As Governor Josh Shapiro unveiled his state budget before a joint session of the Pennsylvania House and Senate in early February, he discussed key legislative priorities and economic policies, a number of which will resonate with and potentially impact our members. The governor’s proposal outlines an approximately 8 percent increase in state spending, aimed at education, public transportation, energy initiatives, and workforce development. This proposed spending increase would be offset through a combination of new revenue sources, including the taxation and regulation of skill games, the legalization of adult-use cannabis, and drawing from the state’s $3 billion surplus and $7 billion rainy day fund.
With the budget proposal now released and budget hearings underway, negotiations will intensify in the coming months ahead of the June 30 budget deadline. As always, PFMA will be in the thick of it making sure our members and priorities are represented in Harrisburg.
A number of significant provisions in the proposed budget are directly relevant to PFMA members:
Corporate Net Income Tax (CNIT) Acceleration – Currently, Pennsylvania’s CNIT rate is set to decrease by 0.5 percent annually until it reaches 4.99 percent in tax year 2031. The governor’s proposal accelerates this timeline by two years, reducing the tax rate by 0.75 percent each year, reaching 4.99 percent in 2029. Additionally, the proposal seeks to close the “Delaware Loophole,” which allows businesses to shift Pennsylvania-based income to out-of-state subsidiaries, reducing state tax obligations.
Organized Retail Crime (ORC) Task Force Funding – Continuing Pennsylvania’s efforts to combat organized retail crime, the governor’s budget allocates $2.595 million for the Organized Retail Crime Task Force. This funding supports law enforcement efforts to investigate and prosecute high-impact retail theft, a priority issue for PFMA members and Pennsylvania retailers.
Skill Games and Adult-Use Cannabis Legalization – The budget proposes the legalization of adult-use cannabis, with regulated sales beginning January 1, 2026. Skill games would be placed under the oversight of the Pennsylvania Gaming Control Board, with plans for 30,000 machines in 2025-26, increasing to 40,000 by 2029-30. Establishments would be limited to a maximum of five machines, and gross terminal revenues would be taxed at an effective rate of 52 percent, with 47 percent going to the General Fund and 5 percent to the Lottery Fund.
Workforce Development and Economic Growth Initiatives – Recognizing the importance of workforce development, the budget proposes a $55 million investment in childcare workforce recruitment and retention grants. Additionally, the governor’s budget includes a $12.5 million Workforce and Economic Development Network appropriation, leveraging $10 million from the existing Pennsylvania First program and $2.5 million in new state funds for worker training initiatives.
Other economic development measures include an additional $3 million for the Marketing to Attract Business program and a $5 million increase in programmatic funding for Pennsylvania First, aimed at enhancing business attraction, retention, and site selection efforts.
Support for Pennsylvania’s Food Industry – PFMA continues to advocate for funding initiatives that directly impact food retailers and suppliers. The proposed budget includes:
- $4 million in additional funding for the State Food Purchase Program, which supports food assistance for low-income residents.
- $2 million for the Fresh Food Financing Initiative, a public-private program that helps businesses expand grocery outlets in underserved communities.
- Pennsylvania Milk Processing Tax Credit Program, which incentivizes dairy processing projects that invest $50 million or create 100 jobs, with additional incentives for organic milk production.
- $2 million for a pilot program to develop county-based digesters, helping farmers reduce waste and generate renewable energy.
- Transportation and Infrastructure Funding – A major budget priority is increasing the proportion of Sales and Use Tax receipts deposited into the Public Transportation Trust Fund by an additional 1.75 percent. This would provide an additional $292.5 million for mass transit in 2025-26, with funding growing to more than $330 million by 2029-30.
The budget also continues a phased reduction in the Pennsylvania State Police’s reliance on the Motor License Fund, freeing up $750 million over five years for road and bridge projects. Additionally, $14.5 million is allocated for four new Pennsylvania State Police cadet classes, training over 400 new troopers.
What Comes Next?
With the governor’s budget proposal now public, the legislative process moves to the next phase as lawmakers weigh in and the four caucuses of the General Assembly crystallize their own objectives. PFMA remains engaged in advocacy efforts surrounding key priorities, including tax reform, workforce development, organized retail crime, and retail sector regulations. While many of these proposals align with industry needs, the months ahead will determine which initiatives make it into the final budget agreement.
Stay tuned for updates as negotiations progress.
