Pennsylvania is spending money faster than it’s taking it in, and onlookers across the political spectrum have acknowledged that funding education to satisfy the court ruling will quickly deplete the budget surplus.

Shapiro isn’t calling for broad sales or income tax hikes in this budget. Instead, he’s turning to what are commonly known as “sin taxes” - in this case, on a new sector of gaming and recreational marijuana.

The legalization of marijuana is a long-held priority for many lawmakers. While there are both Democratic and Republican supporters, the issue has repeatedly stalled out in the legislature.

Meredith Buettner, executive director of the Pennsylvania Cannabis Coalition, an industry group, said Shapiro’s call for action signals that he views legalization as a priority.

Shapiro’s budget does not endorse a specific legalization plan, but it does call for a 20% tax on recreational marijuana sales. In their written explanation of the budget, administration officials called for revenue from the program to go toward “restorative justice initiatives” as well as the Department of Agriculture and State Police, with the rest heading to the state’s General Fund.

The plan assumes legal sales would start in January 2025 and yield about $14.8 million in the industry’s first year of operation. Revenue would likely increase after that - Shapiro put the price tag at more than $250 million in annual tax revenue once the industry is off the ground.

Despite a growing embrace of marijuana legalization in the legislature, the effort faces tough odds, particularly in the GOP-controlled state Senate. Ward, the chamber’s top leader, has said that she will not support legalization until the federal government ends cannabis prohibition.

Still, Buettner said there are GOP allies in both chambers, adding that a “real policy conversation will hopefully reveal even more supporters from the right side of the aisle.”

Such a complicated issue will require thorough work, Buettner said, particularly on an issue that cleaves party lines. Such details will require careful examination, and not just a last-minute rush as is typical of Harrisburg lawmaking.

“I’m not sure we can wait until May or June and deliver by July 1,” Buettner said.

Games

Shapiro’s proposal also wades into a complicated battle between competing factions of Pennsylvania’s gaming industry.

The governor wants to regulate and tax skill games, which resemble slot machines and can be found in bars, restaurants, and convenience stores across the commonwealth.

These terminals exist in a regulatory vacuum. Commonwealth Court ruled last year that skill games are not currently subject to regulation or taxation under Pennsylvania’s Gaming Act, as gameplay involves some level of skill, rather than pure chance.

Shapiro is proposing a 42% tax on daily gross revenue from these skill games, which he estimates would yield about $150.4 million for the state in the next fiscal year. As with cannabis, this number would likely grow over time.

The third significant source of new revenue in the budget is a perennial Democratic priority: increasing Pennsylvania’s minimum wage from the federal floor of $7.25 an hour to $15 an hour.

Shapiro estimates that this increase would result in more than $56 million in new tax revenue from the higher wage in the next fiscal year. That estimate assumes the $15 minimum wage is implemented in January 2025, so projected revenue would be higher in subsequent years.

But this proposal also faces political headwinds.

State Senate Majority Leader Joe Pittman (R., Indiana) said this summer he is open to raising the minimum wage, but that $15 an hour is “not a practical number.”

Altogether, the administration predicts that a new skill games tax, a tax on recreational marijuana, and additional sales and income tax dollars from an increased minimum wage would bring in about $222 million in the upcoming fiscal year.

Within about five years, the administration expects the total for those three proposed revenue sources to grow as salaries increase, the marijuana industry expands, and regulation of skill games solidifies. However, Shapiro administration officials acknowledged at a briefing with reporters before the address that current spending outstrips even those mature projected revenues.

During a news conference following the address, Pittman said members of his caucus are interested in regulating skill games and that “it’s probably time that we bring that issue to the table.”

He said support for legalizing marijuana would be dependent on how the legislature enacted the change.

He went on to call the overall budget plan “absolutely fiscally irresponsible and unsustainable.”

Rainy day fund

“If (the governor) wants to get rid of our surplus and rainy day fund, we should then return it to the people who gave it to us in the first place,” Pittman said.

In his address, Shapiro argued that it would do a disservice to Pennsylvania if he didn’t spend some of that money.

“Look, it is not a badge of honor, nor is it something to be politically proud of for some lawmakers out there to say: I took more money from the good people of Pennsylvania than I needed and then bragged about how I just kept it in some bank account here in the Capitol,” Shapiro said.

Legislative Democrats also backed Shapiro’s proposals, from free period products for students to a minimum wage hike, calling them a bold attempt to invest in the commonwealth.

Looking at the Republican-controlled upper chamber, state House Majority Leader Matt Bradford (D., Montgomery) said that “doing nothing and obstructing is not a response to what the governor has laid out today.”

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