Pennsylvania’s 2025–26 Budget: Business & Community Impacts

By Jake Taylor

The newly passed Pennsylvania budget (FY2025–26) is a $50.09 billion compromise package that finally ended a 135‑day impasse. It increases overall spending by roughly $2.3–2.5 billion (about a 5% jump) over the prior year[1]. Lawmakers kept the Rainy Day fund intact (nearly $8 billion saved)[2][3], and no new taxes were added. Key provisions include a new state Earned Income Tax Credit (“Working Pennsylvanians Tax Credit”), the state’s exit from the RGGI carbon‐cap initiative, modest business tax cuts, and targeted spending increases. In summary:

  • Balanced $50.09 B budget, ~5% increase YOY: The final budget is about $2.3–2.5 billion (4.7–5%) higher than FY2024–25[1]. It was negotiated under pressure to avoid further delays in funding for schools, counties, nonprofits and other services[4][1]. Importantly, it did not tap the nearly $7–8 billion Rainy Day Fund[2][3].

  • Working Pennsylvanians Tax Credit (EITC): Creates a state Earned Income Tax Credit set at 10% of the federal EITC[5]. In practice, low- and moderate-income workers (individuals earning up to ~$62k, couples up to ~$69k with kids) will receive roughly 10% of whatever federal credit they claim[5]. For example, a family with a $8,000 federal EITC would get about $800 from the state. This costs the state an estimated $193 million in tax relief[6]. Democrats championed it as relief for working families, and Republican leaders noted it “puts money back into the pockets of low-income, working Pennsylvanians” to spend on essentials[7]. For businesses, the credit may indirectly boost consumer spending.

  • Removal from RGGI (Regional Greenhouse Gas Initiative): A top GOP demand was stripping out the multistate carbon-cap-and-trade plan. Under pressure, the final budget formally withdraws Pennsylvania from RGGI[8]. Notably, PA had never fully implemented RGGI due to legal challenges, but this ends any future participation. Republicans hailed this as lowering future energy costs. As Senate President Kim Ward noted, exiting RGGI “helps bring certainty to electric rates” for businesses and consumers[9]. Environmental and renewable energy advocates decried the move, but for many companies and ratepayers it avoids the potential cost of purchasing carbon permits.

Tax Cuts and Business Climate

The budget includes several pro-growth measures for businesses:

  • Corporate Tax Cut: Pennsylvania’s Corporate Net Income Tax (CNIT) rate is cut by another 0.5 percentage point[10]. Combined with earlier cuts, this change saves businesses roughly $1.5 billion (cumulatively) by lowering corporate taxes[10]. This cut is modest but signals continued tax relief for companies.

  • Permitting Reform: The budget builds on ongoing efforts to speed up environmental and construction permits. It funds additional staff at DEP (including a 15.8 M increase for new permit reviewers) and expands the SPEED program to review permits more quickly[11][12]. Legislators touted this as a win for economic development; as Sen. Ward said, permit reform will help “businesses get up and running quicker”[9]. Faster permits can shorten project timelines and reduce costs for construction, energy, and other industries.

  • Business Investment & Infrastructure: The budget invests in site development and small business support. It continues a $550 million site-readiness fund to make properties shovel-ready for industry[13]. It also provides $20 million for “Main Street Matters” (downtown revitalization) and $20 million to aid minority-owned small businesses[12]. Such measures aim to attract private investment and support entrepreneurs.

Overall, these actions should be seen as positive for the business community: lower corporate taxes, streamlined regulation, and infrastructure-ready sites all reduce barriers to investment and growth. The Governor’s office notes PA remains “one of the strongest economies in the nation” and the only growing one in the Northeast[14]. However, advocates of fiscal restraint warn that spending is outpacing revenues, which could pressure businesses in the future if it leads to higher taxes or service cuts.

Transit, Roads, and Infrastructure Funding

The budget does not provide new operating aid to public transit systems. In fact, transit agencies faced potential cuts during the impasse. SEPTA’s CEO called the omission “disappointing”[15]. During the stalemate, Philadelphia’s and Pittsburgh’s systems covered operating costs by dipping into reserve capital funds[16][17]. For example, SEPTA approved shifting $394 million from its capital budget to keep buses running[17]. Transit advocates noted that while the budget added over $100 million in general transportation spending, none of it is directed to transit operations[18].

