Special FY26-27 Commonwealth Budget Memo

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Commonwealth’s Fiscal Year 2026-2027 Enacted Budget

Overview: 

On Sunday, July 12, Governor Josh Shapiro signed the Commonwealth’s budget for Fiscal Year 2026-2027 into law. The enacted budget provides approximately $50.8 billion in state spending, which is an increase of $1.8 billion from last year’s budget but falls short of the Governor’s proposed budget of $53.2 billion. The FY26-27 budget is the product of bipartisan deliberation and negotiation, resulting in a budget that emphasizes fiscal responsibility, while making meaningful investments in public education, economic development initiatives, and more.

Major accomplishments in the FY26-27 budget include a high cost-of-living increase for former employees within the State Employees' Retirement System (SERS), the Public School Employees’ Retirement System (PSERS), and fire and police retirees. The cost-of-living increase is amortized at an annual rate of $168.4 million over ten years. The court-mandated adequacy funding for underfunded public schools was appropriated an additional $565 million through the Ready to Learn Block Grant. The appropriations made throughout the FY 26-27 budget were effectuated without impacting the Commonwealth’s Rainy Day Fund, which at nearly $8 billion, was left intact.

Overall, the FY 2026–2027 budget reflects a negotiated compromise that continues funding for the Commonwealth's core priorities while deferring action on several major policy initiatives. Matters such as skill games,tax breaks for data centers, minimum wage, and the legalization of recreational marijuana will need to be addressed at a later date. 

Democrat Response: 

House Democratic Appropriations Chair Jordan Harris: “Throughout this process, we listened to Pennsylvanians, we heard their concerns, and today, we delivered. We delivered a budget that continues our investment in public education, maintains Medical Assistance with no cuts, protects food assistance, supports seniors and veterans, and advances housing and public safety reforms without raising taxes on Pennsylvania families. At a time when families are facing an affordability crisis and federal uncertainty threatens critical services, this budget provides stability. We know there is more work to do, but this budget protects the progress we have made, delivers meaningful support that people will feel in their daily lives and keeps Pennsylvania moving forward.

Senate Democratic Leader Jay Costa: “This budget builds on the incredible momentum we have built over the past three years by committing dollars to equity and adequacy funding for our schools, recruitment and retention support for childcare workers, relief for farmers, improvements for our roads, and innovation in life sciences research. Additionally, Senate Democrats at last secured a long-overdue cost-of-living increase in this budget for our retired teachers, police officers, and firefighters, who served our communities dutifully and deserve a dignified retirement. While there is still more work to be done, I am happy to have supported this commonsense, responsible budget, and I look forward to celebrating these dollars at work in all 67 counties.

Senate Democratic Appropriations Chair Vincent Hughes: “This is a strong budget that will improve our schools, lift up local economies, and help address Pennsylvania’s affordability crisis. Senate Democrats remain acutely aware that every dollar counts, especially as families continue to struggle with the rising costs of housing, utilities, groceries, gas, childcare, and healthcare. As the President turns his back on struggling Pennsylvanians, we are proud to deliver a state budget that puts the people of Pennsylvania first.”

Republican Response: 

“The Senate Republican Caucus worked hard to protect the wallets of Pennsylvanians by avoiding tax hikes, strengthening our commonwealth’s financial position and identifying more than $4.5 billion in unused funds to repurpose,” Senate President Pro Tempore Kim Ward said. “Senate Republicans fought for investments for our most vulnerable by increasing funding for nursing homes and childcare recruitment and delivering a long-overdue cost-of-living adjustment for police officers, firefighters and teachers who retired prior to July 2, 2001.”

Senate Majority Leader Joe Pittman said, “Our Senate Republican Caucus protected taxpayers of the Commonwealth and kept the Rainy Day Fund fully intact. Through tremendous hard work we identified and pulled $1.5 billion out of the couch cushions of bureaucracy to balance this budget. The ultimate long-term solutions to our budgetary challenges are economic opportunity and growth, and I am proud that the agreement includes numerous policies to support families, invest in our local communities, and foster needed growth.”

