Author: Gillian McGoldrick

HARRISBURG — Gov. Josh Shapiro on Tuesday unveiled a $53.2 billion state budget that focuses on making Pennsylvania a more affordable place to live — while proposing a 6.2% spending increase over last year and renewing his pitches to create new revenue streams to fill a significant budget deficit as he runs for reelection.

Shapiro’s fourth budget address attracted several standing ovations from Democrats as he stood before a joint session of the state House and Senate to pitch some of Democrats’ shared priorities, such as increasing the minimum wage to $15 an hour.

Afterward, Republicans decried the budget proposal as unaffordable, arguing such a steep increase in spending is unrealistic when the state is already poised to spend more than it brings in during the current fiscal year and in the future. Shapiro’s proposal would spend $4.6 billion more than the state is projected to bring in in the 2026-27 fiscal year, requiring officials to pull most new spending from Pennsylvania’s $7.7 billion Rainy Day Fund, or find funding from new revenue streams like the taxation of recreational marijuana that do not yet exist.

Shapiro’s proposed spending hike equates to a $2.7 billion total increase over the 2025-26 budget. Approximately $1 billion of that would fulfill increased federal Medicaid obligations, another $1 billion would be for new initiatives proposed by the governor, and $700 million would go to other funding increases, according to a Shapiro administration official.

The proposal does not include any broad tax increase on state residents. Instead, Shapiro’s budget pitch includes proposals to generate nearly $2 billion in new revenue, largely from the taxation and legalization of recreational marijuana and regulation of so-called skill games — suggestions that he put forward last year but that failed to gain traction within the legislature. He proposed taxing adult-use cannabis at 20% to generate $729.4 million. He is also seeking a 52% tax on skill games, the unregulated and untaxed slot-machine look-alikes that have proliferated around the state in corner stores, bars, and fraternal organizations, to generate an estimated $765.9 million in its first year.

“Everyone knows we need to get this done. So let’s come together and finally get it over the finish line,” he added.

Shapiro proposed the legalization and taxation of recreational marijuana in each of his prior three budget proposals. Last year, he pitched a 20% tax on the sale of legal marijuana that he estimated would bring in $535.6 million in its first year. This year’s projection of $729.4 million in that time frame would be a 36% increase without changing the proposed tax rate. A Shapiro administration official said Tuesday that the projected increase is due to more interest from marijuana companies that want to do business in Pennsylvania.

Shapiro’s budget also called for an additional $565 million for public schools toward the state’s new adequacy funding and tax equity formulas, in the latest installment of a nine-year plan to ensure students get an equitable education no matter their zip code. He requested $30 million in additional funding toward three of Pennsylvania’s state-related universities — the University of Pittsburgh, Pennsylvania State University, and Temple University — to be awarded based on a new performance-based funding mechanism.

The governor also pitched creating a “Federal Response Fund” in Pennsylvania, seeking to set aside a $100 million reserve to offset any impact from President Donald Trump’s administration, in the event the federal government moves to cut funding to social services programs and grants to state and local governments, as it has done several times over the last year.

A focus on affordability

As his reelection campaign ramps up ahead of November, Shapiro made a broad pitch for policies aimed at making Pennsylvania more affordable.

Shapiro said he was working with utility companies to rein in energy costs and called for the construction of new homes and a bevy of renter protections in a plan to expand the availability and affordability of housing across the state.

He proposed a $1 billion fund, supported by the issuing of bonds, to pay for a range of infrastructure projects relating to energy, housing, local governments, and schools. But he billed it largely as “a major investment in building new housing.”

“We need hundreds of thousands of new homes,” Shapiro said. “This is how we build them.”

Shapiro also called for the state to create a catalog of local zoning rules and to help local governments revamp ordinances to allow for more housing.

The governor again proposed raising Pennsylvania’s minimum wage to $15 an hour, billing it as a cost savings of $300 million to the state on entitlement programs such as Medicaid.

In a news conference hosted by Senate and House Republicans following Shapiro’s budget address, top legislative leaders contended that Shapiro’s affordability vision for the state is unnecessary.

