Pa. Lawmakers Pass 2026-27 State Budget, Blocking Shapiro’s Tax Hikes and Preserving Emergency Savings

While the deal blocks Gov. Shapiro’s worst budget priorities, spending remains a top concern. 

Harrisburg, Pa., July 12, 2026 — Moments ago, the Pennsylvania legislature passed a state budget deal, twelve days past the deadline. 

The deal totals $52.2 billion, more than a billion dollars less than Gov. Josh Shapiro’s record spending proposal, but still spends billions more than revenue.  The budget defers $1.3 billion in Medicaid costs to show a balance sheet of $50.9 billion, but those costs will continue to recur.  

The final budget includes $1.7 billion from state’s special funds, also known as “couch cushions,” and lapsed appropriations from state agencies. Tapping into the state’s untouched reserves prevented tax hikes and avoids draining the emergency Rainy Day Fund.

Andrew Lewis, president & CEO of the Commonwealth Foundation, issued the following statement in response: 

“This budget kicks Pennsylvania’s fiscal problems further down the road. While lawmakers rightfully rejected more than $1 billion of Governor Shapiro’s reckless spending and preserved the Rainy Day Fund, this deal still spends beyond the state’s means and ignores the structural deficit that threatens taxpayers and the commonwealth’s long-term fiscal health.  

“Pennsylvania doesn’t have a funding problem—it has a spending problem.  The state budget fails to expand educational opportunity, while Gov. Shapiro and House Democrats secure a massive increase in the unfair, unaccountable ‘adequacy funding.’ With public school spending approaching $24,000 per student, sending more taxpayer dollars into a system with declining enrollment and no accountability is neither good education policy nor sound fiscal policy. 

“Lawmakers were able to guard against some of Gov. Shapiro’s worst fiscal policy. The budget doesn’t touch the state’s Rainy Day Fund, ensuring that the state has emergency funds to weather economic downturn. Instead, lawmakers utilized the couch cushions of off-budget accounts and ‘lapsed funds’—money taxpayers have already paid, but state bureaucracies have been sitting on for years—to spare taxpayers from Shapiro’s $2,100 tax hike. This effort should be commended but is only a one-time fix.  

“Absent from the final budget was the governor’s green energy mandate, the Lightning Plan, that includes an unpopular energy tax which would double already soaring utility bills.  

“Most importantly, House and Senate Republicans stood up for kids and protected the successful Education Improvement Tax Credit (EITC) program after Gov. Shapiro and House Democrats tried to dismantle it. These cruel and chaotic cuts would have taken scholarships away from thousands of Pennsylvania’s most vulnerable students. 

“Rather than attacking popular programs that are working for Pennsylvania families, Gov. Shapiro should embrace the new federal scholarship tax credit—which he can do without permission of House Democrat leadership or teacher union executives—and expand opportunity for more Pennsylvania students at no cost to state taxpayers.” 

Chief Operating Officer and General Counsel of the Commonwealth Foundation, Megan Martin, added: 

“While the governor and House Democrats pushed for reckless overspending, harmful progressive policies, and cuts to school choice for a fourth consecutive budget cycle, Senate Republicans stood firm and protected the programs that serve the commonwealth’s families and small businesses. 

“Despite efforts by Shapiro and House Democrats, it’s encouraging to see that the Rainy Day Fund remains intact, no taxes were raised, and no school choice scholarships were cut. 

“Pennsylvania has a long way to go to balance our books and close the deficit, but Senate Republicans have demonstrated once again they are standing strong to prevent the commonwealth from going down the path of higher taxes and less freedom.”

**Additional analysis on the final budget to follow.

Commonwealth Foundation experts are available to discuss the final budget. Please contact Giana DePaul at gmd@commonwealthfoundation.org or (215) 859-0384 with inquiries.