In contrast, there is continued support for roads and bridges. Republicans had insisted that any transit aid be balanced by road/bridge funding, and some highway money has been set aside. For instance, a Senate proposal during the impasse would have used $419 million in capital transit funds and $173 million in gambling revenue to shore up transit, while allocating remaining capital funds to highways[19]. Although that specific plan stalled, state road and infrastructure projects remain a priority. Earlier in 2025, Governor Shapiro did temporarily redirect some highway bonds to transit, and legislative leaders noted the reciprocal nature of these moves[20].

Implications: Businesses in PA rely on both highways and transit. Increased highway maintenance and infrastructure is generally positive. However, neglecting transit funding may hurt urban employers and workforce mobility in cities. Chamber members might also

worry that long-term transit cuts will increase congestion or limit workers’ access to jobs. In any case, transit agencies will likely continue seeking legislative fixes after this budget deal.

Other Spending and Community Impacts

Education and social services saw substantial funding, though critics note it was less than initially proposed. Schools receive an additional $665 million (including $565 million adequacy and $105 million basic ed)[21] – addressing court-ordered “adequacy” gaps. Child care and elder care programs also got boosts, such as $25 million for child care recruitment and an additional $10 million for area agencies on aging[22]). Nonprofits and local governments suffered during the impasse – some had to take emergency loans. The budget provides relief through a Treasurer’s program: it allows waiving interest on state loans to affected counties, schools, and nonprofits[23].

From the business perspective, these measures have mixed effects. Well-funded schools and services benefit the workforce and communities in the long run. The waived-interest loans help nonprofits recover from revenue gaps. But the nearly $2½ billion spending increase means the state will again run a sizable deficit[1]. Fiscal conservatives warn that continued deficit spending could necessitate future tax hikes or cuts.

Conclusion

In sum, the new budget packages a mix of wins and concerns for businesses and Chamber members. On the positive side, it delivers targeted tax relief and further corporate tax cuts, regulatory reforms, and investments aimed at economic growth [10][9]. Exiting the RGGI cap-and-trade program is also viewed as a pro-business move that should ease future energy costs[9][8].

On the flip side, the budget’s higher overall spending and reliance on reserves or deficits could unsettle long-term fiscal health[1]. The absence of any new transit funding is a setback for urban mobility and could indirectly affect employers and workers in dense regions[15][18]. In all, most measures were subject to intense bipartisan compromise: Democracy at work!

Sources: Analysis is based on official budget summaries and reporting from Spotlight PA, City & State PA, CBS Philadelphia, WHYY, and other Pennsylvania news sources[5][3][1][15][18].

--- [1] Pennsylvania lawmakers pass $50 billion state budget after months of delay - CBS Philadelphia https://www.cbsnews.com/philadelphia/news/pennsylvania-50-billion-budget-agreement-shapiro-republicans-democrats/ [2] [6] [10] [11] [12] [13] [14] [21] [22] Gov Shapiro Signs 2025-26 Budget into Law | Commonwealth of Pennsylvania https://www.pa.gov/governor/newsroom/2025-press-releases/gov-shapiro-signs-2025-26-budget-into-law [3] [9] City & State’s 2025-26 Pennsylvania state budget tracker - City & State Pennsylvania https://www.cityandstatepa.com/politics/2025/11/city-states-2025-26-pennsylvania-state-budget-tracker/407692/?oref=cspa-nav-trending [4] [5] [7] [8] [23] Pennsylvania ends budget impasse with $50.1B deal • Spotlight PA https://www.spotlightpa.org/news/2025/11/pennsylvania-budget-education-funding-rggi-climate-cyber-charter-capitol/ [15] [16] SEPTA CEO: ‘Disappointing’ transit funding not in PA budget - WHYY https://whyy.org/articles/pennsylvania-state-budget-septa/ [17] SEPTA postponing projects as state budget woes continue - WHYY https://whyy.org/articles/septa-service-pennsylvania-budget-stalemate/ [18] Transit for All PA! Statement on the Passage of the 2025-26 State Budget | Transit for All PA! https://www.transitforallpa.org/transit-for-all-pa-statement-on-the-passage-of-the-2025-26-state-budget/ [19] [20] PA Senate advances $47.7B budget, transit spending plan - City & State Pennsylvania https://www.cityandstatepa.com/policy/2025/08/pa-senate-advances-477b-budget-transit-spending-plan/407406/

Hanover Area Chamber of Commerce