By Peter N. Calcara, PICPA Vice President, Government Relations

Each Pennsylvania budget cycle has its own unique challenges, with occasional political obstacles thrown in for entertainment. However, it has become more common than not that the July 1 deadline flies by unheeded, without much attention from the general public who sees this as business as usual in Harrisburg. Only those who closely follow the ins and outs of the state capital are truly aware of the situation. As someone who has experienced 36 budget cycles, I can confidently say that I've seen it all … until the next budget season arrives.

This year was unique for the seeming deep freeze that settled on Harrisburg despite the summer heat. Here is a brief update on where we stand. Both chambers of the Pennsylvania General Assembly did approve a state spending plan amounting to $45.5 billion a few days after the new fiscal year began on July 1. The General Appropriation Act of 2023 was endorsed in the Senate with a vote of 29-21 on June 30, and later in the House on July 5, with a vote of 117-86. Typically, this would mark the beginning of the end of the process. Bill signings would occur a few hours later, followed by the passage of an agreed upon package of trailer and all-important code bills that provide implementation details for state agencies and departments. Then, these bills would go to the governor for signing into law.

Not this year, though. After the June 30 and July 5 approvals in the respective chambers of the General Assembly, everything has come to a standstill. Frozen in place. It seems a budget agreement between the Shapiro administration and the Senate Republican Caucus neglected an important party, the House Democrat caucus. Democrats are the majority party in the House with 102 votes for the first time in over a decade. Although the Senate-approved budget bill was generally satisfactory and included several initiatives supported by House Democrats, one particular provision made it unacceptable to them – and things got chilly real fast.

The contentious provision in question is the Pennsylvania Award for Student Success (PASS) initiative, also known as Lifeline Scholarships. This initiative introduces a voucher-style program that allows students in underperforming public schools to attend private schools. With strong opposition from teachers' unions, school boards, and other stakeholders, House Democrats brought the budget process to a halt. They agreed to pass the General Appropriations bill only after Gov. Josh Shapiro, who is negotiating his first state budget as governor, announced his intention to veto the $100 million line-item related to the PASS initiative.

Senate Republicans accused the governor of breaking their agreement, and in turn gave him the cold shoulder and walked away from the half-finished process. The budget hangs in limbo because of a requirement that every bill passed by the General Assembly must be signed in each chamber before it can be officially transmitted to the governor for approval or veto. Although the General Appropriations bill was signed in the House on July 5, the Senate adjourned until Sept. 18 without providing its signature, leaving the bill in suspended animation.

What happens now? It’s not clear. It’s difficult to speculate at what the Senate might do because Senate Republican leaders have given no indication of a thaw, and the ball is in their court.  

Amidst the standoff, there is one silver lining. The PICPA now has more time this summer to advocate for an important tax fix, and we are urging state lawmakers to pass an optional workaround for the federal cap on state and local tax deductions (SALT cap). Currently, Pennsylvania is one of only five states that lacks a statutory solution to the federal $10,000 deduction limitation, which was enacted as part of the 2017 Tax Cuts and Jobs Act. Although this tax fix may not grab headlines, it is of great importance to PICPA members as well as many small businesses and their owners in Pennsylvania. Out of the 41 states that impose personal income taxes, 36 have already enacted PTE tax legislation to facilitate federal deductions, underscoring the need for Pennsylvania to follow suit.

Senate Bill 659 proposes the implementation of an elective pass-through entity (PTE) tax to enable the federal deductibility of state income taxes, and Senate Bill 660 addresses the potential issue of double taxation for Pennsylvania taxpayers. Both bills, sponsored by Sen. Ryan Aument (R-Lancaster), are pending in the Senate Finance Committee. Similar legislation is being prepared in the state House and will be introduced by Reps. Nick Pisciottano, CPA, and Keith Greiner, CPA.

The PICPA is actively advocating for the General Assembly to take action on legislation that will support small businesses in the state and rectify the unfairness associated with the SALT cap.

If you’re interested in learning how you can help PICPA advance this initiative, please contact me at pcalcara@picpa.org.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.