Agriculture:

The Commonwealth's budget allocated $10 million in funds to assist fruit farms that were adversely impacted by the historic spring freeze this past year. The State Food Purchase Program (SFPP) was level-funded in this year’s budget at $30.68 million. Additionally, the Farmers’ Market Food Coupons line item was level funded at $9.57 million. Both programs received increases in the FY25-26 budget.

Artificial Intelligence & Data Centers

The enacted budget imposes a disclosure requirement rather than the substantive regulation the Governor sought. It establishes new transparency requirements: data centers with a peak energy demand greater than 10 megawatts must report their energy and water usage to the Department of Environmental Protection, with the data made public and noncompliance fined at $10,000 a day. Left out entirely was Shapiro’s own data center regulation bill, which would have tied state tax exemptions and expedited permitting to compliance with transparency and environmental measures. The reporting mandate is a disclosure move; the real guardrails — the Governor’s Responsible Infrastructure Standards (GRID) standards and tax exemption repeal — remain unresolved and will likely return as standalone legislation.

Arts & Culture: 

The budget includes a $1 million increase for the Grants for the Arts line item, bringing total state arts grant funding to $10.59 million. The increase marks the first growth in state arts funding in more than a decade and follows a coordinated advocacy effort led by Creative Pennsylvania and the bipartisan Pennsylvania Legislative Arts & Culture Caucus. Additionally, the Pennsylvania Council on the Arts restored $1 million in grant funding for smaller arts organizations by creating the new Spotlight Grant Program, expanding access to state funding for organizations with annual budgets between $10,000 and $100,000.

Childcare: 

The budget increases the Child Care Staff Recruitment and Retention program by $5 million, bringing it to $30 million, and adds $3.75 million for Pre-K Counts and $1.043 million for the Head Start Supplemental Assistance Program — funding the Administration frames as part of a broader push to address workforce shortages. Advocates at Start Strong PA and Pre-K for PA called it a step forward. However, infant and toddler early intervention and home visiting programs saw cuts or flat funding. 

Consumer Protection:

This budget invests additional funding in the Office of the Attorney General to continue pursuing consumer protection investigations. This budget also maintains the $200 million Working Pennsylvania Tax Credit.

Economic & Workforce Development: 

Included in this budget is an additional $10 million for career and technical education (CTE), in addition to $5 million in funding for the Child Care Staff Retention and Recruitment Program and $10 million for the Student Teacher Stipend Program by $10 million. Governor Shapiro’s Innovate in PA 2.0 program was funded at $125 million to provide capital for promising startups, fund clinical trials for the life sciences, and enhance the Commonwealth’s innovation network to help companies succeed. The budget includes a $3.75 million increase for small minority-owned businesses across the Commonwealth through the Historically Disadvantaged Business Program and maintains $20 million for main streets and small businesses through Main Street Matters to strengthen commercial corridors that are the heart of Pennsylvania’s communities. Finally, the final budget included the designation of a new Keystone Opportunity Expansion Zone at the Navy Yard specifically for shipbuilding.

Education: 

The budget continues significant investments in education throughout the Commonwealth. It provides the third installment of adequacy and equity funding with $565 million for school districts, increases Basic Education Funding and Special Education Funding by approximately $50 million each, in addition to the $10 million in Career and Technical Education cited above. This budget will hold Educational Tax Credits (EITC) flat-funded at $680,000,000. Higher education also received increased support through expanded PHEAA grants, a $10 million increase for Grow PA Scholarships, performance-based funding for Pennsylvania's state-related universities, and additional investments in PASSHE institutions. Through the budget, it is now required for students in kindergarten through the fifth grade to have at least 30 minutes of recess per school day. Similarly, students in half-day kindergarten will be required to have at least 15 minutes of recess per school day. 

