As we’ve moved into the first few weeks of 2026, we’re seeing Pennsylvania is at a financial crossroads. The state only recently finished its last homework assignment, with the 2025-26 budget signed in November, more than 100 days late. Now, with Governor Shapiro set to deliver his next budget address on February 3, the clock is already resetting.
Last year’s $50.1 billion budget was a hard-fought win for several key areas. Even after spending, the state managed to keep nearly $8 billion in its “Rainy Day” savings account. Highlights included:
- Education: A massive $900 million increase for public schools and a reform of the “cyber-charter” system that saved local districts $178 million.
- Family Support: A new $193 million tax credit to help working families keep more of their paychecks.
- Healthcare: Medicaid remains the state’s biggest bill, costing roughly $20 billion in state funds to provide healthcare for low-income residents and seniors.
- Food Security: An extra $11 million was added to help families put food on the table as federal pandemic-era benefits phased out.
While last year was about growth, this year is more about a bleak reality. The state’s Independent Fiscal Office warns that Pennsylvania is facing a $6.9 billion deficit. Simply put: the state is currently on track to spend much more than it brings in.
Because of that looming deficit, don’t expect a shopping list of new programs. Here is what we will likely see:
- No New Raises for Some Agencies: Most departments (like Human Services) will likely get “flat” budgets, just enough to maintain the status quo without any new expansion.
- A Fairer School Formula: Expect a push to send more money to the state’s poorest school districts to close the “adequacy gap.”
- New Revenue Ideas: To fill the $6.9 billion hole, the Governor will likely revisit the legalization of recreational marijuana and the regulation of “skill games” (the slot-machine-style games found in bars and gas stations).
- A Minimum Wage Push: Once again, a call to raise the state’s $7.25 minimum wage will likely be a major talking point.
This year isn’t just a budget year; it is a year of celebration. Between the 250th anniversary of the U.S., the World Cup in Philadelphia, and the NFL Draft in Pittsburgh, millions of tourists are headed to this great commonwealth.
So, we should also expect the budget to include “prep work” funding for better roads, increased security, and hospitality training. Pennsylvania will look its best when the world watches.
Finally, after Pennsylvania formally exited the Regional Greenhouse Gas Initiative, expect the Shapiro team to make energy a front-burner issue this year and beyond. With looming electrical grid shortages, a rapid expansion of data centers and price hikes on the horizon for consumers, lawmakers will need to come to the table quickly and find a way to map out an aggressive strategy for Pennsylvania’s energy needs.
With every seat in the state House and half the state Senate up for election this year, politics will be front and center. Because the deficit is so large, and the election is so close, it is highly unlikely that the Governor and the Legislature will agree on a budget by the June 30 deadline. In other words, expect a long summer of negotiations in Harrisburg.
