2026-2027 Fiscal Year State Budget Finalized

For the fifth consecutive year, Pennsylvania missed the state constitutional deadline to pass a state budget by June 30th. After further negotiations following July 4th, legislative leaders from the House and Senate asked their members to return the weekend of July 10th to vote on the package. Both bodies moved budget and related bills on Friday and Saturday, and returned on Sunday, July 12, to pass the General Fund bill (HB2400) in the House by 167–35 and in the Senate by 44–6.

The final package totals $50.8 billion in spending, which is a $1.8 billion increase over last year’s budget. However, it does not include any new revenue sources or draw on the Commonwealth’s $8 billion in Rainy Day surplus. Instead, the new budget uses $2 billion in special fund transfers and delays $2.6 billion in payments to Medicaid managed care organizations (MCOs) and the Community HealthChoices program.

In addition, the budget package establishes the Innovate in PA 2.0 tax credit program, authorizing the Department of Revenue to issue $125 million in insurance-premium-tax credits to support Ben Franklin Technology Partners’ venture funds and to provide grants for life sciences and biotechnology initiatives.

It also designates new Keystone Opportunity Expansion Zones, including one at the Philadelphia Navy Yard. The budget increases the Child Care Worker Retention and Recruitment program by $5 million (bringing the total to $30 million) and provides additional funding for WEDnetPA to expand employer-led job training.

According to the PA Chamber, tax provisions maintain the scheduled phase-down of the Corporate Net Income Tax, reducing the rate from 7.49% to 6.99% in 2027 and keeping the Commonwealth on track to reach 4.99% by 2031. Improvements enacted in 2024 to Pennsylvania’s treatment of Net Operating Losses remain in effect, gradually increasing the deduction limit for post-2025 losses from 40% to 80% by 2029, while pre-2025 losses remain capped at 40%.

The package also decouples Philadelphia’s business privilege tax base from federal rules governing research and experimental expenditures, qualified production property, and business interest calculations. It clarifies that the local sales tax situs in Allegheny County and Philadelphia aligns with the statewide Sales and Use Tax. The exemption for data center computer equipment remains unchanged.

Infrastructure and transportation provisions within the agreement include a new design-build best-value procurement option for PA Turnpike projects. The budget reverses the planned phaseout of State Police funding from the Motor License Fund, increasing support to $375 million, a $125 million increase. PennDOT is directed to accelerate highway improvements by deploying $775 million over two years, including $500 million in FY 2026–27. The waiver of local matching requirements for the Multimodal Transportation Program is extended, and the Secretary of Transportation must provide quarterly updates on the Motor License Fund and the Public Transportation Trust Fund. However, the budget continues funding for a special prosecutor for mass transit, authorizes mechanisms to administer federal grants for rail freight rehabilitation and rideshare/vanpool programs, and makes no changes to public transit funding formulas.

Next, the General Assembly passed language requiring data centers to report water and energy use to the Department of Environmental Protection, but removed language that would allow municipalities to impose temporary moratoriums on new data center development while updating zoning ordinances. The budget package includes a provision requiring electric distribution companies and gas pipeline owners to provide advance notice when alternative transmission technologies could increase electric line capacity.