On Sunday, July 12, Governor Shapiro signed Pennsylvania’s 2026-27 state budget into law. For schools of every kind, public, private, and faith-based, this budget matters. It sets the funding environment every school in the Commonwealth will operate in this year, and the debate that surrounded it previews a decision that could reshape tax credit scholarships beginning in the 2027-28 school year.
At FundEDU, we work with schools across Pennsylvania, public and private alike. Our job here is not to take sides. It is to lay out the facts so that administrators, boards, and families can understand what is now law, what remains pending, and what to watch next.
Public schools received a significant funding increase
The headline education story in this budget is a real one, and it is good news for public school communities.
According to the Pennsylvania Department of Education, the enacted budget includes a $565 million increase to the Ready to Learn Block Grant, bringing that appropriation to approximately $1.95 billion. Most of that increase, about $526 million, is dedicated adequacy funding: the third consecutive year of targeted investment responding to the Commonwealth Court’s 2023 ruling that Pennsylvania’s school funding system was unconstitutional. Across three budgets, the state has now committed more than $1.6 billion toward closing the adequacy gap in its most underfunded districts.
The budget also includes:
- A $58 million increase in Basic Education Funding, bringing the line to roughly $8.3 billion
- A $55 million increase for Special Education, bringing that appropriation to approximately $1.58 billion
- A $14 million increase for career and technical education programs
- $125 million for school facility improvements and $100 million for school safety and mental health supports
- Continued funding for universal free school breakfast
- An estimated $75 million in new annual savings for school districts from cyber charter funding reform, bringing total annual savings from those reforms to roughly $250 million
For districts that have spent years stretching budgets against rising costs, these are meaningful investments. Students in underfunded districts, disproportionately in lower-income communities, stand to benefit most directly from the adequacy dollars.
Full enacted figures are published by the Pennsylvania Department of Education at pa.gov.
Tax credit scholarships: unchanged in law, contested in negotiation
Here is the most important fact for scholarship families and participating schools: the signed budget makes no changes to Pennsylvania’s education tax credit programs. The Educational Improvement Tax Credit (EITC), the Opportunity Scholarship Tax Credit (OSTC), and the Economically Disadvantaged Schools (EDS) component all continue exactly as they operate today. The combined programs remain capped at $680 million, with the existing donor credit structure intact: 75 percent for a one-year commitment or 90 percent for a two-year commitment on scholarship contributions, and 99 percent for EDS contributions. Applications for the 2026-27 fiscal year are being processed under current law right now.
That flat outcome hides a genuine tug of war. During negotiations, the State Senate passed a tax code measure that would have expanded EITC by $25 million. The State House responded by attaching program reforms to that expansion. In the final deal, both fell away. No expansion, no reforms, no cuts.
Stability matters. But it is worth naming the context: in the 2023-24 school year, scholarship organizations awarded 101,751 scholarships statewide, while roughly 70,000 additional applications went unfunded because demand exceeded the available credits. A flat cap means that waitlist pressure continues.
One clarification for schools tracking the EDS program: the $50 million EDS increase many administrators remember came in last year’s budget, for 2025-26. That increase raised the EDS allocation to approximately $110 million and expanded the program from 131 qualifying schools to 221. This year’s budget maintains that level.
The bill that passed one chamber, and why it still matters: House Bill 2632
Weeks before the budget deal, the Pennsylvania House passed House Bill 2632 by a vote of 105 to 97, with three Republicans joining the Democratic majority. The bill now sits in the State Senate, which has not taken it up. It has not become law, and it has not been defeated. It remains pending through the end of the legislative session on November 30, 2026.
Because early summaries of this bill circulated before it was amended on the House floor, it is worth being precise about what the version the House actually passed would do. The following comes directly from the engrossed bill text and the official House Appropriations Committee fiscal note.
It would end EITC and OSTC after the 2026-27 fiscal year and replace them with a single new program, the Education Options Tax Credit, beginning in 2027-28. Nothing changes for the current fiscal year.
