8 things to know about Josh Shapiro’s 2025 budget proposal

Gov. Josh Shapiro delivered his third budget address on Tuesday in the state Capitol, outlining a $51.5 billion spending plan that calls for continued investments in education, legalized recreational cannabis, an overhauled approach to energy policy and funding for a slate of special events taking place across Pennsylvania in 2026. 

Shapiro proclaimed that “Pennsylvania is on the rise” in an optimistic budget address that highlighted some of his top priorities since taking office: providing property tax relief to seniors, investing state dollars in public schools and improving the state’s business climate. 

But while the governor took time to review his first few years in office, the bulk of his speech focused on what comes next. “We moved the ball down the field, we put points on the board and we should celebrate that – but we should be hungry for more,” Shapiro said. 

Shapiro said his budget includes “commonsense” priorities that are shared across both political parties, and urged members of the General Assembly to prioritize Pennsylvanians over political fights. “I get how politics works. I know there are some folks in this room who will feel the need to just reflexively be against whatever I’m for,” he said. “Remember, despite the wave nationally, voters sent the same group back here to keep making progress. So I ask you to resist the temptation to put politics above people, and instead, let’s continue to work together to solve problems in Pennsylvania.”

Democrats largely celebrated the proposal. Senate Minority Leader Jay Costa called it a “very solid plan to deliver critical growth, freedom, and opportunity to every Pennsylvanian,” while House Speaker Joanna McClinton said Shapiro’s budget was a “a bold plan from a visionary who wants to continue to put Pennsylvanians forward.”

But while Shapiro is hungry for more, some Republican leaders in the state legislature voiced concerns over the level of spending contained in the governor’s proposal, which will undoubtedly remain a topic of conversation as lawmakers hold budget hearings in the coming weeks. 

Pennsylvania Senate President Pro Tempore Kim Ward worried that Shapiro was basing too much of his budget and financial outlook on policy proposals that aren’t yet law, referring to items like legalized cannabis and a tax on unregulated video gaming machines. “We’re basing numbers in a budget on something that doesn’t exist,” she said. 

Below, City & State breaks down eight things you need to know about Shapiro’s 2025 budget proposal and how it’s being received by state lawmakers in Harrisburg. 

Shapiro pitched a $51.5 billion spending plan 

General Fund expenditures in Shapiro’s budget plan surpassed the $50 billion mark in this year’s proposal, with Shapiro’s budget blueprint having a total spend number of $51.5 billion. The budget, if enacted as Shapiro presented it on Tuesday, would require the state to dip into the Rainy Day Fund to balance the budget. Shapiro’s spending plan features a transfer of $1.6 billion from the Rainy Day Fund, while also using up the remainder of the state’s General Fund surplus to fund the $51.5 billion budget plan. If lawmakers approved the spending plan as is, the state’s Rainy Day Fund would still have a balance of roughly $6.4 billion at the end of the 2025-26 fiscal year, according to the Shapiro administration’s estimates. 

Shapiro’s budget comes as the state faces a structural budget deficit where General Fund expenses are projected to outpace state revenues over the next several years. Estimates in the Shapiro administration’s budget package suggest that the state’s structural imbalance will grow to $2.4 billion in the 2026-27 fiscal year, while the state’s Independent Fiscal Office estimates that the deficit will grow to $6.7 billion by fiscal year 2029-30.

Is this the year lawmakers legalize cannabis?

Shapiro’s budget calls for state lawmakers to legalize recreational cannabis for adult use, which would bring the state in line with most of its neighbors, including Delaware, Maryland, New York, New Jersey and Ohio – all of which have legalized the drug for recreational use.

Shapiro’s plan calls for a 20% tax on the wholesale price of products sold through a regulated cannabis marketplace, which his budget estimates would raise approximately $536.5 million in the 2025-26 fiscal year – money that would be put in the state’s General Fund. That figure includes $15.6 million from a tax on cannabis, $11.4 million from a sales on use tax on retail sales and $509.5 million from license fees. The governor also called for the state to expunge the criminal records of those who have been convicted for nonviolent charges related to possession of small amounts of cannabis.

Shapiro wants to tap into skill game revenue

Another potential revenue generator in Shapiro’s budget plan is the regulation and taxation of so-called games of skill, which are unregulated video gaming machines that have become prevalent in bars, convenience stores and fraternal clubs, among other locations. “If we want Pennsylvania to compete and win, we need to take some of the money going into those slots and put it in our state coffers so we can maintain our reserves and keep building on our progress,” Shapiro said on Tuesday.

