Gov. Josh Shapiro’s 2025-26 budget proposal reflects a significant investment in education, economic growth, infrastructure and public services while seeking new revenue sources through marijuana legalization, gaming regulations and corporate tax reforms. The proposed changes aim to strengthen Pennsylvania’s economy, improve education equity and modernize energy and transportation policies.
However, some measures, such as the new emissions program, cyber school tuition cap and tax policy changes, may face opposition from lawmakers and industry leaders. As the budget debate unfolds, key stakeholders will weigh in on how these policies impact Pennsylvania’s businesses, schools and communities.
GRCA will be closely following this process, analyzing potential impacts, and advocating for funding and policies that support economic growth and business success in Greater Reading. Below is a detailed overview of the key components:
Budget Proposal Overview
- Total Proposed Spending: The budget proposes a total expenditure of $51.5 billion, marking a 7.5% increase ($3.6 billion) over the current fiscal year.
Proposed Revenue & Tax Policy Updates
- Recreational Marijuana Legalization: Gov. Shapiro advocates for the legalization of adult-use cannabis starting Jan. 1, 2026. The proposal includes a 20% wholesale tax, standard retail sales tax and annual licensing fees for dispensaries, processors and growers, with an anticipated revenue of $540 million in the first year.
- Skill Games Regulation: The budget suggests regulating skill games under the Pennsylvania Gaming Control Board’s oversight and imposing a 52% tax on daily gross gaming revenue, expected to generate $360 million.
- Corporate Net Income Tax (CNIT) Reduction: An accelerated reduction of the CNIT rate is proposed, decreasing by 0.75% annually to reach 4.99% by 2029, two years ahead of the previous schedule, to encourage business investment and economic growth.
- Financial Institution Tax Reform: The proposal aims to eliminate the Bank Shares Tax, Mutual Thrift Institution Tax and Private Bank Tax, transitioning financial institutions to the CNIT framework.
- Mandatory Unitary Combined Reporting: To close corporate tax loopholes and ensure equitable taxation, the budget introduces mandatory unitary combined reporting.
- Delaware Tax Loophole Closure: The governor proposes eliminating the Delaware tax loophole, with projected first-year revenue of $335 million, increasing to $1.5 billion annually.
- Revenue Impact: Collectively, these measures are expected to generate an additional $3.7 billion over the next five years, bolstering Pennsylvania’s fiscal health and funding essential public services, education and infrastructure projects.
Proposed Transportation Funding Updates
- Overall Transportation Investment: The budget allocates $2.9 billion from the Motor License Fund for transportation, reflecting an $80.7 million (2.9%) increase from the previous year.
- State Police Funding Phase-Out: The phase-out of State Police funding from the Motor License Fund is extended by four years, now set for completion by FY 2029-30. The reduction for FY 2025-26 is $50 million, down from the previously planned $125 million, resulting in a cumulative $275 million reduction in available funding for roads and bridges through FY 2028-29.
- PennDOT Budget Increase: Funding for the Pennsylvania Department of Transportation (PennDOT) will increase by 1.3% ($145.7 million), totaling $11.58 billion. This includes $6.77 billion for state highways and bridges (up 1.9%), with $1.6 billion dedicated to highway maintenance (up 1.2%). However, Liquid Fuel Allocations will decrease by $9.7 million (2%) in March 2026.
- Public Transit Funding Growth: The budget dedicates $2.9 billion to mass transit, including $1.5 billion from the Public Transportation Trust Fund, representing a $340 million increase.
- Sales Tax Contribution to Transit: The plan increases sales tax revenue allocated to public transit by 1.75% ($292.5 million), raising the total Sales & Use Tax contribution to $1.74 billion (10.38% of total collections), a 24.95% increase.
“Lightning Plan” Energy Strategy
- Energy Investment & Permitting Reforms: Gov. Shapiro’s “Lightning Plan” seeks to attract energy investments through new tax incentives and streamlined permitting processes. However, business leaders have expressed concerns that the plan’s emissions program could lead to increased costs.
