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Taxing skill games could help fund SEPTA. Here''s what to know.

Pennsylvania Budget Deal Leaves Skill Games Unregulated, Boosts SEPTA Funding Amid Tax Debates

In a significant development for Pennsylvania's fiscal landscape, the recently passed state budget has opted to maintain the status quo on the contentious issue of skill games, those electronic gambling machines commonly found in bars, convenience stores, and truck stops across the commonwealth. Despite months of heated negotiations and lobbying from various stakeholders, lawmakers and Governor Josh Shapiro have chosen not to impose new regulations or taxes on these devices, which generate billions in revenue but operate in a legal gray area. This decision comes as part of a broader $47.6 billion spending plan that prioritizes education, public transit, and economic development, while sidestepping what many see as a potential goldmine for state coffers. The budget, signed into law earlier this month, reflects a delicate balance of priorities but has drawn criticism from those who argue that failing to address skill games represents a missed opportunity to fund critical services without raising broad-based taxes.

Skill games, often resembling slot machines but purportedly requiring an element of skill to win, have proliferated in Pennsylvania over the past decade. Unlike traditional casino slots, which are heavily regulated and taxed by the state, these machines are not subject to oversight from the Pennsylvania Gaming Control Board. Proponents, including small business owners and the machines' manufacturers, argue that they provide a vital revenue stream for local establishments, especially in rural areas where economic options are limited. They claim the games are not gambling but games of skill, thus exempt from casino-style regulations. Opponents, including casino operators and some lawmakers, contend that the unregulated nature of skill games creates an unfair playing field, siphoning revenue from licensed casinos that contribute significantly to state taxes. Estimates suggest there are over 60,000 such machines statewide, generating upwards of $1 billion annually in untaxed revenue.

The budget negotiations highlighted deep divisions on this issue. Governor Shapiro, a Democrat, had initially proposed taxing skill games at a rate of 42%, similar to video gaming terminals (VGTs) in truck stops, which could have brought in an estimated $250 million per year. This revenue was eyed as a way to offset increased spending without hiking income or sales taxes, which Shapiro has pledged to avoid. However, Republican leaders in the state Senate, influenced by lobbying from the skill games industry, resisted these measures. Senate Majority Leader Joe Pittman (R-Indiana) emphasized the need for a comprehensive approach, warning that hasty regulation could harm small businesses. "We're not going to rush into something that could devastate local economies," Pittman said during budget talks. Meanwhile, House Democrats pushed for stricter oversight, viewing skill games as a form of unregulated gambling that preys on vulnerable populations.

The compromise—or lack thereof—means skill games remain in limbo. A court case pending before the Pennsylvania Supreme Court could ultimately decide their legality, as lower courts have issued conflicting rulings. In 2021, a Commonwealth Court ruled that the games are not illegal gambling devices because they involve skill, but appeals have kept the matter unresolved. Lawmakers from both parties acknowledge that without legislative action, the courts may force their hand. State Rep. Danilo Burgos (D-Philadelphia), a proponent of regulation, expressed frustration: "We're leaving money on the table while our schools and transit systems beg for funding. This is shortsighted." On the other side, industry representatives like those from Pace-O-Matic, a major skill games provider, hailed the budget as a victory for free enterprise, arguing that taxation would stifle innovation and job creation.

Shifting focus to public transit, the budget provides a much-needed lifeline to the Southeastern Pennsylvania Transportation Authority (SEPTA), the region's beleaguered public transit system. Facing a $240 million annual deficit exacerbated by declining ridership post-pandemic and rising operational costs, SEPTA has been on the brink of service cuts and fare hikes. The new budget allocates an additional $153 million in state funding for public transit statewide, with a significant portion directed toward SEPTA. This infusion is part of a larger $2.6 billion commitment over five years to transit agencies, funded through a combination of sales tax transfers and other revenue streams. Governor Shapiro touted this as a win for working families, stating, "Reliable public transportation is essential for economic mobility, and this budget ensures SEPTA can continue serving millions of Pennsylvanians without drastic disruptions."