The state currently regulates Video Gaming Terminals, also known as VGTs, and Shapiro’s budget would include skills games into the state’s VGT regulatory structure, which would result in a 52% tax on gross terminal revenue. The governor’s budget estimates that the state would raise $368.9 million in revenue in the 2025-26 fiscal year from the taxation and regulation of skill games.

Senate Majority Leader Joe Pittman, a Republican, reiterated that regulating games of skill is a shared priority between Senate Republicans and the governor. “I do think that this caucus has shown an interest in regulating games of skill. We, amongst our caucus, have diverse opinions on how best to do that,” he said.

Ward also expressed a desire to regulate the machines: “It's really important that we regulate those games of skill,” she told reporters following Shapiro’s budget address. “There are many players right now in Pennsylvania. Some are good, some would never pass a background check – and as long as we're sitting here doing nothing, it’s proliferating into all of our neighborhoods with no regulation and no taxes.”

Republicans warn of impending fiscal plight

Republicans who control the state Senate expressed severe concerns with the level of spending in Shapiro’s blueprint, especially since the budget plan relies on several policy proposals that would need to be approved by the state legislature, like legal cannabis and skill games legislation. 

Pittman said he sees some areas of common ground between Shapiro and the GOP, including permitting reform efforts, growing the state’s economy and regulating skill games. However, he also stressed the need for public officials to keep an eye on the state’s budget deficit. “The reality is we have a structural deficit … and we have to recognize that we cannot be all things to all people all the time,” he said. 

Senate Appropriations Committee Chair Scott Martin was even more blunt about the level of spending in Shapiro’s budget and its potential impact on the commonwealth’s finances. “I have never seen in all my years of receiving a budget – or listening to how they were going to spend it or how they’re going to pay for it – have seen more inflated numbers in terms of revenue in my life,” he said. 

“Yes, we’re in divided government. Yes, they’re going to have some priorities that are different than ours. If they’re serious on some of their priorities that are important to them that we might be able to find common ground on, for the love of God, work on closing our structural deficit and we’ll work with you on different things,” Martin added. “But we are at a real important moment in Pennsylvania’s fiscal history.”

More money for public schools

The budget plan presented to lawmakers on Tuesday continues making investments in public education after the state’s public school funding system was ruled unconstitutional by the state’s Commonwealth Court in 2023.

The Democratic governor’s budget features a proposed $75 million increase in basic education funding, as well as a $526 million investment through the state’s adequacy formula. It would also grow special education funding by an additional $40 million and calls for cyber charter school reforms. However, the plan does not include funding increases for school choice programs or private school vouchers, as noted by some Republican lawmakers. 

Shapiro eyes funding boost for mass transit

Funding for mass transit has been a sticking point in Harrisburg over the last year as the Southeastern Pennsylvania Transportation Authority, more commonly known as SEPTA, faces a multimillion-dollar operating deficit. 

Shapiro’s budget calls for a 1.75% increase in the amount of funds transferred from Sales and Use Tax receipts to the Public Transportation Trust Fund, which would free up an additional $292.5 million for mass transit in the next fiscal year.

Speeding up Pennsylvania’s corporate tax rate reduction

In his final budget in 2022, then-Gov. Tom Wolf signed into law a phased reduction to the state’s corporate tax rate that would reduce the Corporate Net Income Tax from 9.99% to 4.99% by 2031. Lawmakers in both parties supported the move at the time, and now Shapiro wants to speed up that reduction by two years. 

His 2025 budget plan calls for lawmakers to lower the state’s CNIT rate to 4.99% by 2029. “Let’s be more aggressive and speed up these tax cuts by two whole years so we can compete more effectively and unleash our commonwealth’s full potential,” Shapiro said on Tuesday.

All eyes on 2026

Pennsylvania will truly be a keystone in 2026 as several national and international events are hosted throughout the commonwealth. The year will mark the 250th anniversary of the signing of the Declaration of Independence, and Pennsylvania is expected to attract visitors from across the nation for 250th anniversary festivities. 

Philadelphia will also be hosting FIFA World Cup matches, the Major League Baseball All-Star Game and NCAA men’s basketball tournament games in 2026, and the PGA Championship will also be taking place in the region that same year. Plus, Pittsburgh will be home to the 2026 NFL Draft, promising that Pennsylvania will be a major destination for sports fans next year. 

Shapiro’s budget seeks $36.5 million for the state’s Tourism Promotion Fund to plan and execute 2026 events, $15 million for regional event security costs and another $10 million to market events and attract tourists. 

“My budget ensures that these epic events will have the resources that they need, because all eyes are going to be on Pennsylvania as we celebrate America’s 250th birthday in 2026 and welcome millions of people to where it all began,” he said.