Affordability Acknowledged, Hard Choices Deferred

Governor Shapiro’s Budget Takes Steps Forward, but Leaves Structural Gaps Unresolved

Felicity A. Williams, Esq., Executive Director, Pennsylvania Policy Center

Today, Governor Josh Shapiro delivered his proposed 2026–2027 state budget to the General Assembly, and I want to start by thanking him for centering affordability and naming the real strain working families are feeling across the Commonwealth of Pennsylvania.

Pennsylvanians are being squeezed from every side: rising costs, an underfunded public school system that remains out of compliance with Pennsylvania’s constitution, a minimum wage stuck at $7.25 for 16 years, and a tax code that too often asks working families to pay more, while the wealthiest individuals and profitable corporations contribute too little. The question before lawmakers now is not whether Pennsylvanians are feeling it. They are. The question is whether this budget process will deliver real relief and long-term stability or simply postpone hard choices for yet another year.

 Affordability, Public Services, and the Squeeze on Working Families

There are elements of the Governor’s proposal that move in the right direction, but they also fall short of what the moment demands.

After 16 years without an increase, the Governor again called for a path to raise the minimum wage to $15. Pennsylvania is behind every single neighboring state, including West Virginia. Four of our six neighbors are already at $15 per hour, and Ohio is on a clear path to reach it. Pennsylvania cannot keep falling behind while workers struggle to make ends meet. The Pennsylvania House has passed minimum wage legislation twice, and each time the Republican-controlled Senate has refused to act. This must be the year it finally changes.

The Governor made the case that raising the minimum wage would not only put more money in workers’ pockets, which we strongly support, but also save Pennsylvania an estimated $300 million in social safety net payments and bring in another $80 million in revenues through personal income and sales taxes. What remains unclear is whether those projected savings assume that workers will no longer need assistance or that they would simply become ineligible for it. That distinction matters. A higher minimum wage should reduce hardship, not push workers off supports without ensuring wages are truly sufficient to cover rising costs.

The Governor also continued the Working Pennsylvanians Tax Credit, which will put $193 million back into the pockets of 940,000 Pennsylvanians. This credit did not happen by accident. Pennsylvania Policy Center and our partners spent years advancing the case for refundable credits as a core affordability tool, lifting up data, building coalitions, and pushing policymakers to act. Maintaining this credit is important, but it is also not the ceiling of what working families deserve.

Child care remains one of the greatest cost pressures facing families and one of the biggest barriers to workforce participation. The Governor’s proposal includes continued investments in child care workforce recruitment and retention grants with an additional $10 million, a positive acknowledgement of the staffing crisis providers face. However, child care assistance and child care services are effectively flat funded. In the context of rising inflation, flat funding functions as a cut. It reduces the number of families served, the stability of providers, and the quality of care. Addressing Pennsylvania’s child care challenges will require more. It requires sustained investment and a comprehensive strategy that treats child care as essential economic infrastructure.

On energy, the Governor highlighted the pressure high utility bills are placing on families and revisited his Lightning Plan as a strategy to expand energy generation, modernize the grid, and rein in long-term costs. This recognition that energy affordability is a central cost driver for working families is important. The Governor also stated that large corporate energy users, including data centers, should bear the costs of the additional generation they require rather than shifting those expenses onto residents and small businesses. That principle is sound. However, it remains unclear how these commitments will be enforced, how costs will be tracked, and whether consumer protections will be strong enough to prevent future rate increases.

On public transit, the Governor’s proposal requires more scrutiny. Last year’s stopgap solution, shifting funds from infrastructure projects to operating expenses primarily addressed short-term gaps for Philadelphia and Pittsburgh. It did so at the expense of long-overdue capital upgrades needed to ensure accessibility and reliability, while leaving smaller transit systems across the Commonwealth facing drastic cuts or potential closures.

The Governor proposes transferring 1.75% of sales tax revenue annually to a transit trust fund beginning in the 2027–2028 fiscal year. While this technically creates a dedicated funding stream, it is not a new idea, and it is not the kind of sustainable solution advocates have long called for. Because the sales tax currently provides funding for the General Fund, this transfer would deepen the General Fund deficit unless paired with new revenue. It delays relief for transit systems in crisis today and worsens the Commonwealth’s fiscal imbalance tomorrow. We cannot underscore enough the importance of transit for access to work, school, and health care, even as it continues to be underfunded.

Education Funding: Continued Progress, but Pennsylvania Is Still Not Meeting its Constitutional Obligation

Governor Shapiro’s proposal continues multi-year progress on adequacy and equity in public school funding, including another major adequacy investment directed to the districts that are most in need.

The proposal also includes increases of $50 million each for basic education and special education, as well as additional support for career and technical education (CTE) that expands pathways to opportunity and strengthens Pennsylvania’s workforce. However, spread across 499 school districts, these increases in basic education and special education will barely keep pace with inflation, let alone address longstanding shortfalls.

This proposal still does not yet fulfill Pennsylvania’s constitutional obligation. Even with this year’s increase, the state would face an estimated $3.3 billion adequacy gap, and roughly 70% of Pennsylvania students remain in underfunded districts. Progress without a clear timeline to close the remaining gap leaves too many students waiting. As budget negotiations move forward, the General Assembly must build on this proposal and accelerate the path to full adequacy so that every student, regardless of zip code, has access to a high-quality public education.

