On February 4, Governor Josh Shapiro presented his 2025-26 state budget proposal, outlining $51.474 billion in public expenditures. This represents a $3.6 billion increase—a 7.5% rise from the current fiscal year. The budget focuses on education, workforce development, human services, and infrastructure while introducing several fiscal and policy changes that could impact Pennsylvania businesses.
Revenue and Fiscal Sustainability
To fund these increases, the administration plans to tap into the state’s Rainy-Day Fund while introducing new tax revenues totaling $536.5 million. Additionally, the proposal seeks to legalize and tax recreational marijuana and skill games to generate additional revenue. While these measures could provide new financial streams, they remain uncertain in the legislature and may not provide the long-term stability required for sustainable economic growth.
Pennsylvania’s primary revenue sources include Personal Income Tax ($19.64 billion or 40.6% of total revenue), Sales and Use Tax ($16.04 billion or 33.2%), and Corporate Taxes ($7.92 billion or 16.5%). On the spending side, Health & Human Services will receive 42.2% of the budget, with Education following closely at 39.4%.
Despite these measures, the Independent Fiscal Office (IFO) has raised concerns that Pennsylvania’s savings could be depleted within two years, potentially leading to a $2.1 billion deficit by 2027-28. This raises important questions about the sustainability of increased spending and the need for prudent fiscal planning to ensure long-term economic stability.
Impact on Businesses
The budget presents both opportunities and challenges for the business community. A key concern is the proposed increase in the minimum wage to $15 per hour for non-tipped workers and $9 per hour for tipped employees by January 1, 2026. While this aims to improve financial security for workers, businesses—particularly small businesses—may face financial strain, potentially leading to job reductions, increased automation, or higher costs for consumers.
The proposal also accelerates the reduction of Pennsylvania’s Corporate Net Income Tax (CNIT) rate, bringing it down to 4.99% by 2029. However, it introduces mandatory unitary combined reporting to close the “Delaware Loophole.” While this change seeks to create a more level playing field, it could increase tax burdens for multi-state businesses, particularly manufacturers and large employers.
Infrastructure, Workforce Development, and Energy Policies
Investments in workforce and infrastructure remain a priority in the budget. A proposed $5.5 million increase in Career and Technical Education (CTE) funding aims to strengthen workforce pipelines, addressing ongoing labor shortages. Additionally, an increased allocation of $292.5 million for mass transit through a 1.75% increase in Sales and Use Tax transfers could enhance workforce mobility and economic accessibility.
The proposed legalization of recreational marijuana is another significant component of the budget. While it may generate tax revenue, it raises concerns regarding regulatory complexities, workplace safety, and employment policies. Employers in safety-sensitive industries may need to reassess hiring and workplace policies to adapt to changing regulations.
Energy and sustainability initiatives, including the “Lightning Plan” and the Pennsylvania Climate Emissions Reduction Act (PACER), introduce new environmental policies that could impact industrial and energy-sector businesses. The potential carbon tax may raise costs for power generators and manufacturers, affecting both energy markets and business operations reliant on stable energy prices.
Looking Ahead
As the Pennsylvania House and Senate conduct budget hearings in the coming months, it is essential for business leaders to stay informed and engaged. The newly formed Pennsylvania Competitiveness Caucus—a bipartisan group focused on economic growth—could play a pivotal role in shaping policies that balance business sustainability with workforce and infrastructure needs.
Governor Shapiro’s budget introduces several promising initiatives, including workforce development funding and business tax reductions. However, concerns remain regarding wage increases, tax policy changes, and long-term fiscal sustainability. The Westmoreland County Chamber of Commerce remains committed to advocating for policies that foster economic growth, ensuring businesses can adapt and thrive in a changing financial landscape.
