Pennsylvania schools, social service providers, and local governments are grateful today that the General Assembly is poised to adopt a state budget for the fiscal year that began on July 1, 2025. When a budget is so late, the temptation is to just celebrate its completion. And while the budget contains one major achievement—a second year of school funding—there is much in this budget that we cannot celebrate.
Here are our top takeaways from analyzing this budget:
First, the budget makes a second major investment in meeting the state’s constitutional, as well as moral, responsibility to provide every student an adequate and equitable education. Governor Shapiro and House and Senate Democrats should be applauded for making education funding their top priority and insisting that the state stay on the course set out in last year’s budget. And Republicans should be applauded for agreeing to this funding even as they pushed to reduce overall spending. (We review the path to fully and fairly funding education here.)
Yet the price of winning Republican support for an overall budget and education funding is a number of serious public policy setbacks.
Second, the budget includes the Working Families Tax Cut, which is piggybacked on the federal Earned Income Tax Credit, set at 10% of the federal EITC. It gives a tax cut to 1.1 million families with an income of less than $60,000, which is 16.34% of all families. This is a major achievement. Our predecessor organization first put forward the idea of a state EITC in 2018, and our Pennsylvanians Together campaign and its predecessor We The People have advocated for it since then. At a time when the federal government has been cutting taxes for the very rich while raising them on working people, it is impressive that the state is pointing in a better direction.
Third, Governor Shapiro and Democrats in the General Assembly have acceded to the unwise Republican demand that the state leave the Regional Greenhouse Gas Initiative (RGGI), a multi-state program that limits the emission of climate-altering gases. While it was possible that the Pennsylvania Supreme Court would have ruled that Governor Wolf’s decision to enter RGGI was unconstitutional, Pennsylvania’s state government—like every other government in the world—has an obligation to deal with the oncoming climate crisis. The state should either stay in RGGI or, as Governor Shapiro has proposed, devise an alternative. While RGGI or an alternative might lead to higher energy costs, recycling revenue from RGGI or an alternative can mitigate the burden. And focusing on those costs seems misplaced when the development of AI data centers in the state poses a much more serious threat to energy prices, one the state must address soon.
Fourth, much of the budget is flat funded, which means that after inflation, less will be spent on critical programs. These include workforce development; career and technical education; parks; some economic development programs, including those that help historically disadvantaged businesses; violence prevention programs; food programs; most colleges and universities; most health programs, aside from Medical Assistance and those for intellectual disabilities but including mental health programs; veterans’ programs; and child care. In some cases, new initiatives from Governor Shapiro are funded in areas related to those that are flat funded. These welcome new programs include BusinessPA, a neurodegenerative disease research initiative, and a child care recruitment and retention program.
“State spending is not the issue here: On a per-capita basis, the amount of Pennsylvania’s expenditures ranks roughly in the middle of those in the fifty states.”
Fifth, the budget again fails to include a long overdue increase in the minimum wage and, as we have known for some months, does not provide the critical funding needed for public transit in every part of the state.
Sixth, the budget has a huge current-year deficit. That is, current-year expenditures exceed current-year revenues by $3.5 to $4.5 billion, depending on how optimistic one is about the nation’s economy and state revenues in this fiscal year. We also worry that even this year’s budget may underestimate Medical Assistance (which is what we call Medicaid in Pennsylvania) next year. We expect deficits of this magnitude to continue indefinitely even without accounting for the billions of dollars in additional funding needed to fully meet the constitutional requirement to fully fund K–12 schools or the impact of the federal reconciliation bill on the state. While the state still has $7.5 billion in the Rainy Day Fund, we estimate that at the current rate of deficit spending, the Fund will be emptied in no more than two more years.
We will be publishing a new paper next week that shows the source of this operating deficit—deep cuts in corporate taxes made over the last twenty years that cost the state about $6 billion per year in lost revenues and an upside-down state tax system that undertaxes multinational corporations and the richest Pennsylvanians, while overtaxing those with the lowest incomes. State spending is not the issue here: On a per-capita basis, the amount of Pennsylvania’s expenditures ranks roughly in the middle of those in the fifty states.
While Republicans are mainly to blame for flat funding so much of the budget and the failure to fund public transit and raise the minimum wage, both parties have some responsibility for the coming fiscal crisis in Pennsylvania. The leaderships of both parties have supported corporate tax cuts that have done little to spur economic growth. While Republicans talk at times about the current-year deficit, they continue to propose tax cuts that will make it worse. And they rejected Governor Shapiro’s revenue proposals this year, including legalizing adult-use cannabis and taxing video games of skill. Meanwhile, while the Governor’s proposals are a step in the right direction, Democratic leaders should be more directly addressing the serious, long-term budget problem and proposing solutions that fully address the issue.
Sooner than most of us expect, a fiscal crisis will be upon us.