Health Care and Medicaid: Federal Cost Shifting Is Already Here and Pennsylvania Must Be Ready

The Governor rightly warned that federal actions are shifting costs onto states, and Pennsylvania must be prepared. Those shifts are already disrupting coverage, straining providers, and increasing pressure on families, counties, and hospitals. Pennsylvania’s budget must also reflect that reality.

While the budget includes targeted Medicaid and behavioral health investments, it is unclear whether the additional $73 million for County Assistance Offices and additional 176 employees for the Department of Human Services will meet the scale of the risk created by federal policy changes under the One Big Beautiful Bill.

The One Big Beautiful Bill Act reduces Medicaid spending by billions of dollars by making it far more difficult for people to get and stay on the program and by creating work reporting requirements and more frequent eligibility determinations that push people off coverage through administrative barriers. These changes disproportionately affect seniors, people with disabilities, caregivers, and low-wage workers with unstable hours.

Pennsylvania is particularly vulnerable because County Assistance Offices remain severely understaffed. Eligible residents risk losing coverage due to paperwork delays and processing backlogs, not changes in eligibility. Estimates suggest that more than 100,000 Pennsylvanians could lose Medicaid coverage as a result, increasing uncompensated care costs and further straining hospitals, counties, and families.

If Pennsylvania is serious about affordability and fiscal responsibility, the budget must invest in administrative capacity and enrollment protections that keep eligible people covered. Allowing avoidable coverage losses would shift costs elsewhere in the system and undermine access to care for those who need it most.

Housing and Infrastructure: New Investments—Show How We Will Pay for It

The Governor proposed a new housing and infrastructure initiative, including a $1 billion package to expand investment in housing and other critical needs.

Pennsylvania needs bold action to increase the supply of affordable housing and strengthen our communities. But new investments must be paired with clear, sustainable revenue strategies. We cannot fund permanent needs with temporary fixes or borrowed time. The question of how we pay for these investments must be answered as negotiations move forward.

Data Centers and the GRID Plan: Safeguards Must Be Real, Enforceable, and Aligned with Affordability

“GRID” stands for “Governor’s Responsible Infrastructure Development,” the Governor’s newly introduced framework to address the impacts of large-scale data center development and grid impacts. We share the premise that Pennsylvanians should not be left paying higher utility bills, absorbing environmental harms, or being cut out of decisions that reshape their communities. At the same time, the budget continues to offer incentives to these same corporations.

The Computer Data Center Equipment Exemption alone is estimated to cost $188.4 million in 2026–27, rising to $260.3 million in 2027–28, with costs growing thereafter. This is in addition to the existing Computer Data Center Equipment Incentive Program. These incentives raise serious questions about whether the Commonwealth is truly shifting costs onto corporations or continuing to subsidize them while promising future guardrails.

Safeguards must be enforceable, transparent, and paired with clear accounting of public costs and benefits. The facts are clear: Large-scale data centers can drive exceptional electricity demand that stresses the grid and can raise costs system-wide. They can also create significant water and local quality-of-life impacts depending on design and location.

If Pennsylvania is going to compete for these projects, we need enforceable rules, transparent reporting, strong community benefit agreements, and a policy approach that keeps affordability and public accountability at the center. Further analysis will be needed to determine if the Governor’s GRID proposal meets those needs.

A Fiscal Cliff and Choices Ahead: New Revenues Must Match the Scale of the Challenge

Finally, we cannot talk about affordability without talking about fiscal sustainability.

The Governor noted that Pennsylvania collected more revenue this year than projected. That is welcome. But it does not erase the structural problem Pennsylvania has been avoiding. We are still approaching a fiscal cliff. This budget’s math relies heavily on drawing down reserves.

To make this proposal work on paper, the budget transfers approximately $4.6 billion from the Rainy Day Fund into the General Fund in 2026–2027. After that transfer, the Rainy Day Fund would be reduced to roughly $3.3 billion, while the General Fund itself effectively ends the year without a meaningful cushion. That remaining balance would be insufficient to cover projected gaps in the following year, leaving the Commonwealth even closer to a fiscal cliff.

The Governor again proposed several new revenue options, including taxing skill games, legalizing and taxing adult-use cannabis, and adopting water’s edge combined reporting. These proposals move in the right direction and should advance this year. But they are not yet scaled to match the size of the structural deficit Pennsylvania faces.

We must also confront fairness. Pennsylvania has more millionaires and billionaires than Massachusetts or Washington, DC, yet our tax system still asks working families to carry more than their fair share. Budget choices reflect values. If lawmakers want to fund schools, protect health care, stabilize transit, invest in housing, and make life more affordable, they must be willing to modernize Pennsylvania’s revenue system to meet today’s realities.

What Comes Next

As budget negotiations begin, Pennsylvania Policy Center will continue to analyze the details of the Governor’s proposal, elevate what works, and hold leaders accountable for what is missing. We will engage lawmakers in both chambers to push for a final budget that meets Pennsylvania’s constitutional obligations, protects working families, stabilizes core services, and ensures that those with the greatest ability to pay contribute their fair share.