The Highs and Lows of the New Pennsylvania Budget
After a four-month impasse, Pennsylvania lawmakers finally delivered the 2025–26 state budget.
The newly minted spending plan offers some meaningful policy victories, such as affordable energy, regulatory reform, and educational choice.
This monthslong debacle all started with Gov. Josh Shapiro. The governor launched the commonwealth into a 135-day-long impasse when he proposed a budget with almost $7 billion in deficit spending. His proposal vastly expanded the size and scope of the state government, unlawfully dipped into state reserves, and threatened Pennsylvanians with a statewide tax hike.
Thankfully, Pennsylvania’s legislative Republicans curtailed the governor’s excesses.
The biggest boon to Pennsylvanians is the commonwealth’s withdrawal from the Regional Greenhouse Gas Initiative (RGGI). RGGI, a multistate cap-and-trade program, would have potentially spiked Pennsylvanians’ electricity bills by 30 percent. Exiting RGGI averts economic disaster and signals to electricity generators and energy producers that the time to unleash Pennsylvanian energy is now.
And this invitation to economic competition extends beyond the energy sector. The budget also expedites permitting for business development, cuts corporate taxes, and expands transparency in state government.
Pennsylvania’s permitting process has been notoriously cumbersome, driving businesses away to neighboring states. Governor Shapiro half-heartedly attempted to reform the process during last year’s budget with programs like the Streamlining Permits for Economic Expansion and Development (SPEED). But SPEED, which only applied to 6% of businesses, has been slow on the uptake, with the administration only starting to accept applications almost a year after its creation.
The new budget expands the scope of SPEED. Also, businesses will be able to track their permits through a transparent online system. Finally, SPEED will automatically approve any permit not processed by the state, enabling businesses to begin development without further delays or red tape.
Pennsylvania’s corporate net income tax (CNIT), one of the highest in the nation, has also been an economic albatross, scaring away investors and slowing job growth. In 2022, lawmakers approved a gradual 10-year reduction of the CNIT. The new budget drops the CNIT from the 2nd highest in the nation to the 13th, setting the stage for increased investment and opportunities in the Keystone State.
Educational choice was a top priority for legislative Republicans. Despite fierce opposition from House Democrats and an absentee governor, the new budget nearly doubles the Economically Disadvantaged Schools (EDS) program. EDS provides scholarships to more than 33,000 K–12 students, mostly from low-income households, seeking educational alternatives to their neighborhood district schools. This $50 million increase will help provide scholarships to an additional 10,000 students statewide.
All perks aside, this budget still spends an alarming amount of taxpayers’ money. The total spend number — $50.1 billion — represents a 5% increase from last year. However, the Independent Fiscal Office projects only 1 percent revenue growth for the upcoming fiscal year.
Put simply, Pennsylvania has less money coming in and more coming out, meaning the commonwealth is on a collision course with a $5.1 billion structural deficit.
To make up the difference, lawmakers must draw down the commonwealth’s general fund balance by $3.9 billion, deploy $1.5 billion in “lapsed” appropriations (allocated funds not spent), and shift $670 million from the “shadow budget” (hundreds of special funds with surpluses). Assuredly, using these funds is a win for taxpayers, but they are one-time stopgap measures at best.
Pennsylvania taxpayers cannot rely on short-sighted thinking. Based on current projections, the commonwealth’s deficit, if left unabated, will likely result in a statewide tax hike of about $1,500 annually for a family of four.
The bottom line? Pennsylvania got a better deal than what was originally on the table, no thanks to Gov. Shapiro.
Promising reforms notwithstanding, this new budget still leaves taxpayers on the hook. The path ahead is narrow and perilous. The structural deficit is real, spending growth is unsustainable, and hard-working families will pay dearly for this fiscal recklessness.
And because of the delayed budget, we are only months away from having to start this messy process all over again. Shapiro will have to deliver his 2026–27 proposal in about two months, and the pressure is on him to deliver a sustainable plan — one that protects taxpayers, students, and businesses.
Moreover, the impetus to deliver a sensible proposal — one that doesn’t send Harrisburg into a monthslong tizzy—falls entirely on the governor. Gov. Shapiro must soon adopt some semblance of fiscal responsibility in the following months, reining in spending, protecting reserves, and avoiding tax hikes.
Pennsylvania’s future prosperity depends on it.
