Taxing skill games could generate more than $1 billion a year in tax revenue, according to estimates by the administration of Gov. Josh Shapiro.

And a Supreme Court ruling is forcing lawmakers to decide whether to legalize and tax the machines creates the tantalizing opportunity to use skill games revenue to plug what could otherwise be a daunting funding shortfall.

The state Independent Fiscal Office this week updated its revenue forecast for the 2026-27 fiscal year, now projecting that the state will bring in $49.75 billion — about $3.55 billion less than Shapiro’s proposed budget calls for spending.

The state Supreme Court on June 15 handed down a long-awaited ruling concluding that the games, now found in taverns, gas stations and other retail locations, are illegal slot machines and gave lawmakers four months to update state law before the decision takes effect.

The decision has set off a whirlwind of 11th-hour lobbying by trade groups trying to influence the shape of any skill games deal.

Hundreds of representatives of veterans groups, fire companies and social clubs converged on the state capitol Wednesday at a rally convened by groups allied with companies that manufacture skill games. Representatives of those groups said that revenue from skill games helped their organizations survive during the COVID-19 pandemic and the revenue continues to be a crucial financial crutch.

Jack Paul, assistant fire chief in the Deer Lake Fire Company in Schuylkill County said the revenue from the games relieves some of the fundraising pressure that strains the manpower resources of small organizations.

The help is crucial considering the skyrocketing price tags of fire trucks and other equipment, he said.

“It takes a lot of chicken barbecues to raise $1 million,” he said.

Shapiro’s budget calls for a tax of 52% of gross terminal revenues.

A separate proposal introduced by Rep. Danilo Burgos, D-Philadelphia, calls for a flat $500 fee per machine, capping the number of terminals at 50,000 statewide. If enacted, this approach would generate $300 million in revenue for the state, each year.

Advocates pressing for a lower tax rate argue that the state’s past efforts to expand gaming show that there is a danger.

Act 90 of 2013 allowed tavern owners to offer daily drawing and pull tab games and raffles but called for a 60% tax on game play, as well as expensive up-front application fees.

At the time, state officials estimated that 2,000 taverns would buy licenses and generate more than $90 million a year in state funding.

“How much money is going into the Commonwealth? I don’t know, but I’m sure it’s not anything compared to what it could be,” said Jimmy Delisio, owner of the Racehorse Tavern in York and vice president of the Pennsylvania Licensed Beverage and Tavern Association. “How about if you do 30% or 25% [tax rate] or something like that, and end up with 2,000 [taverns with gaming]?”

Delisio said he wouldn’t be surprised to see lawmakers cobble together a deal to comply with the court deadline only to have to return to the issue later to clean up the legislation.

“I have a funny feeling that they’ll put something together to satisfy that ruling, but then they’ll go back and revamp it,” he said. “I don’t know what damage will be done during that period, but I just think that there’s going to be some issues on both sides of the fence.”

Delisio suggested that one measure lawmakers ought to consider is whether skill games should only be allowed in businesses that bar customers under age 21.

Instead, there are now barely 40 tavern gaming licenses in place and the state has been getting a little more than $1 million in revenue a year, according to the state Independent Fiscal Office.

The taverns group has its own priorities for any deal on skill games to help business owners adjust to the new gaming landscape, said Chuck Moran, executive director of the Pennsylvania Licensed Beverage and Tavern Association.

The tavern owners would like the skill games legislation to void any existing contracts with game dealers so business owners can shop around for the best deal, he said.

“We do not know at this time which skill games manufacturers are likely to be credentialed through the state prior to the 120-day deadline by the Supreme Court,” Moran said in an email. “Without existing contracts being voided by the state, these businesses may face an inability to contract with an approved vendor in a reasonable time.”

Also, the tavern trade says the skill games bill should allow game dealers to offer incentives to bar owners to deal with any safety or security requirements baked into the new law, he said. This assistance would serve to offset some of the financial pain that any increased tax would bring.

Moran added that bar owners should also be given the opportunity to offer video gaming terminals, now available in 75 truck stops around the state, instead of skill games. The video gaming terminal program is run by the state Gaming Control Board and allows each participating truck stop to have up to five machines. The gaming terminals in truck stops generated $41.5 million in revenue for the state, last year.

Finally, any bar owner who has gone through the background checks for the existing tavern games license should be given expedited approval for any new skill games license, he said.

Mike Barley, chief of public affairs for Pace-O-Matic, the main distributor of skill games in Pennsylvania, said Burgos’ legislation would serve as a good starting point to launch legalized skill games.

“That establishes a regulatory framework to allow the games to continue to operate and provide dedicated stable revenue right away,” he said in an interview.

Barley too suggested a skill games compromise might be a heavy lift for lawmakers to manage unless the budget is held up for the issue.

“They’re gonna be ultimate deciders on this, but there’s always a lot that goes into a budget,” he said. “It could hold up the budget if you throw this log on the fire, so to speak … We’ve been sitting with this issue for many years, as you know, trying to figure out a solution. I am not sure it’s going to come together in the next 10 days.”

Other major sticking points

While the pivot point of the budget debate broadly has focused on the gap between Shapiro’s proposed spending and the state’s projected revenue in the coming year, other flashpoints in budget negotiations are emerging.

School choice: Funding for school choice initiatives is one of the most contentious points of conflict between the Republican-controlled Senate and the Democrat-controlled House. House Bill 2632 approved by that chamber on Monday would revamp the state’s Educational Improvement Tax Credit program to target students in low-income areas and underperforming schools. Critics say the proposed changes would yank scholarships from 30,000 students.

Senate Republicans responded Thursday by amending legislation that already passed the state House to add $25 million in funding for the Educational Improvement Tax Credit while also approving a school supply sales tax holiday. The legislation, HB 1667, now returns to the House for a concurrence vote.

Utility tax cut: The state House on Tuesday passed legislation exempting electricity from the state’s 6.5% gross receipts tax, a move that would save the typical residential household $150 a year but cost the state $1.6 billion in lost revenue. The House linked the tax cut to a measure that would set new guidelines for the state Public Utility Commission to rein in utility company profits. The Senate added the electric bill tax cut to HB 1667 without the provisions focusing on utility profits.