“What we need to do is stand back and watch the private sector work, and watch the private sector grow the jobs that will support this economy,” said House Minority Leader Jesse Topper (R., Bedford). “What we need to do as a government is far less. We need to get our footprint down. That is what we believe will make things more affordable for Pennsylvanians.”

Attracting AI developments — at a cost

Shapiro made it clear he wants Pennsylvania to be a place that will draw business investment — particularly amid the expansion of artificial intelligence.

He announced a new plan he said would protect consumers against rising energy costs associated with data centers, while also easing a path for tech companies to build the centers.

The Governor’s Responsible Infrastructure Development (GRID) plan would make data center developers either bring their own power generation or pay for any new generation they will need, he said, “not saddling homeowners with added costs because of their development.”

Shapiro said that too many data center proposals have been “shrouded in secrecy” but that they are crucial for the country.

“The United States is locked in a battle for AI supremacy against China,” Shapiro said. “Look, I don’t know about you, but I’d much rather the future be controlled by the United States of America and not Communist China.”

‘We all recognize it took too long last year’

Shapiro’s $53.2 billion pitch likely sets him up for another fight with Senate Republicans, who control the chamber. They have promised fiscal restraint as their top priority and are unlikely to approve a major spending increase.

Last year, Shapiro and House Democrats took 135 days to reach an agreement with Senate Republicans, in what became an at-times ugly battle that underscored the state’s rural-urban divide.

Shapiro said Tuesday he wants to avoid another lengthy stalled budget, which forced schools, counties, and nonprofits to take out billions in loans to stay afloat during the four-month impasse.

He invited leaders of all four caucuses — Senate Democrats, Senate Republicans, House Democrats, and House Republicans — to meet on Wednesday to start budget talks much sooner than in past years. They all agreed to attend, he added.

“We all recognize it took too long last year and that had real impacts on Pennsylvanians, but we learned some valuable lessons through that process,” Shapiro said in his address, which lasted an hour and 24 minutes. “We learned that we all need to be at the table, and that we all need to be at the table sooner.”

Budget negotiations will begin Wednesday, Shapiro said, before legislative committees begin meeting about the proposal later this month. The budget will be negotiated in closed-door meetings between top leaders and is due by the start of the new fiscal year, which begins July 1.

One contentious issue is off the negotiating table for the forthcoming fiscal year: funding mass transit. Shapiro again pitched the state to increase the share of the sales and use tax that goes to mass transit, including SEPTA, as the transit agencies desperately need a new recurring revenue source. Shapiro does not want that to begin until July 1, 2027, when his latest short-term transit funding fix is scheduled to run out.

Shapiro and most lawmakers in the General Assembly are up for reelection this year. In previous midterm election years, the electoral pressure has sped up negotiations, as legislators want to bring home results to their constituents before they return to the campaign trail in a year when the governor’s mansion and control of the state House and Senate are on the line. (Shapiro’s likely opponent, Republican State Treasurer Stacy Garrity, immediately criticized his budget proposal, saying the pitch “didn’t come nearly close enough” to bridging the state’s spending deficit.)

But even if lawmakers move with haste, this year’s budget negotiations may be tense as leaders try to reset spending to better align with how much the state generates in revenue.

“We’re going to do everything we can to protect the taxpayer and make sure that the dollars that are allocated are wisely used,” Senate Majority Leader Joe Pittman (R., Indiana) said. “We have to make sure we’re, again, stretching every taxpayer dollar we can and bringing the cost of government down as much as possible.”

But with the high-stakes election just months away, House Majority Leader Matt Bradford (D., Montgomery) cautioned Republicans against coming down hard on Shapiro, who has boasted consistently high approval ratings.

“I would argue the polls indicate that we have a very popular governor. They tried to obstruct him and his numbers only got more popular,” Bradford said. “My suggestion is it would be the political imperative, regardless of the policy implications, that they start working with this governor to pass things.”

Staff writers Thomas Fitzgerald, Maddie Hanna, Ariana Perez-Castells, and Susan Snyder contributed to this article.