Gov. Josh Shapiro on Tuesday delivered a $51.5 billion budget proposal for the 2025-2026 fiscal year that he touted as a plan for Pennsylvania “on the rise.” It includes new investments in public education, health care, workforce, economic development and transportation.
Shapiro’s proposed budget would see the state spend roughly $4.5 billion more than his office projects it will take in over the next fiscal year. To offset this, Shapiro is also proposing new revenue streams including legalizing and taxing the recreational use of marijuana and slot machine-like skill games that are already ubiquitous in the commonwealth.
Those and other changes to the state’s taxes would generate an estimated net increase in revenue of nearly $1 billion, according to revenue projections prepared by the Governor’s office.
But the new revenue would not be enough to fill the spending gap. The plan would require the state to spend down its general fund surplus and dip into its rainy day fund to the tune of $1.6 billion. That prompted criticism from GOP lawmakers who warned such deficit spending would leave Pennsylvania unprepared for future emergencies.
In a speech to a joint session of the Pennsylvania General Assembly in the state House chamber, Shapiro called on lawmakers to reflect on their work in the first half of his term and put disagreements aside to solve problems that had languished for decades.
“We focused on common sense – and delivered real results to make a real difference in Pennsylvanians’ lives. I’m proud of that work – and you should be too,” Shapiro said.
He touted gains in employment, enrollment in apprenticeship programs, and $3 billion in private investment leading the region in economic competitiveness. He also called out to a Perry County senior citizen in the gallery, noting that the state has returned hundreds of millions in tax cuts to help older residents remain in their homes and to help families afford child care.
“While there are still many challenges before us and many more problems to solve, we now have a real foundation to build upon. Today, I can report that Pennsylvania is on the rise,” he said.
The budget was met with generally positive responses from advocacy groups, who applauded Shapiro’s wide-ranging policy goals. Education, environmental, health, cannabis and business groups all applauded parts of Shapiro’s budget aimed at their areas of focus.
But state Senate Republicans, who will serve as a check on the House, where Democrats are expected to have a one-seat majority after a special election this spring, questioned whether the budget could support so much increased spending to accommodate the broad swath of constituencies.
“When I listened to a lot of what he was saying, I thought, ‘Boy, yeah, maybe, but how are we going to pay for this stuff, because there was something in that budget for everyone,” said state Senate President Pro Tempore Kim Ward (R-Westmoreland).
“It is great politics to be all things to all people, but it’s not good governance,” Senate Majority Leader Joe Pittman (R-Indiana) said. “You have to make hard decisions.”
The proposed budget was also criticized by numerous advocacy groups, including conservative think tanks, education advocates and a correctional officers union.
Shapiro’s spending plan includes continued increases in funding for basic education, special education and school repairs, and another $526 million installment in adequacy payments to the state’s poorest school districts. It also calls for online charter school reform by setting school districts’ tuition payments at $8,000 per pupil across the state to free up $378 million a year.
The budget would also boost funding for mass transit by $292.5 million with a larger share of state sales tax revenue and free $750 million for highways over the next five years by shifting fuel taxes and license fees away from the state police.
“Whether you’re a mom in Mantua, McKeesport or Manheim, you deserve a transportation network that gets you to work and home again in time for dinner safely,” Shapiro said. “By investing in our roads, bridges and public transit we not only help Pennsylvanians get where they need to go, we’re also attracting business and growing our economy.”
Shapiro also renewed calls to increase Pennsylvania’s minimum wage to $15 an hour, which was met with thunderous applause by fellow Democrats in the chamber.
“Let’s be real, folks. The floor of our wage structure in Pennsylvania is too damn low,” Shapiro said, noting that each of Pennsylvania’s neighbors has raised its minimum wage above $7.25. Last year, the state House passed legislation to increase the minimum wage to $15 over three years, but “the Senate sat on its hands,” Shapiro said.
“That’s hurting workers. We’ve spent so much time passing laws to put more money back in people’s pockets by cutting taxes,” he said. “How about we put more money in people’s pockets by raising their wages?”
Shapiro also said it’s time for Pennsylvania to legalize and tax cannabis for recreational use, and to treat so-called skill games that have proliferated across the state the same as video gambling machines by regulating and taxing them. Cannabis is already legal for medical use by anyone with a prescription.
“District attorneys across the commonwealth are calling on us to regulate these machines and finally provide law enforcement with clear guidance,” Shapiro said. “On top of that, these machines have no quality control for the customers using them … and, they’re punishing our seniors.”
Shapiro noted that every dollar spent in a skill game now competes with the state lottery, which funds services for senior citizens. Regulating and taxing skill games would generate $369 million next fiscal year, according to the governor’s office.
Likewise, Shapiro said continuing to treat marijuana as an illicit drug makes Pennsylvania less competitive with five of its neighbors where adult-use recreational cannabis is legal.
“Letting this business operate in the shadows doesn’t make sense,” Shapiro said, adding that legal marijuana would provide protection for children.
