit capacity as a result of conversations with the General Assembly and increased appropriations to the Office of the Budget. Obviously, we take all complaints of potential fraud, waste, and abuse very seriously. and our Bureau of Audits is committed to working with audited entities through the processes.

I wouldn't say it was a direct transfer, but again, we have worked with the General Assembly on providing some additional resources to the Office of the Budget to help staff up for audits Not to the extent of million though I don want to misquote a number I can get back to you on what we dedicated to increased money for that But you certainly don have the 46 auditors in place that they want to have Not specifically for school districts.

Thank you, gentlelady. Representative Krupa.

So there have been several examples in which the administration had to provide assistance to Pennsylvanians as a result of action or inaction. I think the most glaring case was when there was a lapse in SNAP funding at the federal level, and Pennsylvanians were facing a hunger crisis. So the administration utilized dollars that would have otherwise been utilized by agencies for other purposes in what they were planned for to be able to react. So I think that is a prime example of what we would anticipate. As was mentioned, there were at least 20 instances where we've had to, you know, provide action against the federal government to ensure that the dollars that we were committed would actually have been received here. the federal response one I will say is also not meant to be a complete coverage of any federal change we recognize that any long standing effects or impacts on the Commonwealth or its residents would need to be a collaborative conversation with the General Assembly on whether or not we continue those but I think just an abrupt end to services that the Commonwealth residents have come to rely on is not helpful and we need to the proposal is there so that we can help lessen the burden

Yeah, so there's a couple points in there. What we have seen is that we need to react faster than what the appropriations process could potentially take I understand given the severity of an emergency there would be ongoing conversations of the reaction needed and the time that it would take to respond to that. As it relates to the Rainy Day Fund, we are proposing $100 million transfer out of that. I will say that the interest alone generated on the Rainy Day Fund in fiscal year 24 was three times that, and it's eight times that over the three-year period under this administration. So I think the investments that have been made on that could potentially go to help mitigate any impacts from the federal government.

The creation of the fund would be subject to legislation, and I think that would all be part of an ongoing conversation with the General Assembly if there is an appetite to create the fund that we proposed. I will also say that, as you likely heard from the Pennsylvania State Police and Department of Corrections, We work closely with our federal partners and abide by all state and federal laws.

Thank you so much. Thank you, gentlelady. Representative Friel.

Yeah, if we would have enacted it as we had proposed at the time of proposed, based on our assumptions at those times, it would be about $3 billion. So about $3 billion that we've left on the table.

Yes, Pennsylvania has been, I think, a leader when it comes to regulation of gaming, a national leader among other states, and there have been models that have been modeled after the Commonwealth. the Gaming Control Board has the regulatory authority and the requirement, essentially, to make sure that all gaming is fair and equal. And also when it comes to unregulated gaming versus regulated gaming, The regulated gaming industry allows for certain consumer protection qualities, and with the increase in gaming opportunities, there's always an increase in potential addiction or other concerns. So I think being able to ensure that everything is under the auspice of the Gaming Control Board is important in that aspect.

Yes, I would agree with that.

That is correct. We provide a budget proposal that provides for investments that we believe would continue to push our progress forward, and then that is the base that is used for future negotiations. And I think it's been acknowledged on both sides.

That is correct. There are a number of changes that were enacted in H.R. 1 that will have an impact on access to Medicaid program as well as other benefits that our population utilize. And, you know, as I had said in a previous comment, there is also still time for Congress to make any kind of changes to that. while it is set to go into effect in 2028, there are a whole bunch of things in there that will ultimately have an impact to the access and the number of individuals that access health care in Pennsylvania.

Yeah, so the over the $1 billion that we certified last year for the first time has put us at roughly $13 billion of property tax relief that we have provided since the inception of that program. Historically, the amount of money that was certified was around $595 million. That was for nearly a decade. And then 2022, we started increasing that just based on the available funds in the property tax relief fund to $750 million and another $750 million the year after, $900 in 2024, and then $25 was $1.025 billion. So we are, again, proposing to certify at least that amount, $1.025, and we'll continue to look at the funds to determine if the fund can sustain an increase. But overall, that is general property tax relief through Homestead Farmstead. and that goes directly to mitigate potential increases in property taxes for individuals.

