Representing the interests of more than 3,000 members across Pennsylvania, the Manufacturer & Business Association's Government Affairs is your voice on local, state and federal issues.

• ISSUES SHARED - Business Transition Advisors (BTA), Daniel M. Zugell
• STATE - Understanding Pennsylvania’s Energy Issues 
• STATE - PA State Budget Sticking Points
• FEDERAL - The U.S. Senate’s Big Beautiful Bill (BBB)
• FEDERAL - BBB Background & Deficits, Debt, and Interest
• NATIONAL DEBT - Moody’s Downgrade of U.S. government debt - Gus Faucher

Understanding Pennsylvania’s Energy Issues

The PJM Interconnection Electricity Grid ----Needs Increased Power Generation

PJM is a regional transmission organization that runs the electricity grid and coordinates the wholesale electricity market for 13 states. The primary challenge is the need for increased power generation which is driven by the increased electrification of everything: homes, buildings, and vehicles. That is coupled with the new growth of energy-intensive industries like data centers, cryptocurrency mining, and the reshoring of key manufacturing. Our electricity supply is not keeping pace with this rising demand. In fact, it is decreasing, potentially leading to future shortfalls in the PJM Interconnection region in the next few years. Building a power plant is a large, timely endeavor.

The Regional Greenhouse Gas Initiative (RGGI)----The Roadblock

The PJM grid issue could be solved if the Regional Greenhouse Gas Initiative (RGGI) was repealed and Pennsylvania avoided future cap-and-trade program that pushes investment to neighboring states. * Developers of natural gas-fired power plants will not build in Pennsylvania as long as RGGI (or anything similar) is a possibility. It imposes a fee on CO2 emissions.

RGGI, which the earlier Democratic administration joined via executive order in 2019 in an effort to combat climate change. It has been mired in litigation since. States that joined did so via the legislative process, except for PA. In 2023, the Commonwealth Court affirmed RGGI as a tax that has been imposed in violation of the Constitution and said participation in RGGI may only be achieved through legislation enacted by the General Assembly. Governor Shapiro appealed, even though he campaigned on pulling PA out of RGGI.

* MBA is part of the Power PA Jobs Alliance which opposes RGGI.

MBA Supports the following Energy Bills

• Energy Choice - This will. prevent municipalities from banning specific fuel sources, like natural gas.
• Energy Grid Stabilization and Security - The Departments of Community and Economic Development and Environmental Protection would find suitable sites for natural gas electric generation projects. This program will help play a role in speeding up that process to get sites ready to attract investment. This will help aid in the shortfall of electric generation faced by the PJM Interconnection transmission system.
• RGGI Abrogation - Would pull the state out of RGGI the Regional Greenhouse Gas Initiative

BUT Energy Bills are on Hold!

As much as the Commonwealth would benefit from several of the energy bills. State Senate Majority Leader Joe Pittman, said that until a final decision by the Supreme Court is made regarding the Regional Greenhouse Gas Initiative, the Senate is unlikely to act on energy bills.

…adapted Key Pa. senator says bipartisan energy bills on hold until contested climate program settled, by Kate Huangpu, Spotlight PA, 6/9/25.

PA State Budget Update – The Sticking Points

Governor Shapiro’s 2025-26 Budget by the Numbers

Governor Josh Shapiro’s 2025-26 State Budget proposal calls for $51.474 billion in public expenditures and sizable increases in Education, Human Services to name a few. His proposal would increase state spending by $3.6 billion, an increase of 7.5% compared to the current year’s budget. To balance the budget the Governor seeks $1.6 Billion in new revenue and $2.8 Billion from the state surplus.

Transit funding – This is one of the biggest friction points. Shapiro’s budget would provide funding by increasing the amount of sales tax revenue directed to mass transit to 6.15% from 4.4%. Greater than 50 per cent of the funding will go to the Southeastern Pennsylvania Transportation Authority (SEPTA). Senate Republicans have balked saying SEPTA hasn’t done enough to control costs or increase local revenue.

Education funding – The Governor is focused on directing new spending toward closing the gap in per-pupil spending among school districts. His plan would provide $494 million in new funding for those 348 districts that spend less per pupil than state officials have estimated is necessary to provide an adequate education.

