What’s in the New State Budget

Source: PA Chamber of Business and Industry

On November 12th, the PA House and Senate took a series of votes to finalize the budget for the 2025-26 fiscal year, following an impasse that lasted more than four months past the June 30th deadline.

The budget deal passed 156–47 in the House and 40–9 in the Senate.

The fiscal code, which includes many of the policies passed as part of the overall agreement, as well as instructions for allocating funding provided in the budget bill, passed 189-14 in the House and 43-6 in the Senate.

The PA Chamber Government Affairs team continues to review the budget and various related code bills to identify provisions relevant to employers and assess the impact on the business community and Pennsylvania’s economy.

Below is a general summary of the budget agreement and our initial outline of elements important to the business community. We will continue to report on the 2025-26 budget as we gain more insight.

 

Total Spend

• Total General Fund spending of $50.1 billion for Fiscal Year 2025-26, representing a 6 percent increase in state spending over last year.
• Spends $1.4 billion less than what Gov. Shapiro proposed in February. 

• Relies on $670 million of yet-identified one-time transfers from other special funds and accounts along with a one-time transfer of $100 million from the Joint Underwriters Association (JUA) to balance.
• Leaves the General Fund with a $200 million projected remaining balance at the end of the fiscal year.

• Does not take any money from the Rainy Day Fund, which currently has a balance of $7.5 billion.

 

Tax Changes

• Maintains the current phase-down schedule of the Corporate Net Income Tax (CNI), from 7.99 percent to 7.49 percent in 2026.  The rate remains on track to be reduced from 9.99 percent down to 4.99 percent by 2031.
• Maintains the improvements to Pennsylvania’s treatment of Net Operating Losses moving forward which was enacted as part of last year’s budget. Current law gradually increases the amount companies are able to deduct using losses incurred after Jan. 1, 2025, from the previous cap of 40 percent up to 80 percent in 2029. Net Operating Losses incurred prior to Jan. 1, 2025 may still be used to offset tax liabilities by up to 40 percent.
• Decouples from pro-growth tax provisions that were enacted by Congress earlier this year for state Corporate Net Income Tax (CNIT) purposes.  Specifically, Pennsylvania’s tax code will now not follow federal law in the following ways:
  • Immediate expensing of research and experimentation (R&E) expenditures. Companies will be required to continue to amortize R&E expenditures over 5 years.
  • Immediate expensing of qualified production property.
  • The deduction for business interest expenses to include depreciation and amortization.

• Extends the sunset of the $1.95 9-1-1 surcharge on phone lines to February 1, 2029.

 

Permitting Reform

• Enacts historic permitting reform by requiring that certain permits be “deemed approved” if the agency fails to issue a decision within a specific timeframe.
• Requires general Air Quality Permits to be “deemed approved” within 30 days of submission of the application but allows for an additional five days for the applicant and the department to work through any deficiencies. A decision on an application must be made no later than 35 days from submission, or the permit is deemed approved. Only applies to applications for coverage under general plan approvals/permits.
• Requires specific renewals of National Pollutant Discharge Elimination System (NPDES) general permits to be “deemed approved” within 60 days of submission, unless the department has received prior agreement from the applicant to extend the review time period. These permits include:
  • Discharges of storm water associated with industrial activities:
  • Discharges from small-flow treatment facilities;
  • Discharges from petroleum products contaminated groundwater remediation systems; and
  • Wet weather overflow discharges from combined sewer systems.
• Expands the Streamlining Permits for Economic Expansion and Development (SPEED) program, which was passed as part of last year’s budget and allows applicants for a number of DEP permits to engage a private third-party to conduct the technical review of the permit application in order to expedite the process.  The 2025-26 budget agreement expands SPEED by adding three additional permits to the program:
  • Storage Tank Site Specific installation;
  • Short-term construction mining general permit;
  • Concentrated Animal Feeding Operation.
• Reforms SPEED to provide DEP with flexibility to register more third-party reviewers.
• Adds significant transparency and accountability to state permitting systems by requiring state agencies to maintain a permit tracking system so applicants can easily assess the status of their permit application in real time.

• Agencies are also required to make available on a publicly accessible website the following information:
  • The program under which each permit is issued;
  • The statutory and regulatory authority for each permit;
  • The time frame when the state agency must issue each permit; and
  • The average time frame within which each permit is issued.

 

Regional Greenhouse Gas Initiative (RGGI)

• Removes Pennsylvania from the Regional Greenhouse Gas Initiative (RGGI), a multi-state carbon cap-and-trade program that has faced ongoing litigation since former Gov. Wolf sought to join via executive order in 2019. RGGI’s uncertainty has discouraged investment in new energy projects, and Pennsylvania’s withdrawal marks a significant policy and economic win for Pennsylvania.

 

Energy: Load Forecasting

• Establishes a new oversight framework for electricity load forecasts submitted by Pennsylvania electric distribution companies (EDCs) to PJM Interconnection, the regional transmission organization (RTO) responsible for managing the electric grid across 13 states, including Pennsylvania. PJM uses these forecasts to plan system needs and set capacity requirements.

 

K-12 Education

• Adds $872 million in new K-12 public education funding. This includes:
  • $105 million increase in Basic Education Funding;
  • $40 million increase in special education spending; and
  • $562 million increase in the adequacy line through the Ready-to-Learn Block Grant.
• Eliminates the $100 million in cyber charter transition reimbursement and makes additional cuts to the formula rate.
• Increases the allocation for the Educational Improvement Tax Credit by $50 million, from $540 million to $590 million, with the entire increase directed to scholarships for students attending economically disadvantaged schools.
• Enacts new early literacy requirements in all schools beginning in the 2027-2028 school year to screen K-3 students for reading competency three times per year using a universal screener: ensuring early identification, intervention, and parental engagement to support student reading success
• No increase in funding for Career & Technical Education.
• Allows individuals with a superintendent’s letter of eligibility to serve as a CTE director if they meet certain experience or education requirements.

 

Higher Education

• Does not provide a funding increase for Community Colleges, Pitt, and Penn State.
• $57.5 million between 24/25 and 25/26 for the Grow PA Tuition Waiver, previously named the Grow PA Scholarship program.
• Provides a 3 percent increase in PHEAA Grants for Students
• 5 percent increase for Thaddeus Stevens, Pennsylvania College of Technology, and Lincoln University. 1 percent increase to the State System of Higher Education.

 

Workforce

• Provides $25 million for Child Care Worker Retention and Recruitment.
• Establishes the Working Pennsylvania Tax Credit which is equal to 10 percent of the Federal Earned Income Tax Credit, which targets lower-income working families and may encourage more Pennsylvanians to enter the workforce.
• Creates a new $10 million Affordable Housing Tax Credit Program to be administered by the Pennsylvania Housing Finance Agency (PHFA).