However, the SEPTA funding boost is not without controversy. Critics argue it's a temporary fix that doesn't address underlying structural issues, such as the need for dedicated funding sources. SEPTA CEO Leslie Richards has called for a more sustainable model, potentially including regional taxes or fees. "This helps us in the short term, but we need long-term solutions to avoid a fiscal cliff," Richards noted in a recent statement. The budget's transit allocations also extend to other systems like Pittsburgh's Port Authority, but SEPTA, serving the state's largest metropolitan area, receives the lion's share. This comes amid broader debates on infrastructure, with Pennsylvania's aging roads and bridges also vying for funds.

The overall budget framework reveals a state government navigating fiscal conservatism amid progressive demands. Total spending increases by about 6% from the previous year, with major investments in K-12 education ($1.1 billion more), higher education, and human services. To balance this without new broad taxes, lawmakers relied on existing revenue growth, including from corporate taxes and gaming. Yet, the omission of skill games taxation has sparked accusations of favoritism. Advocacy groups like the Pennsylvania Budget and Policy Center point out that taxing skill games could generate revenue equivalent to funding for thousands of new teachers or mental health programs. "It's baffling that we're ignoring this low-hanging fruit," said Marc Stier, the center's executive director.

Looking ahead, the skill games debate is far from over. With the Supreme Court decision looming, legislators may revisit the issue in the fall session. Some propose a hybrid model: regulating skill games under the gaming board, imposing a lower tax rate (perhaps 16-20%), and allowing them in licensed venues only. This could appease casinos, which fear competition, while providing revenue for priorities like property tax relief. Casino interests, represented by groups like the Pennsylvania Gaming Association, have ramped up lobbying, arguing that unregulated games undermine the integrity of the state's gambling industry, which contributes over $1.8 billion in taxes annually.

The budget also touches on other taxing matters, including a proposed increase in the tax on electric vehicles to offset lost gas tax revenue, though this was scaled back. Shapiro's administration continues to push for economic incentives, such as tax credits for businesses, to spur job growth in key sectors like manufacturing and clean energy. In Philadelphia, where SEPTA is a lifeline for commuters, local officials like Mayor Cherelle Parker have praised the transit funding but urged more action on skill games to bolster city revenues indirectly.

Public opinion on these issues is mixed. A recent poll by Franklin & Marshall College showed that 55% of Pennsylvanians support regulating and taxing skill games, viewing them as a fair way to fund government without burdening average taxpayers. Rural voters, however, are more skeptical, seeing the machines as economic boosters. Urban residents prioritize transit funding, with SEPTA riders expressing relief over avoided cuts but concern about future stability.

As Pennsylvania moves forward, the interplay between unregulated gaming revenue and public service funding will remain a flashpoint. The budget's passage averts a government shutdown but leaves unresolved tensions that could resurface in election-year politics. With midterms approaching, both parties may use these issues to rally their bases—Democrats decrying missed revenue opportunities, Republicans defending small businesses. Ultimately, the decision to punt on skill games underscores the challenges of governing a diverse state, where economic interests clash with fiscal necessities. Whether through court rulings or legislative compromise, Pennsylvania's approach to skill games and transit will shape its financial future for years to come.

This budget cycle also highlights broader national trends, as states grapple with post-pandemic recovery, inflation, and infrastructure needs. Pennsylvania's model—boosting spending without major tax hikes—could serve as a blueprint or a cautionary tale, depending on economic outcomes. For now, SEPTA riders can breathe easier, but the unregulated hum of skill games in corner stores serves as a reminder of untapped potential and ongoing debates. (Word count: 1,248)

Read the Full Philadelphia Inquirer Article at:
[ https://www.inquirer.com/politics/pennsylvania/skill-games-regulation-taxing-pennsylvania-state-budget-septa-20250725.html ]