Medicaid costs – Shapiro’s budget proposes a $2.5 billion increase for Medicaid, mostly due to remaining costs tied to pandemic patient care. The governor’s office said weight-loss drugs for Medicaid patients cost the state $1 billion. Senate Republicans said absorbing more than $2 billion in added Medicaid costs would be unsustainable and crowd out any increased spending on other programs.

A big problem is federal funding uncertainty. Pennsylvania relies on tens of billions in federal funding a year, mostly to cover Medicaid costs. With the amount of federal funding in question, state lawmakers have struggled to come up with a spending plan.  

Legalization of skill games – Gov. Shapiro counts as a revenue source in his budget. Senate Republicans are pushing to legalize skill games, but there has been no consensus on whether to legalize them or how to tax the revenue.

Legalization of recreational marijuana – Gov. Shapiro counts this as a revenue source, yet  Senate Republican leaders don’t think legalizing marijuana will be part of this year’s budget deal.

U.S. Senate’s Big Beautiful Bill (BBB) Tax & Spending Package

The Republicans control the Senate 53 – 47. The budget reconciliation process in the Senate requires only 50 votes to pass, allowing only 3 “NO” votes. The House passed their version by 1 vote- 215-214.

The Senate’s wants to pass the BBB and send it back to the U.S. House for agreement to their modifications. The bill – in the ideal scenario- would then be sent to President Trump’s desk by July 4.

Passage of the BBB prevents a tax hike of over $4 trillion by extending the 2017 tax provisions scheduled to end 12/31/25.

The House version of the BBB reduces spending by roughly $1.3 trillion over the next decade but it adds to the deficit because it reduces revenue by $3.7 trillion to cover the cost of by extending the t2017 tax cuts.

The Congressional Budget Office estimates the bill will increase the deficit by $2.4 trillion over 10 years. This estimate doesn't include the cost of interest on the debt. Some provisions in the House BBB are temporary - if made permanent, the deficit increase could reach $3.0 trillion.

The U.S. federal budget deficit for fiscal year 2025 is projected to be $1.9 trillion.

Deficits, Debt, and Interest – The three central budget concepts.  

• The federal budget deficit is the amount of money the federal government spends minus the amount of revenue it takes in. The deficit drives the amount of money the government must borrow in any single year. We borrow the money by selling Treasury securities like bills, notes.

• The debt is the cumulative amount of money the government has borrowed throughout our nation’s history.

• The interest paid on the debt is the cost of government borrowing.

• The debt ceiling is the legal limit on how much the U.S. government can borrow to fund its operations.

The U.S. House’s Big Beautiful Bill is now in the Senate where it is being modified.

 Senate Republicans made some major revisions: 

• more permanent business tax breaks,
• deeper cuts to Medicaid
• slower phaseouts of clean-energy tax credits
• a substantially lower cap on the State and Local Tax Deduction. (SALT)

SALT

The House’s $40,000 cap on SALT was critical element for reeling in getting several Republicans. The Senate for now sticks with the $10,000 cap. This is a major friction sticking point. The test will be what the House is willing to accept.

Clean-energy tax credits

The Senate creates a longer runway for the end of clean-energy tax credits, created in the 2022 Inflation Reduction Act.

Medicaid

The Senate BBB takes aim at Medicaid taxes that states impose on hospitals and other providers. It is a back-door way for states to pump up federal matching contributions. The Senate would cap provider taxes at 3.5% for states that expanded Medicaid down from the current 6%. The House BBB froze all provider taxes at 6%.

The Senate bill reduces some state supplemental payments to hospitals now. The provider taxes and the state directed payments have become an important lifeline for hospitals. This is a major sticking point because many fear it will force the closing of rural hospitals.

Medicaid eligibility requirements have been tightened. The Senate bill imposes work requirements on able-bodied Medicaid recipients like the House version, but the requirements are different.

Business tax breaks

The Senate BBB makes several permanent business tax provisions permanent that the House bill extends only temporarily. That includes “bonus depreciation” - full expense deduction for equipment and immediate deductions for domestic research expenses. A new twist is expanded bonus depreciation for factories.

Corporate tax rate

The 21% rate remains the same.

Pass-throughs

The Senate preserves the deduction for pass-through businesses at 20%.

Seniors, tips, OT,

The Senate bill would increase a proposed $4,000 per person deduction for senior citizens to $6,000. The “no tax on tips” deduction would be limited to $25,000 per person, and the “no tax on overtime” provision would be limited to $12,500 per person. House BBB does not have caps on either provision.

