Understanding the Governor's Budget Proposal: Impacts on Transportation Funding

In this latest episode of Constructing Connections, host Rich Barcaskey chats with Rob Vescio, CAWP’s lobbyist from C&G Strategies, about Pennsylvania’s budget negotiations and what they mean for the highway construction industry.  

Some key takeaways from the conversation include: 

• Budget Negotiations and Revenue Gaps 
• Transportation Funding Battle Lines 
• The Urgency of the Motor License Fund Phase-Out

Join us as we dive deep into the current state of Pennsylvania's budget negotiations and their implications for the highway construction industry.  

Transcript

Rich Barcaskey: [00:12 – 00:43] Hello everyone and welcome to Constructing Connections. My name is Rich Barcaskey and with me today is Rob Vescio of C&G Strategies. Rob is CAWP's lobbyist and is here to provide an update and breakdown on the Governor's budget negotiations and how it particularly affects the highway construction industry. Welcome, Rob.  

Rob Vescio: [00:33 – 00:36] Thanks, Rich. Thanks for having me.  

Rich Barcaskey: [00:36 – 00:44] So, as budget negotiations heat up in Harrisburg right now, what is the overall status and timeline for the current budget? 

Rob Vescio: [00:45 – 04:06] Yeah, Rich, it's going to be a pretty interesting next few weeks. To recap, the governor's initial budget proposal back in February was a $51.5 billion budget proposal, which is a 7% increase over this current fiscal year. It's 40, which is 48.3 billion dollars. And so what he has proposed is to use. Well, let me and let me talk about revenue collections as well, because we currently are collecting about 46 billion dollars in revenue for the Commonwealth. So, as you can see, we have a gap. Based on what the spending plan is versus what the revenues are being collected. The reason why this is important, this kind of maps out what the budget negotiations are coming into June. He uses. One-timers, like we have one point, I think it's close to $3 billion still in COVID relief money that they're trying to, that they have to use this year. And there's another $7 billion in our rainy day fund. That again is something that they don't want to touch because that helps the bond rating, the Commonwealth keeps it, you know, fiscal intact at that point. So what we're looking at as a Commonwealth is the shortfall and how do you make up for it? The governor has also proposed new things like taxing and regulating what are called skill games. Gaming in Pennsylvania is one of those major items that is happening. There are these skill machines all over the commonwealth you may see in your convenience stores, bars and taverns, social clubs. These are untaxed, unregulated at this point. The goal is to tax and regulate those to generate about a half a million, half a billion dollars in revenue to help with the governor's spending plan. And the secondary component he has is legalization of adult use cannabis, which is also another half billion dollars in its first year. So that's where he's going to make up the billion plus the one point, at least one point seven, the rainy day fund, I think is what he's looking at. That's how he balances his budget. So let's talk about June and where it is and what all this means. What this means is this is the difference between the purple state that we always are in Pennsylvania, which is a Democrat governor and state house, and you have a Republican majority in the state Senate. They're trying to negotiate something that they all agree to, right? So do they agree to a 51.5 billion dollar spending plan? The Republicans at this point do not. They don't want to go north of $50 billion. They want to live within their means. So they're pushing back on the spending plan as a whole, not necessarily individual programs. The revenue generated that the governor proposed between cannabis and gaming is something that is an issue as well, because we haven't legalized skill games yet. We haven't legalized adult use cannabis. So the legislature saying you can't count on revenues that we haven't even legalized those programs at this point. So this is what's shaping up and where we are to date at this point. And so that's why here we are, end of May, going into June, and there's a lot of uncertainties as to what's going to happen in this budget. Will it be on time? Will they be able to come to an agreement in the next 30 days? Or is this something that's going to drag out over the summer? 

Rich Barcaskey: [04:06 – 04:31] So there's a lot of uncertainty. As you talked about, the budget needs to be in place by the end of June. There's been times where it has been done prior to, but other times where it has not. And you discussed a lot of the different issues that are impacting the budget negotiations, but what issues are revolving around transportation funding? 

