DV Journal

Officials at the Commonwealth Foundation, Pennsylvania’s free-market think tank, aren’t fans of Gov. Josh Shapiro’s $51.5 billion 2025 budget.

During a recent press call, they lambasted the governor for proposing a spending hike of  $3.5 billion — 8 percent more than last year — for the general fund, while raiding the state’s Rainy Day Fund and savings fund to plug a $5 billion budget deficit.

Not that Shapiro’s plan would leave taxpayers untouched.

He proposed new taxes on skill games — the approximately 70,000 slot-machine-style gambling machines in bars and clubs across the state. And in what many political observers believe is a longshot at best, Shapiro’s plan to pay for his spending includes both legalizing and taxing recreational marijuana.

Shapiro also wants to change how corporate taxes are calculated, lowering the rate of the state’s corporate net income tax rate, but requiring Pennsylvania businesses to combine their profits from all of their subsidiaries, including ones that operate outside of the state, to determine taxable income. Republicans have long objected to that approach, which would be a net tax increase for many employers.

Commonwealth Chief Policy Officer Nathan Benefield said Shapiro’s proposals are just “showmanship.”

According to Benefield, the outcome of Shapiro’s approach would require a $1,900 tax increase for a family of four “in the near future.” Also, with its savings depleted, Pennsylvania would see its credit rating drop, increasing its cost of borrowing.

State Sen. Doug Mastriano (R-Adams) introduced a bill for a state Department of Government Efficiency (DOGE), similar to the federal DOGE ushered in by President Trump. The Pennsylvania DOGE would be able to audit every agency.

DVJournal asked Benefield whether a DOGE for Pennsylvania’s state government is a good idea.

“Yes. That is absolutely something that would benefit the state and get a better handle on where the money is going,” he said.

Benefield noted Shapiro wants to spend nearly $4.8 billion more while revenue growth is less than $1 billion. The biggest increase—almost $2 billion—is in human services, including Medicaid, said Benefield.

There’s another $800 million in state support for public schools.

Shapiro also proposed a nearly $300 million bailout for SEPTA. Benefield said that takes money from poorer, rural residents who drive to benefit wealthier suburban residents.

Shapiro’s budget includes $1.6 billion from the Rainy-Day Fund, which is by law supposed to be used only for emergencies or during recessions.

Shapiro also calls for a slight reduction in the corporate tax rate but includes a new “combined reporting” requirement of all revenue wherever those companies operate, which Benefield said would increase their regulatory burden.

When Shapiro ran for governor, he campaigned on a 4 percent tax on corporate income by 2025, which stands at 8 percent. He wants to reduce it to 7.24 in 2026 with this budget, said Benefield.

Shapiro has also proposed an energy tax, PACER, similar to the Regional Greenhouse Gas Initiative (RGGI), “which he is still pursuing.”  PACER would be a $500 million tax “on the backs of energy,” said Benefield, a cost which utilities would pass on to residents and businesses. Indeed, electricity rates are already rising in anticipation, he said.

Benefield said Shapiro’s budget estimates more revenue than is likely.  While there is a significant increase in education and human services spending this year, there is almost no increase for those areas in the governor’s charts for the next five years, “which is a pretty ridiculous assumption,” said Benefield.

Shapiro’s budget would “create a $27 billion hole over the next five years,” Benefield said.

Benefield said Shapiro does not include educational funding that “follows kids” or addresses the unaffordable Medicaid costs.

He increased support by $824 million in new spending for public schools, bringing the total to $18 billion. That has increased by more than $4 billion in the last four years. However, students’ performance has declined, Benefield said.  While the state is spending more on public schools, there’s been a 4 percent decline in student enrollment in the last decade and a 3 percent decline in test scores, he noted.

“We have more teachers and fewer students,” said Benefield. “There’s a student shortage in public schools.” School districts “have grown their reserves by almost 70 percent in the last decade,” while school boards continue to increase real estate taxes.

“The biggest challenge for lawmakers is how to make Pennsylvania more competitive as a state,” he said.

Pennsylvania lost 11,500 people in 2024, 34,823 in 2023, and 39,957 in 2022. “We’ve been losing population to other states. Residents are migrating from states with high taxes [and] high regulatory burdens to states with lower taxes and lower regulatory burdens.”

The Montgomery County commissioners are poised to hike taxes by nine percent when they adopt the $610.9 million 2025 budget on Dec. 19. At least one local Republican isn’t happy about it.

