Gov. Josh Shapiro proposed a 2026-27 budget Tuesday that would increase state spending more than 5%, keep the state income tax the same, cut corporate taxes and dramatically expand funding to create affordable housing statewide.
Shapiro called for the creation of a $1 billion bond-funded account to pay for new housing and other needed infrastructure.
“We need hundreds of thousands of new homes,” Shapiro said during his fourth annual address before the state General Assembly. “And this is how we build them. But it’s not just about building more houses and apartments. It’s also about making sure those who live in them aren’t taken advantage of.”
Shapiro proposed capping rental housing application fees and annual rent increases on mobile home lots.
The $53.3 billion spending plan represents an almost 5.4% increase in spending, a hike that House and Senate Republicans immediately criticized. They said the budget relies on $4.58 billion from the state's Rainy Day Fund, more than half of the $7.5 billion in the fund. A similar Shapiro proposal contributed to a four-month budget impasse last year. The impasse ended without using any of the fund.
"It's like Groundhog Day all over again," state Rep. Jonathan Fritz, R-Wayne, said after the speech. "If there's ever a time in the near future where, where two things happen - A, we run out of stimulus dollars, and B, we have a hiccup in the economy, and revenues are below estimates, we've got ourselves set up for a little bit of a disaster financially."
Rep. Tarah Probst, D-Monroe, dismissed the Republican's criticism.
"So that's their song and dance every year," Probst said. "And it doesn't surprise me, but it's a good budget. I mean, believe me, it's not the budget that we would all like. I mean, I want more, but it's one that's going to pass, because I think that you have bipartisanship from other Republicans on this bill."
Shapiro also emphatically renewed his call for a minimum wage increase to $15 an hour, a proposal that General Assembly Republicans have blocked for more than a decade.
More than half a million Pennsylvania workers earn less than $15 an hour, the governor said. Most surrounding states raised the minimum wage to $15 an hour, “even West Virginia,” Shapiro said.
“But you know what? Clearly, those arguments haven’t convinced our friends in the Senate to act over the last decade and a half,” he said. “So let me give you one more reason why we need to do this. Because raising the minimum wage to $15 per hour will save this commonwealth $300 million a year on entitlement programs like Medicaid.”
The governor also proposed $665 million in new funding for public school education — $50 million each for basic and special education and $565 million to make up for underfunding of many public-school districts — shifting $300 million in sales taxes starting July 1, 2027, to fund mass transit and creating a $100 million fund to combat losses in federal revenue, citing the Trump administration's repeated slashing of spending streams that go to states.
Shapiro also proposed legalizing marijuana and its byproducts to produce $200 million a year in revenue starting in July 2027 and regulating skill game terminals to raise more than $2 billion a year. Republicans have repeatedly blocked both proposals.
Shapiro repeatedly proposed legislation that had little to do with the budget. He said the state General Assembly should:
- Pass standards for data centers, a rising source of tension between developers and local residents. Shapiro said the standards would require developers to bringing in their own electricity to power centers, remain transparent and engaged with communities hosting them; hire and train local workers; and "commit to the highest standards of environmental protection, especially water conservation."
"If companies adhere to these principles, they will unlock benefits from the commonwealth, including speed and certainty in permitting and available tax credits," Shapiro said. "We can play a leading role in winning the battle for AI supremacy — but we have to do it in a way that puts the good people of Pennsylvania first." - Ban cell phones in schools and require public schools to offer recess.
“Recess isn’t just an extra block on the schedule,” Shapiro said. “I would argue it’s just as critical as learning math, science and English. It’s fundamental to kids' growth, and their ability to interact with one another, play together and learn to settle disputes.” - Regulate artificial intelligence companies to require age verification and parental content for children; detect when children mention self-harm or violence against others; periodically remind users they’re not dealing with humans; and to prohibit chatbots from producing sexually explicit or violent content featuring children.
- Reform job training requirements to reduce the hours of training necessary for barbers, pharmacists and others to gain licenses.
- Pass statute-of-limitation reform to allow survivors of long-ago sexual abuse to sue abusers or organizations who enabled them.
- Update the state law that protects senior citizens against financial exploitation and scams. The state law hasn’t been updated in almost 30 years, Shapiro said.
- Act to give the state Public Utility Commission permission to limit the profits of utility companies.
“They should not get one dollar more than what they need to meet their customers’ needs,” Shapiro said.
A candidate for re-election this year and a potential 2028 presidential contender, Shapiro also touted a long list of what he viewed as accomplishments during his first three years in office.
They include an unemployment rate below the national rate for 31 months, a worker tax credit, more police on the streets, reduced gun violence and $39 billion in outside investments that he expects will produce thousands of new jobs.
Legislative reactions:
House Republican Leader Jesse Topper, R-Bedford, said Shapiro's budget "spends too much, grows government too much and relies too much on unsustainable sources of revenue." He expressed concern about " the illegitimate use of the Rainy Day Fund to create a $100 million slush fund that obscures the lines of federalism."
“Our number one priority must be providing the foundation for substantial economic growth in the Commonwealth to balance any future state budgets. We also must begin—right now—the hard work of reducing the size and scope of government so we do not continue to take too much from hardworking Pennsylvania taxpayers who are already struggling to make ends meet," he said in a statement.
House Speaker Joanna McClinton, D-Philadelphia, said the budget keeps the state "on course with smart and thoughtful investments in our future, while addressing some of the biggest challenges impacting our neighbors." She praised the budget's added money for violence prevent and mass transit.
"Finally, Pennsylvania needs to stop leaving money on the table by failing to increase our outdated minimum wage and not legalizing adult use cannabis," McClinton said in a statement. We could be generating millions of dollars to support programs here in Pennsylvania, instead we’re sending those dollars out of state.
Check back for updates.