Rob Vescio: [04:32 – 07:57] Right, and that's one of the central asks for the governor is mass transit. The governor did put some things in there for heavy highway, which I'll get into, but the mass transit component for SEPTA and the PRT in the western part of the state. are critical to the centerpiece of the governor's budget. He wants to invest anywhere from $300 to $600 billion. We've heard different numbers. His proposal was, I believe, $300 million in new spending for mass transit. That would have been paid by what he wanted to do with sales tax revenues for it and try to dedicate some of that money towards mass transit. But from what we're hearing on the Hill, that mass transit advocates are asking for more. Now, $300 million was more the floor. They were asking for as much as $600 million to avoid any service cuts in the Philadelphia or Pittsburgh area. So what does that have to do with us and the highway community? Well, a lot of times in the past when mass transit receives money, the highway as well would also receive money. This is part of the transportation infrastructure as a whole industry. What the governor did do is there is the Motor License Fund. The Motor License Fund is a fund that we use for highway construction. $125 million of that is still being dedicated on an annual basis towards the, it's $250 million total I believe, I want to make sure I get my numbers right, that is being used for operations with the state police. Currently, under current law, we have the phase-out of the state police at $125 million for the next two years. That will allow more money to go back into highway construction. At this point, the governor, in his budget proposal, actually slowed down that phase-out. Instead of doing $125 million, he was stretching it out another two years so additional two years so he's cutting 50 million dollars a year out of that so it would stretch to four years this is one of the things as an industry that we are pushing back on to make sure that that motor license fund is completely down to zero sooner rather than later we'd like to get it all this year it would be about 250 to 300 million dollars um left that we're trying to get as part of a deal maybe with mass transit that if they're going to support mass transit that we would we would get this phased out now, because as we know about government, if it's still there, the harder it is to get later down the road. So we're trying to push that number right now. This is to get it down to zero now, so we can have a couple hundred million dollars into the road construction versus mass transit. So that's current fight right now, and what we're working towards. Other things that we're looking at, there's a proposal on the table for bonding for bridges that is being floated around Harrisburg. That's something the legislators have brought. They're looking and they're considering that. I think, what was it, $80 million, I think, a year annually. So I don't know what that does in terms of projects, but that's another component that's been floated with the mass transit discussion.  

Rich Barcaskey: [07:59 – 08:39] Okay, and so just to give you a kind of the lay of the land, you have the governor and the House controlled by Democrats, the State Senate controlled by Republicans. You talked about, you know, I think it's safe to say that the governor's priority right now is the funding for mass transit. Where do you see sort of the battle lines on transportation, the transit versus highway construction? Where are those battle lines as it pertains to, you know, a mixed government where you have leadership, one branch controlled by the Democrats, the other branch controlled by the Republicans? 

Rob Vescio: [08:40 – 10:58] Yeah, it's a good question, because what we have is the governor is pushing for everything. You have the House Democrats. Yes, they are for highway funding, but a lot of them are from the Philadelphia area in terms of the leadership. And they do have a priority to take care of SEPTA. And SEPTA is a big is a big political driver in this budget. And so as they're going through this process, the House Democrats are insisting on money for mass transit. And same thing out here in Western Pennsylvania. I mean, Senator Jay Costa from Western Pennsylvania, he's definitely pushing to help PRT and making sure that they get what they need so there aren't service cuts. And there's house democrats out here same thing like they're making sure that the service cuts are do not come to reality that they're talking about and they said thirty routes potentially for the PRT was the latest that they were talking about cutting if money isn't coming to them. So the Senate Republicans are the ones, and again, they don't represent areas like PRT and SEPTA. They're more in the T areas of the state. Highway construction is their priority. They want to make sure that roads and bridges are being taken care of. And the other thing is they also want to make, there's an east-west component. Like they want to make sure that western Pennsylvania is receiving its fair share of highway funding. And so you have the Senate Republicans led by Kim Ward, Senator Kim Ward from Westmoreland County and Senator Joe Pittman from Indiana, who are insisting on if mass transit funding happens, that we need to make sure that heavy highway construction and bridge road construction is also part of the mix. Now, here's the challenge, though. The challenge is they're pushing, but they have to watch because if you're talking about both entities, you could talk about almost $600 million to $700 million in new spending that they have to find. And so that is the challenge for the leadership of the Senate because they want to make sure that highway construction and bridge construction is part of the mix. But how do you do that without blowing the budget past what is acceptable and affordable? So that's this is this is June this is what June's all about is how do you make those priorities and so this is as we're going on these weeks they may have to cut back on other priorities in the state. 

Rich Barcaskey: So obviously for our members who are out there maintaining and and building highways and bridges throughout the Commonwealth of Pennsylvania transportation funding is a critical issue in budget negotiations, whether on the state or the federal level. But obviously, that's not the only issue being discussed. So what other issues are out there that are impacting the state budget negotiations? 

Rob Vescio: [28:45 – 12:42] I read you, you hit it right on the head, and one of the issues is federal government. The federal budget and the negotiations on the big, beautiful bill is something that we have to pay very close attention to. Before that bill started moving, we were looking at a $2 billion deficit just on Medicaid and PA, and that's something that they would have to make up somewhere in the budget. As the big beautiful bill is moving forward now and passing the House and moving to the Senate and going through these negotiations, what we're hearing now is some of that was clawed back and some of that wasn't coming to fruition, but there is still a billion dollar hit to the SNAP benefit program that Pennsylvania receives from the federal government. Again, are they going to make up that whole billion dollars? I don't know where or how they do it, but they're probably going to have to do some combination of the state helping some of that program and probably rolling back some of the benefits of that program. This is important because the federal government and the money that flows from the feds to the state of Pennsylvania will impact this budget. Whether or not it does it in June, but or not, is the question. And again, as appropriators, and they go through the month of June, they have to keep a mindset on that. 