As part of legalization, Shapiro proposed expunging convictions for people charged with non-violent crimes relating to the possession of small amounts of cannabis.
The governor’s office estimates that recreational marijuana licensing and sales would generate $536 million in the next fiscal year.
Pennsylvania’s corporate net income (CNI) tax rate is scheduled to decrease by 0.5 percentage points a year to 5% by 2030. Shapiro’s budget calls to speed the increase to 0.75 percentage points per year to reach the goal two years sooner. It would also eliminate Civil War era bank taxes that financial institutions pay instead of the CNI. Reductions in the tax rate, counterintuitively, would generate an estimated $264 million in additional revenue through economic growth, according to the governor’s office.
And it would close the “Delaware Loophole,” in which corporations avoid state taxes by setting up a subsidiary in Delaware. That, Shapiro said, allows 11% of Pennsylvania businesses – “typically the ones who can afford bigtime accountants and high-priced lawyers” – to avoid paying their fare share.
“So let’s close the loophole, cut taxes more aggressively, move on from Civil War-era fiscal policy,” Shapiro said.
Shapiro said Pennsylvania has the resources to make investments in its future and maintain a responsible budgetary reserve. He said he directed Budget Secretary Uri Monson to embark on a data-driven effort to ensure state resources are being best used to deliver government services.
Shapiro also asked lawmakers to sign off on his “lightning” energy plan. The plan, unveiled last month, involves the creation of a board to help cut red tape, would offer tax credits for companies investing in clean energy, and would allow more autonomy for the state than the Regional Greenhouse Gas Initiative, which includes other Northeastern states.
Governor Josh Shapiro presented his 2025-26 budget proposal to the General Assembly Tuesday. (Commonwealth Media Services)
Unmentioned by Shapiro in his address to the legislature, his budget calls for closing two state prisons and two community correctional facilities. And although the state Corrections Officers Association said it would fight the prison closures, Shapiro said the budget supports corrections officers, noting the state had hired nearly 3,000 in the last two years, cutting the vacancy rate in half.
In closing, Shapiro implored lawmakers in both parties to work with one another. He noted that, while the U.S. elected a Republican president and many other conservatives in statewide offices, Pennsylvania’s local races left control of the state Capitol divided, and the margins in both chambers identical to the previous year.
“The good people of Pennsylvania looked at all we’ve accomplished together and spoke loud and clear through their votes: Go do more of that,” Shapiro said.
A ‘fantasy:’ Republican lawmakers respond
The final budget will be a compromise that must pass through both chambers of the legislature, where Republicans hold strong sway.
The state House has equal numbers of Democrats and Republicans (though a special election is being held in March for the unfilled seat of a Democrat who passed away last month. The district leans Democratic). The state Senate has a Republican majority.
Republicans in both chambers accused Shapiro of irresponsible spending by not balancing the budget.
House Minority Leader Jesse Topper (R-Bradford) told reporters that he broadly agrees with Shapiro that energy and tax reform are among the best opportunities to grow Pennsylvania’s economy.
“These are all opportunities that we have, but it really comes down to the details of the proposal, and I think that’s what we’ll be looking for over the next couple weeks,” Topper said, adding what Republicans want and what Shapiro is offering are “very different,”
“You can stand up front and talk about agriculture or energy production or tax structure, but then when we see proposals that are impediments to growth in those areas, in our opinion, well, then that’s the problem.”
Senate Appropriations Chair Scott Martin (R-Lancaster) greets Gov. Josh Shapiro Tuesday during the governor’s presentation of his proposed budget. (Commonwealth Media Services)
Senate Appropriations Chair Scott Martin (R-Lancaster) accused Shapiro of artificially inflating projected revenues and underreporting the costs of his proposed policies.
“I have never seen in all my years of receiving a budget — or listening to how they were gonna spend it or how they were gonna pay for it — have seen more inflated numbers in terms of revenue in all my life,” Martin said. He added that the budget was, effectively, a “fantasy.”
Senate Republicans also called on Shapiro to agree to cuts in his proposed spending on human services and education, two of the biggest line items in the budget. Specifically, Senate Republicans pushed for cuts to budgets of school districts with waning enrollment, and to stop Medicaid from covering GLP-1 weight loss drugs, which are often expensive.
However, there were areas of agreement.
Martin applauded Shapiro’s decision to close two prisons. He also called for closing more government buildings. And Senate Majority Leader Joe Pittman (R-Indiana) said that Republicans agreed with cutting the corporate net income tax, though he said he would have to look closer at other proposed changes to tax policy.
Senate President Pro Tempore Kim Ward (R-Westmoreland) also said that there was general consensus within the Republican caucus on taxing skill games, and that it may be possible to find consensus on legalizing adult-use recreational cannabis. But she said that it was unlikely either would happen if Shapiro didn’t take the lead on negotiating details, which she said he failed to last year.
“If he wants something done, he needs to lead on it,” she said.
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