Yeah, again, we recognize that AI has future benefits to a variety of areas. And, you know, we have worked with potential growth of data centers and building of new data centers in the past under this administration. What we are proposing is to ensure that the future development of that, if they're going to benefit from a hands-on approach and ability of the administration to generate that growth, as well as future tax incentives that could otherwise be available to those developments. We want to make sure that we are hitting a list of a group of standards to ensure that the people in those local areas are protected. We want to make sure that the environmental resources that are available to people in those areas are not impacted. We want to make sure that the local workers are utilized to develop that as well as operate those facilities. We want to make sure that people, the developers who are making those developments on those large centers, which utilize a lot of energy, are utilizing their specific, are bringing their own energy. And the reason for that is to make sure that both costs to local businesses and residents don't increase just as a result of that. And then also just want to make sure that the locals in the area are at least aware of the planned development

Yeah, absolutely. So, again, you touched on it and you heard the governor say in his proposal that affordability is important and one way to tackle affordability is to ensure supply. So the intent of the critical infrastructure program would be to create the program, solicit applications for projects, whether that be in development of new housing. It also depends on how it's structured, on what the uses could be. Since we're talking about bonds, if we're going to do non-taxable bonds, we have to make sure that it's in line with eligible uses for non-taxable. If we go with a taxable direction, that opens up for other potential uses. But I think just in general in the housing space, creation of new housing, rehabilitation of existing housing are all important in the energy space. touched on a little bit too, just making sure that we have resources available to pair with our changes that we've made in the permitting process and making Pennsylvania just a more attractive place to do business and need for energy as a part of that process. In the school facilities side, we've made great strides in working with the General Assembly and investing around $400 million in the last few years in infrastructure updates to our school facilities, but we've also heard that the need for those school facility improvements are in the billions. So we are proposing this fund really as a holistic approach to make sure that Pennsylvania remains competitive and so that we can have safe places for our schools and our children who are the future of our workforce, safe housing and affordable housing who are the existing workforce and the ability to attract new workers here, and energy to heat the homes and the businesses, which is all in concert with working towards our goals in the economic development strategy that we outlined.

Yeah, so we – I will say some of the existing investments that we have made, You know, there are some dollars which would never make up the amount of money potentially lost through the NIST funding at the federal level. But we've made some investments in biotech, specifically in the Department of Health. We've made some investments in neurodegenerative research, which certainly would never fill the gap, but critically important. and we've, as part of our overall economic development strategy, have really been trying to focus on innovation in the life sciences and other industries in that area. We certainly have good working relationships with our universities throughout the Commonwealth, and I think the Commonwealth as a whole would benefit from the level of innovation investments that we've called for through the Innovate in PA 2.0 program that we had proposed in our budget.

Chairman Struzan. Thank you, Chairman Harris. So the proposal will be for us that the governor put forth in February as a spend of just above $53 billion. dollars. Revenues, based on current estimates, are expected to be around 47 billion dollars, give or take. The governor is proposing to balance this budget, drawing down the rainy day fund by about four and a half billion dollars, draining our surplus, and then proposing these new revenue sources that we've heard discussed today, regulating and taxing skill games, legalizing and taxing recreational marijuana and increasing the minimum wage, which have been around, as was noted, for several years now. Those are not currently in place, so they are speculative revenues at best. But we do know that the governor, with the rainy day fund and draining the surplus, will essentially put us in a more difficult fiscal position in the outlying years. Now, as you had stated, currently, as you have met with the bond rating specialist, we are okay because we are able to pass a balanced budget, which we have done the past three years since the Shapiro administration took office by utilizing other funds, by draining our surplus. But if we continue down this path, we won't be able to do that. Correct?

I think that's a little bit of a stretch we know the revenue sources that we have right now in front of us and to deal in hypotheticals I think isn't being responsible with the taxpayers of this commonwealth so I think you understand our concern though because we do have a good credit rating now because we have that money in the bank if you will and then projecting just a point 8% growth in expenditures over the outlying years really, I think, is misleading to the taxpayers of this Commonwealth because once the rainy day fund is gone, once the surplus is gone, where do those funds come from if we don't have the revenues to meet the required spend? The Constitution says that we have to propose a balanced budget with expenditures and revenues in line, and if the expenditures outgrow the available revenues, then we have to propose new revenues, which is what we've done for the last four years. So I think we will continue to seek common-sense policy changes that would generate revenues and allow us to continue to make investments in the people of Pennsylvania. And if those revenues aren't there, where does the funding come from?

