5 things to know about Pennsylvania’s 2025-26 state budget

It came 135 days late, but Pennsylvania finally has a state budget for the 2025-26 fiscal year after lawmakers returned to Harrisburg to pass a $50.1 billion budget that was promptly signed into law by Gov. Josh Shapiro. 

The budget agreement includes continued increases in public education funding, adds a new tax credit for working-class Pennsylvanians, and removes the state from a regional pact aimed at limiting carbon emissions from the power sector. Below, City & State examines some of the major provisions included in the recently enacted state budget. 

Exiting the Regional Greenhouse Gas Initiative

As part of the agreement reached by Shapiro and state lawmakers, Pennsylvania will withdraw from the Regional Greenhouse Gas Initiative, a multistate carbon trading effort aimed at reducing emissions from the power generation sector.

Through an executive order, then-Gov. Tom Wolf began the process of entering RGGI in 2019, although the effort drew immediate opposition from Republican lawmakers and some labor unions, who feared that the state’s participation could lead to higher energy prices and result in the premature closure of coal and natural gas plants.

The matter has since been tied up in the courts, with opponents arguing that the decision to enter Pennsylvania into RGGI required legislative approval. However, the Tax Reform Code bill approved as part of this year’s budget package repeals the carbon pricing regulation, ending the debate over RGGI once and for all. 

Republican lawmakers celebrated the move this week. “In February, we stated that the No. 1 issue that we felt was holding Pennsylvania back from economic growth was the specter of RGGI,” said state Rep. Jim Struzzi, the minority chair of the House Appropriations Committee. “Being a part of the Regional Greenhouse Gas Initiative is truly what was keeping energy development out of Pennsylvania, as we were losing jobs to West Virginia and Ohio. After today, that specter will be gone.”

Proponents of RGGI were reluctant to approve the budget deal, but many voted for the budget package anyway. “I fought for RGGI for years. I support RGGI. I still think RGGI would be a good idea for Pennsylvania, but I’m also realistic – and I’m willing to vote ‘yes’ to end this impasse,” said Democratic state Sen. Carolyn Comitta. “If we need to put RGGI aside to move forward, let’s do that, but let’s remember that climate change is real. It’s here, and it’s beginning to impact nearly every aspect of our lives.”

Shapiro, who formed a working group early in his term to evaluate the merits of RGGI, said he will now aggressively advocate for new energy policies, now that RGGI is a thing of the past. “It’s time to look forward – and I’m going to be aggressive about pushing for policies that create more jobs in the energy sector, bring more clean energy onto the grid, and reduce the cost of energy for Pennsylvanians,” he said.

Increased education funding

Public education advocates praised the new budget’s continued investments in education, especially in the wake of a 2023 Commonwealth Court ruling that found the state’s system of funding public education violated rights outlined in the state constitution.

The 2025-26 state budget includes a $105 million increase in basic education funding, a $40 million increase in special education funding and a $565 million increase in adequacy and tax equity payments to public schools.

Democratic state Sen. Vincent Hughes said during floor debate that the budget responds to the Commonwealth Court’s ruling in a “major way.”

“This budget responds (to) the mandate from the Commonwealth Court to deal with the issues of inadequacy and unconstitutionality – it does in a major way,” Hughes said.

Aaron Chapin, the president of the Pennsylvania State Education Association – the commonwealth’s largest teachers’ union – also welcomed the budget’s educational investments. 

“This responsible, balanced plan reflects a spirit of compromise, while taking another major step toward fixing our unconstitutional public school funding system and supporting this year’s class of student teachers,” Chapin said.

Changes to cyber charter school funding

Speaking of money for public schools, Senate Bill 315, the Public School Code budget implementation bill, reforms how cyber charter schools in the state are funded, which, proponents say, will save traditional public school districts an estimated $178 million annually. Shapiro said during his press conference that the state had been “overfunding” cyber charter schools “at the expense of our public schools.”As a result, the state’s cyber charter schools will take a $178 million hit, which cyber charter school advocates say will have significant impacts on cyber charters, their students and their faculty. 

“With the passage of the 2025-2026 State Budget, the 65,000+ students in public cyber charter schools will feel the weight of a $178 million (we estimate the amount will be closer to $300 million) cut in funding for their education in the current school year,” Jane Swan, the CEO of Reach Cyber Charter School, said in a statement. “We expect that, within the current school year, two of the 14 public cyber charter schools currently operating in Pennsylvania will be forced to close.”

“Within two years, an additional five public cyber charter schools will most likely be forced to close due to insufficient funding,” Swan added. “This is disgraceful and a direct attack on students who depend on public cyber charter schools as a lifeline.”

Beth Jones, the interim CEO of the Insight PA Cyber Charter School, stated that the changes will also result in “thousands of valuable teachers and school staff losing their jobs.”

Introducing the Working Pennsylvanians Tax Credit

The 2025-26 state budget includes the new Working Pennsylvanians Tax Credit, a state-level credit that allows taxpayers who utilized the federal Earned Income Tax Credit to claim up to 10% of the federal amount received in the same taxable year.

Low- and moderate-income workers are eligible for the federal tax credit, according to the IRS.

Speaking after the legislature’s passage of the budget, Shapiro said approximately 940,000 Pennsylvanians will be eligible for the tax credit, which, he said, “will put about $193 million back in the pockets of hard-working folks trying to take care of themselves and their families next year.”

“This is something folks in this building have been talking about for years and years,” the governor added. “We got it done.”

The new tax credit will result in a decrease of approximately $193.5 million in the state’s General Fund in the next fiscal year, and $215 million annually thereafter, according to legislative analyses of the tax credit.

The budget reforms the state’s permitting laws

The state budget also brings major reforms to the state’s permitting processes, courtesy of House Bill 416, the Fiscal Code budget implementation bill. 

The reforms require the state Department of Environmental Protection to establish a process for third-party professionals to provide expedited reviews of certain permits, including storage tank installation permits, short-term construction mining permit general permits, and concentrated animal feeding operation permits.

The budget language also requires air pollution permits and water permits to automatically be deemed approved by the Department of Environmental Protection if the department fails to issue a final determination on the permit application within specified timelines.

Additionally, all state agencies will be required to create and maintain online tracking systems for applicants to track the status of their permit applications. 

Republican state Sen. Kristin Phillips-Hill, who has sponsored permitting reform legislation, praised the permitting changes included in the state budget. “By building on our landmark reforms, we are creating a clear, consistent and accountable process that supports job growth and innovation, not government gridlock,” she said.

The reforms were also celebrated by Pennsylvania Chamber of Business & Industry President and CEO Luke Bernstein. “Meaningful permitting reform is a huge step in the right direction and builds upon last year’s success,” he said in a statement.