Montco Commissioner Tom DiBello, the only GOP member of the three-person board, noted, “We’ve seen a cumulative 31 percent tax increase over the last four years.” The nine percent hike would take the total to more than 40 percent in just five years.

“We have to be cognizant our taxpayers are being stretched to the limit with inflation and all the rising costs throughout the county, throughout the state, and country. We see those rising costs today in the county. That’s why some of our expenses are rising faster than we would like,” DiBello said.

“We also see school districts across Montgomery County that are raising taxes on average four to five percent a year. So our county residents are being hit from every angle. We have to look at every opportunity to figure out how we could minimize the tax impacts on our communities.”

According to the website smartasset.com, the property tax rate in Montgomery County is 1.62 percent, which puts it near the state average. A homeowner with a home assessed at $326,200 pays an average of $5,273 annually.

For Bucks County, the owner of a house valued at the median of $340,500 pays $5,282 in property taxes at a rate of 1.55. In Chester County, a homeowner with a home valued at the median of $369,500 pays $5,735 at a rate of 1.55 percent. In Delaware County, with a median home value of $247,900, taxes would be $5,690, and the tax rate is 1.62 percent.

Philadelphia is the least pricy, with a median home at $171,600, taxes at $1,808 and the tax rate at 1.05 percent.

Commissioner Neil Makhija (D) said the budget includes the board’s priorities, including investing in hydroelectric power through the Norristown dam and installing electric vehicle charging stations at county facilities, “which are going to be essential for us to transition to those.”

“We’re also making a film on the success of the whole home repairs program that we launched earlier this year, which gives eligible homeowners grants to address safety concerns, efficiency, and make their units more affordable. We also included an increase in our funding for SEPTA.”

The budget includes $42.3 million to fix the roads and bridges and $7 million for county trails. There is also $3.5 million for open space.

“While all this seems like a lot of money, what we’re doing is in a fiscally responsible way. We’re able to achieve our objectives by leveraging local funds to obtain state and federal money, as well. We’re also simply being smarter in the way we spend and finance money as well,” said Makhija.

He said the county refinanced bonds to save about $1 million in debt service in 2024 and 2025. But debt service is up $3.9 million for 2025.

“We also identified about $3 million in savings in this budget as a result of operational reductions, services and supplies, equipment and training and travel expenses,” said Makhija.

He said poor residents or those on fixed incomes may be able to enroll in a tax abatement program. The county is also giving tax rebates to volunteer EMS and firefighters.

“We will continue to find ways to help those who need it in terms of tax deferral and rebates,” he said.

Chair Jamila Winder (D) said it is “gratifying to me that so many people care for our homeless friends and neighbors.” While they are “always cognizant of the taxpayers, this budget and the seeds that we planted will help some of these issues make a dent. If only there were more people who would care about our homeless residents.”

David Morgan, a resident who attended the meeting, wondered whether the county could find ways to economize.

“I find it concerning that debt service is a paramount reason for the increase,” said Morgan. “That is really concerning. It’s harder to rent or buy in our county. I was disappointed to see a nine percent increase in our taxes. We have people who can barely make ends meet.”

With construction ongoing at the new $415 million Justice Center, “there’s concern about debt obligations and these big projects.”

Rick Buckman, a former Republican commissioner, was surprised to hear about the planned tax increase.

“When Republicans were in charge, we liked less government and less taxes,” said Buckman. “Right now, we have a lot more government and a lot more programs, and it’s not free. It’s nice to hand things out, but you have to pay for these programs. It falls on the rest of us to pay for it.”

Another former Republican county commissioner, Bruce L. Castor Jr., said when Democrats gained the majority they “spent down our surplus and drove up our debt when anyone could see the economic crash of 2008 was upon us.”

But Castor, and his Democratic “governing partners,” Josh Shapiro [now governor] and Leslie Richards restored fiscal soundness and that helped “propel their political careers.”

“Leslie, Josh, and I were heralded as heroes for a while, reining in government excess and taking a practical approach to governing. But once we left, people forgot why we had been heroes. The Democrat machine shifted into gear, Philly came to Norristown and, from there, out to our 62 municipalities. The Philly philosophy, the big-city America philosophy of tax and spend became the default. Raise taxes? No problem when Democrats run this show in Norristown. Like, Philly, NYC, Chicago, LA, etc.”