Child tax credit

The Senate BBB will increase the child tax credit from $2,000 to $2,200 and make it permanent. The House bill has a $2,500 maximum credit, but only for four years.

The Senate keeps the House’s eligibility changes, which would deny the credit to some households where children are U.S. citizens, but parents don’t have Social Security numbers making them eligible to work.

Debt ceiling – (Federal Borrowing Authority)

The Senate’s BBB would raise the debt ceiling by $5 trillion vs. the $4 trillion increase adopted by House Republicans.

SNAP (formerly food stamps)

There is a projected $267 billion in spending cuts to SNAP. The states were expected to pick up some of the SNAP tab, but this has changed. 

“BTA assists owners of closely held businesses in… succession planning… Our collective business experience provides a unique perspective to address personal liquidity opportunities focusing primarily on Employee Stock Ownership Plans (ESOP) as a tax-advantaged method to take some or all chips off the table.”

How many times have you heard the word ESOP? Probably many times like me, but until today, I couldn’t give you a clear definition. That, in a nutshell, is the issue for BTA that cries for a solution and the answer is education. An ESOP is like a hidden gem and business owners need to know and understand the benefits.

“An ESOP is a retirement plan where employees gain ownership of the company. Generally, the ESOP borrows money and buys the company from the owner. Over time, shares are allocated to individual employee accounts. When an employee leaves, the company buys back the shares back from exiting participant.”

Education is critical because the ESOP tax benefits are amazing. The business must be either a C or S Corporation. An S Corp that is 100% ESOP owned, pays no federal or state income tax on profits which makes it easier to pay back debt. The C Corp tax advantage allows the seller to potentially defer and eliminate the capital gains tax that is normally due on a sale of a business.

Dan shared that U.S. Congressman Mike Kelly recently introduced a bi-partisan bill that will help S Corps even more. While C Corps can defer and eliminate capital gains tax, S Corps are not currently afforded this benefit. Congressman Kelly’s bill will extend the capital gains tax deferral/elimination benefit to S Corps. That helps the trust pay down debt incurred to buy the seller’s stock. The TAX SAVINGS PAYS the DEBT!

Dan noted Kelly’s D.C. Legislative Director said the bill will be considered when retirement and social security issues are addressed in one to two years.

There are several key benefits for employees of an ESOP. They receive added retirement savings, the potential for increased wealth, a sense of job security, and increased company engagement.

An ESOP is the most tax effective way to sell a business because the business and wealth stay in the community. Dan gave an example of a sizable company without an ESOP that was sold to a Canadian private equity firm. In that instance, the wealth that used to reside in Butler County, now resides in Canada and many local employees lost their jobs.

Dan eats and breathes ESOPS. He’s been at it for 25 years. He speaks all over the Commonwealth. He is a founding member of the PA Center for Employee Ownership https://ownershippennsylvania.org/ the state chapter of the non-profit national organization https://www.nceo.org/. He also speaks with lawmakers.

I asked Dan how the process starts for a company who is considering an ESOP. The first step is education followed by a feasibility study. He mentioned several MBA members who are now ESOPs, Onex, Inc. in Erie and Acutec Precision Aerospace, Inc. in Meadville. Another note of interest, in 2022 Pennsylvania was the second leading state for ESOP formation, topped only by California.

Talking with Dan about ESOPS was like drinking from a firehose. He is the only full-time ESOP-only professional in Western PA and after seeing and hearing his enthusiasm, it is no surprise.

Keep on spreading the word about ESOPs Dan. There are many companies who will benefit from your education!

Moody’s downgrade doesn’t tell us anything new about U.S. fiscal outlook but is still a bad sign.

BY GUS FAUCHER

Last week, Moody’s Investor Service downgraded U.S. government debt from its highest level, joining the other two big credit rating agencies, which had already made this move. The downgrade itself didn’t convey much new information: investors already know the ins and outs of the nation’s long-term fiscal outlook.

But the Moody’s announcement is one more sign that the U.S. needs to make some tough choices in the years ahead about taxes and spending. And at this point, there seems to be little appetite in Washington to make those tough choices…

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Gus Faucher is senior vice president and chief economist of The PNC Financial