Rich Barcaskey: [12:43 – 13:56] So just to summarize some things, and you know I'm a history buff, so I like to talk about historical things. I like to look at, you know, negotiations as kind of like the battle lines and where are the battle lines drawn. But you definitely have an issue of Democrats versus Republicans, transit versus roads and bridges. And like you discussed, but I just want to highlight that, you know, the transit issue is very much an urban versus rural issue. transit systems. The big transit systems are located in the urban areas, so it's very difficult to get rural legislators to talk about funding transit without talking about funding roads and bridges. You have other issues like skill games and legalized marijuana. And then, of course, The big elephant in the room being the uncertainty coming from the federal government. So, with that all kind of laid out, we'll ask you to get out your crystal ball and say, what do you see coming? When do you see a budget coming to fruition? Is it going to be on time? Is it going to be late? Is it going to be Very, very late. Where do you see it coming? 

Rob Vescio: [13:57 – 15:33] I want to be optimistic because, one, I want to have a summer myself. So I'm going to say it's going to be past June 30th, but not too late past maybe July 5th or 6th or maybe a week or two past the June 30th deadline. And that's happened before, where they've done, you know, maybe a week or two past, and it hasn't impacted anything in the Commonwealth. Parks were still open, you know, state stores, anything that's a state-controlled, you know, still was open during that time frame. I think what will happen is I think a gaming bill will get done at some level. I think, again, cannabis will get done, not this year. I don't think now. I think it's going to be more either fall or into next year, maybe next year. But I think adult use cannabis will be over the next 18 months. I could see that. But the gaming one's going to be very interesting. I think they'll come together. I think it'll be less than a $50 billion budget. Again, the governor was asking for 51.5. I don't believe the Republicans will go. They will allow it to get beyond $50 billion. So they're going to use some of the rainy day fund at some level. But I think we can get it done. I think our license fund phase out will continue. Again, we're trying to get a step further and get completely out this year, though. I mean, that's so we're kind of going more on offense than just instead of just playing defense. But as the transit negotiations ramp up, I think they're going to get something. I don't think they're going to get anywhere near where they want to be. And I think we're going to be back here in two years talking about mass transit again. 

Rich Barcaskey: [15:33 – 16:19] So we talked about the phase out of the state police from the motor license fund. We talk about that a lot in this industry. I think it does get somewhat complicated. So people know that there's funding of the state police that comes from the Motor License Fund. The Motor License Fund is obviously the fund where revenue that goes to building roads and bridges, which is what our members do, comes from. So phasing out of funding that goes somewhere else, like the state police, is critical But talk about just why that is so important to get done now, as opposed to waiting another budget, you know, for another budget or another year to go by. 

Rob Vescio: [16:19 – 17:41] Yeah, and it's a great question, Rich, because one of the things that I didn't touch upon yet is the future of the Pennsylvania state budget, which is bleak, like the structural deficit will be real after next year. This year, we're good. Again, we have $7 billion in a rainy day fund. We have another $3 billion in COVID money. But when that COVID money is gone this year, and next year, we're back here in June, they have enough revenues to get through that budget at this time. Now, again, we don't know what the world economy is going to look like in the next six months to a year. But at this point, they feel comfortable they can get through this budget and that budget. That next year is also election year. You know, the governor's up for reelection. You have half the Senate and all the House members are up next year. They're going to get through next year, even whether they want to or not, because they're not going to see revenue enhancements next year during their reelects. Right. And so you're going to get through that year. But I'm going to tell you that year that after is going to be a crushing year. I mean, they they're projecting that could be a five to six billion dollar deficit in the Commonwealth of Pennsylvania. Getting back to your question, the reason why it's important to get out now, if it's still around and we're part of the Motor License Fund at that point, you can expect that one of the proposals will be to slow down that phase out. And so we need to make sure now that everybody who's listening, Motor License Fund, we need to get out now. 

Rich Barcaskey: [17:42 – 18:03] I think that's important to hit on is that the phase out is a fiscal code thing, and that can always change at the whim of the legislators. And if there's other issues that are impacting that, then maybe you start to tweak that and the time frame of getting out. extends, so that's why it's important to get out now. 

Rob Vescio: 18:03 – 18:12] Incredibly, and so what's nice is we do have leaders in support of that and getting us out. I mean, again, whether they can do it this year, they fully expect to be out next year.  

Rich Barcaskey: [18:12 – 18: 41] Okay, so Rob, we really appreciate you sitting down with us talking about the Pennsylvania budget and its impact. Obviously, you're very passionate about what you do for a living. We'd like to thank you for working on behalf of our industry And thank you for joining us today for Constructing Connections.  

Rob Vescio: [18:41 – 18: 42] Great. Thanks, Rich.  

Rich Barcaskey: [18:42 – 19:00] My name is Rich Barcaskey, Executive Director of Constructors Association of Western Pennsylvania. Thank you for joining us for our Constructing Connections.