Again, where do the revenues for this Commonwealth come from?

But essentially if those speculative revenues aren't in place, ultimately it's going to fall on taxpayers to make up that gap.

Okay. You're very good at walking around the answers. That is the answer. Just out of curiosity, how do you determine what amounts you put in the line items? Because throughout these three weeks of hearings, You know, we've had various agencies before us who have requested certain amounts but not received those amounts, or conversely, they've been given more than they asked for. How are those determined?

And just one last question to kind of sum it up. Do you start with a number or do you just build to that number? And do you look at current revenues, or is that just, you know, again, hypothetical, we're just going to put the number out there and then figure out how to get there?

All right. All right. Thank you. Thank you, gentlemen. Mr. Secretary, thank you again for being here. Just a few questions before we wrap up. A lot of comments have been made about the speculative nature of the budget. Would you say that budgets in government, to a sense, are speculative or an educated guess in many ways?

I agree and understand that, but even on our documents when we're looking at it, it says estimated typically with revenue, correct? And so would you agree that it is an educated guess on what we believe those revenues would be?

So it's an estimate?

Okay. So when we do our estimates, would you say our estimates are conservative, moderate, or more aggressive in our estimation?

Right now, year to date, how are we on our revenue estimates? Are we ahead? Are we behind? Where are we?

dollars and cents for all of us who don't do this every year. I think it's about 200 million, 244. So we are 200 and something million ahead of what we were estimated to be at this point That is correct We increasing our estimate 244 million but we are about 300 million ahead

So if I'm looking at the numbers that you all provide, you know, my staff gives me an update every month on where we are. It looks like year to date, we are about $381 million ahead of what we estimated. Does that seem like a right range of numbers?

So to the person sitting at home, that means that when we did our budget estimates and when we talked about what we thought we would get in as a Commonwealth, because these are estimates, the actual realization is that we underestimated what we thought we would bring in and that we've brought in almost $400 million more year-to-date than we have, than we thought we were going to have. Is that a fair assessment?

What are some of our big collection months in our yearly cycle? What are those months?

Wait, so let me get this again. So we're already almost $400 million ahead of what we estimated, and we've yet to get to the larger months in our fiscal cycle where we typically collect more revenue. Is that fair to say?

Okay. So I want folks to understand at home. One, this administration has a conservative view of how we estimate what our revenue is going to be. That means if you're sitting at home and you're thinking about how much money you're going to bring in in the month of January, February, to your own personal income, that means that the Commonwealth does the same thing. And what we've done over the last few months is that we have thought that we would bring in less money and we're actually bringing in more. So much so that it's almost $400 million more than we thought we'd bring in. And for the folks sitting at home, we've yet to hit, I think what folks in track and field will say, we've yet to hit our stride with regards to the months that we actually collect a significant amount of our money in our fiscal year. Would that be an accurate summation? That's correct. Okay. So we're $400 million over where we thought we'd be. March is, we're in March now, so that's when the businesses pay their taxes. And then April is when everyone else typically pays. So those are our two big months where we'll probably, because we're conservative in our estimation, we'll probably get even more ahead on how much money we're bringing in based off of what we thought we would bring in. And so I think it's interesting. I mean we sat here for weeks and we heard people say all these different things going back and forth But it comes down to the numbers You the budget secretary It about the numbers to you right Correct Okay And so we're ahead of the game with our revenue. And we still haven't hit the months where the revenue comes in. We're ahead of the game with regards to our credit rating, our bond rating, which is, you know, for the people sitting at home, it's basically the state's credit score. And just like you at home, if you have a decent credit score, when you go out and try to borrow money or buy a car or buy a house, you get a better interest rate. Well, for the state, when we have a better bond rating, that means that when we go out to the market to bond, we get a cheaper interest rate. A cheaper interest rate on our bonds means that the debt service, which is the money that we have to pay back, which is your taxpayer dollars, That means we're paying back less in interest because we're good fiscal stewards. Correct? So when we have a budget impasse, right, could that possibly hurt our bond rating?