Energy: 

Despite the Governor’s push for the Lightning Plan — his broader clean energy program — and its two main bills, Pennsylvania Climate Emissions Reductions Act (PACER), a cap and invest carbon program, and the Pennsylvania Reliable Energy Sustainability Standard (PRESS), a modernization of the state’s renewable energy standards, remain unaddressed and carry into the next session. 

Balancing the Books: 

Lawmakers leaned on familiar accounting tools rather than new taxes or dipping into the Rainy Day Fund. They spent down unused dedicated funds and rolled two months of Medicaid payments — about $1.3 billion each, roughly $2.6 billion total — into the next fiscal year, an accounting maneuver known as a “cycle roll” that pushes the payments past the fiscal year-end so they don't count against this year’s ledger.

Senate Republicans did not want to touch the Rainy Day Fund and would not accept new taxes — including the Governor’s proposals to tax skill games and legalize marijuana — as revenue streams. The Governor and Democrats wanted to preserve funding for the programs he had proposed — health care, education, public safety investments — and were willing to pull money from the Rainy Day Fund (~$4 billion) or raise new revenue to do it. Facing resistance to both, they proceeded with the cycle roll as a compromise to get a deal done. It’s worth noting that the Independent Fiscal Office says Pennsylvania is still running a $5 billion deficit this year, cycle roll included.

Healthcare & Human Services: 

The budget strengthens healthcare and human services through increased funding for medical assistance, behavioral health, intellectual disability services, aging programs, and children's services. Highlights include an additional  $615.2 million for medical assistance managed care, funding for 1,250 additional intellectual disability waiver slots, a $41.2 million increase for mental health services - including continued support of $10 million for the 988 Crisis Line - and increased investments in CHIP, rape crisis services, services for the blind and visually impaired, and aging initiatives such as PACE/PACENET.

Older Adults: 

The budget builds on the Governor’s “Aging Our Way, PA” strategic plan, including a $1 million increase for the Comprehensive Aging Performance Evaluation (CAPE), which reviews the 52 Area Agencies on Aging (AAAs) and publicly reports their performance on protective services. It continues funding for direct support professionals who serve seniors and adults with disabilities, and increases older adult protective services monitoring through the Department of Aging.

Public Safety:

The budget funds an additional four classes of Pennsylvania State Troopers and completes Governor Shapiro’s promise to fund 2,000 more police officers. Most notably, this budget delivered $24.1 million in funding for Pennsylvania’s rape crisis centers. This bi-partisan priority doubles the amount that they received last year and is a significant increase from the $11.9 million that they received the prior five years. For community organizations, this budget continues $62.1 million in Violence Intervention and Prevention (VIP) and BOOST funding.

Tourism & Recreation:

The budget makes notable investments in the Commonwealth's parks, forests, and cultural assets. Funding for State Parks Operations increased by $21.4 million, while State Forest Operations received a $21.4 million increase to support maintenance and conservation efforts. Additionally, the Pennsylvania Historical and Museum Commission received a modest increase for operations, while Culture and Historical Support Grants are maintained at $4 million, ensuring continued support for museums and cultural institutions across the Commonwealth.

Transportation: 

The enacted budget did see an increase of $300 million to the Highway and Safety Improvement appropriation for a total of $950 million.

Despite Governor Shapiro's insistence on identifying a recurring funding stream for public transportation throughout the Commonwealth, the final budget failed to include his proposed transfer of an additional 1.75 percent of Sales and Use Tax revenues to the Pennsylvania Transportation Trust Fund. Public transportation funding is positioned to be a key issue for the Commonwealth’s FY27-28 budget.

Conclusion

The Commonwealth’s FY 26-27 enacted budget reflects the realities of divided government, balancing fiscal restraint with targeted investments in a number of priorities, all while maintaining Pennsylvania’s Rainy Day Fund. While lawmakers reached consensus on funding critical services, many policy issues remain unresolved and will continue to shape legislative discussions for the remainder of the legislative session. As legislators return to Harrisburg in the fall, a number of legislative priorities will be given additional consideration, such as legislation pertaining to data centers in the Commonwealth and a definitive answer on the legal status of skill games.