- Key Incentives & Funding:
- Up to $100 million in tax incentives per facility for baseload energy projects
- $49 million to support hydrogen hub development
- $15 million for sustainable aviation fuel innovation
- Regulatory & Emissions Policies:
- RESET Board: A newly proposed board to fast-track approvals and cut bureaucratic delays for energy projects.
- Pennsylvania Climate Emissions Reduction (PACER) Program: A cap-and-trade system requiring companies to purchase emissions allowances.
- Withdrawal from RGGI: Shapiro pledged to exit the Regional Greenhouse Gas Initiative (RGGI) if PACER is passed as an alternative by the legislature.
Proposed Education Funding Updates
K-12 Education
- Overall Funding Increase: The governor proposes an $800 million increase in K-12 education funding, with over $600 million allocated for basic education. This includes $526 million through the new adequacy formula and $75 million through the existing Basic Education formula.
- Special Education & Early Learning: The plan includes a $50 million increase for special education, $13 million for pre-K programs, and additional funding for adult literacy and the Facility Improvement Grant Program.
Cyber School Reform
- The budget proposes a tuition cap for cyber charter schools at $8,000 per student, which is expected to save school districts over $262 million annually. The plan aims to standardize costs and prevent overpayment by taxpayers while ensuring accountability in cyber education.
Higher Education Investments
- State Higher Education Funding: The proposal includes a $975 million investment in higher education, a 15% increase over the previous year. This funding is aimed at supporting public colleges and universities, helping reduce tuition burdens for students.
- New Higher Education Funding Formula: Gov. Shapiro has proposed a new model for distributing funds to higher education institutions to align with workforce needs and student success outcomes.
- PA Promise Program: The budget also expands scholarship opportunities for students pursuing in-demand careers, particularly in healthcare, education and technology.
Proposed Workforce Development & Wage Policies
- Career & Technical Education: A $5.4 million increase to support career and technical training programs.
- Internship & Workforce Training Initiatives:
- $2 million for internship promotion programs to connect students with Pennsylvania employers
- $5 million for Industry Partnerships focused on nursing education and training
- Childcare Workforce Support: $55 million to recruit and retain childcare teachers to address workforce shortages.
- Affordable Housing Investment: Increased PHARE funding (Pennsylvania Housing Affordability and Rehabilitation Enhancement Fund) to support affordable housing development.
- Minimum Wage Increase: The budget proposes raising the minimum wage to $15/hour for non-tipped workers and $9/hour for tipped workers, effective Jan. 1, 2026.
Proposed Economic Development Initiatives
Economic & Business Development
- PA Innovation Program:
- $50 million for life sciences and technology innovation
- $30 million in one-time funding to help research universities and businesses commercialize new technology
- $20 million in annual funding to match federal grants and attract private investments
- Regional Growth & Business Attraction:
- $3.5 million for the Regional Economic Competitiveness Challenge to fund local economic planning strategies
- $3 million increase for business marketing to attract investment
- $22.8 million for PA SITES debt service to prepare business-ready locations
- Tax Credit Reform: The budget streamlines business tax credits under “Advance PA” to promote high-paying job creation.
Housing Development
- Affordable Housing & Homeownership Support:
- $50 million for housing repairs and rehabilitation
- $13 million for first-time homebuyer assistance
- $110 million for PHARE funding to expand affordable housing initiatives
- Environmental & Agriculture Support: $650,000 for agricultural runoff management, aimed at reducing pollution and protecting water quality.
Proposed Healthcare & Public Welfare Initiatives
- Medicaid Managed Care: $2.5 billion allocation to sustain Medicaid services for low-income families, children, and seniors.
- Hepatitis Programs: $994,000 for prevention and treatment initiatives.
- Neurodegenerative Disease Research: $5 million investment in research to advance treatments.
- Mental Health Services: $20 million increase for county-based behavioral health programs, supporting mental health crisis services.
- Hospital Support: $50 million for financially struggling hospitals to maintain critical healthcare access.
- Support for Older Pennsylvanians: $3 million increase for Area Agencies on Aging (AAAs) to expand senior services.
- Oversight Initiatives: $2 million for enhanced oversight of healthcare and welfare programs to improve efficiency and reduce fraud.
If you have questions or comments, please reach out to Alex Roché, Director of Advocacy, at aroche@greaterreading.org.