And so when there are folks in this building who are okay with us holding up the budget, they are possibly holding our um bond rating in limbo correct essentially yes so a drop in our bond rating would also mean that we would be paying more interest when we go out and we bond and and when we the state borrow money correct correct who pays the difference in that interest

Taxpayer dollars, correct? Okay. Now, my last point. Now, in the budget, there are revenue generators, skill gains, legalization of adult use cannabis, raising the minimum wage. If those things don't happen and we don't generate that revenue, what do we have to do with this budget proposal?

You know, difficult decisions, that sounds like a good political term. What does that actually mean?

Reductions, does that mean cut?

Okay. So let me give this in layman's terms. For the people sitting at home, I want them to understand what we're doing here. So if these revenue generators don't happen, right, we'll either have to take more money out of the rainy day fund, which some of my colleagues seem to don't want to do. Fine. Or we'd have to cut services. So that means stuff like cutting money to our schools, correct?

Cutting money to the Department of Human Services, correct?

So that means cutting more money from,

Correct. Cutting money to intellectual disabilities. That's a part of DHS, right?

Okay. So we would have to go through the budget and see all of these things that we're willing to cut. Last question. Have you received another or counter budget proposal than to what the governor has proposed?

So no one who has criticized the budget has authored their own budget proposal to the governor or to the budget secretary.

Okay. Listen, over the last three weeks, we've been critical. Many folks in this chamber have been critical, but this is now the time to help. You know, we have a gap to fill. And if you don't like taking money from the rainy day fund, that's fine. But you have to show us how you balance this budget without cutting services and programs to our constituents. If you don't like the governor's budget proposed revenues, show us how you'd like to generate more revenue. If you don't like what we're doing to generate funds, you have to show us what you would like to cut We been critical But as these hearings begin to come to an end it's now time to put up. It's easy to be critical without giving a solution. Heard a lot of complaints about our five-year projections, but I don't think I've seen even a one-year budget proposal from anyone else who has criticized this budget. So if you're going to complain, that's fine, but complain with a purpose. And complain with a proposal. Because the truth of the matter is that we have a budget proposal in front of us. It is balanced. It calls on us to raise the minimum wage, to regulate skilled gains, which are already happening here, and to legalize adult use cannabis. That's fine. If you don't support adult use cannabis, fine. Where are we going to find the money that is necessary to fill the gap in our budget? And if you don't think we should fill the gap, that's fine too. Give me your list of things to cut. Because that is the reality. There is no way around it. There no you know nice bow to put on it Either we fund the things in the budget proposal or we start talking about where we cutting And so I submit to you as we begin we got one more hearing this afternoon but as we begin to leave this building, if you don't agree with this, fine. Start to have the community meetings in your district and start to prepare your constituents for the lack of money coming for rural hospitals or the lack of money coming for their school districts or the lack of money coming for those nursing homes or the lack of money that's coming for those roads and bridges or the lack of money that's coming to make sure you have clean water or the lack of money that's coming to make sure that you have clean air or the lack of money that's coming for our adult programs or the lack of money that's coming for our folks who are struggling with addiction. Set up the community meetings and the town halls and begin to prepare your constituents for the lack of resources that are coming. And then I want you to tell them to couple that with what the federal government is already doing. So not only will the federal government not be there for them, but the state government won't be there for them either. This is not a game. We can give cute sound bites all we want but now the real work begins you don want to fund it what you to cut It really that simple You feel like we can afford it Fine Give me your list of cuts. You know where my office is. You know my staff. We'll be happy to take your list of cuts. But don't do it quietly. The same way you proclaim in the rotunda is the same way I want you to proclaim those cuts. in the rotunda because the people of the commonwealth deserve to know if we don't think we can do this they deserve to know what we're willing to cut and with that i will conclude this budget hearing and thank the secretary for being here with us we will be back this afternoon at 1 15 with the department of health and ddap until then this budget hearing is adjourned Thank you.