It would keep both the $680 million total and the $375 million general scholarship allocation. As introduced, the bill would have cut general scholarship funding by roughly $102 million. The House Appropriations Committee amended it unanimously before passage to restore general scholarships to their current $375 million level. Summaries citing a $102 million scholarship cut describe the original bill, not the version that passed.
It would eliminate OSTC as a separate program and expand the economically disadvantaged category. Today, OSTC provides $90 million in credits for scholarships serving students in the attendance zones of low-achieving schools. Under the new program, that separate allocation disappears, and the economically disadvantaged scholarship category grows from roughly $110 million to $200 million. Students living within a low-achieving school’s attendance boundary fold into the new category’s eligibility, alongside students attending qualifying lower-income, lower-tuition nonpublic schools on a list published annually by the Department of Education.
Economically disadvantaged contributions would carry a 99 percent credit with no per-donor cap. This mirrors and extends the current EDS structure. While every other category caps a contributor’s annual credits at $750,000, the bill places no annual limit on economically disadvantaged contributions, and it opens that category to pass-through entities in addition to corporations.
General scholarship contributions would drop to a 75 percent credit. Today, a donor who commits for two years receives a 90 percent credit on scholarship contributions. Under the bill, general scholarship contributions would be capped at 75 percent, with no two-year option to reach 90. Educational improvement and early childhood contributions would remain at 90 percent.
It would add new oversight and costs. Scholarship organizations would remit 2 percent of contributions to a new state accountability account funding program administration and audits. The Auditor General would conduct compliance audits of scholarship organizations and participating nonpublic schools. Participating nonpublic schools would submit admissions requirements, financial aid policies, expulsion policies, enrollment counts, and rejection counts for annual publication. The Department of Revenue would provide the General Assembly a list of the ten largest individual contributors through pass-through entities each year.
Supporters, led by prime sponsor Rep. Nikki Rivera of Lancaster, argue the bill adds transparency to a program that has grown to $680 million with limited public reporting, and that it directs more support to the students who need it most. The nearly doubled economically disadvantaged allocation, at a 99 percent credit, reflects that goal, and for schools serving predominantly low-income families it represents a genuine expansion.
Opponents, including the Pennsylvania Chamber and many scholarship organizations, argue that ending two established programs and reducing the general scholarship credit would disrupt access for the families currently relying on those scholarships and discourage the donor participation the entire system depends on.
The math that decides whether the redesign works
Set aside the politics and look at the donor’s decision, because that is where this bill would succeed or fail.
Today, a business or individual making a $10,000 scholarship contribution with a two-year commitment receives a $9,000 Pennsylvania tax credit. The net cost of that gift is $1,000. Under House Bill 2632, the same $10,000 contribution to a general scholarship program would earn a $7,500 credit. The net cost becomes $2,500. The donor’s out-of-pocket cost increases two and a half times overnight.
Pennsylvania has run a natural experiment on this question for more than two decades. The current program already offers donors a choice between a 75 percent credit for a one-year commitment and a 90 percent credit for a two-year commitment. Donors overwhelmingly choose the 90 percent path. When the price of giving falls, participation rises; the program’s own history is the evidence.
There is little direct precedent for a state reducing a scholarship credit rate on an established program, because states have historically moved rates up, not down. So any projection is exactly that, a projection. But the reasoning is straightforward. The bill’s redesign depends on donors continuing to fund the $375 million general scholarship category at a 75 percent credit while new money flows to the 99 percent economically disadvantaged category. If general scholarship donors step back, or migrate to the better-incentivized category, the students in the middle, families who qualify for scholarships but do not live in a low-achieving attendance zone or attend a listed school, are the ones who would feel the contraction first, in a program that already turns away roughly four of every ten applications.
For the private and faith-based schools where these scholarships underwrite enrollment, the exposure is concrete. Scholarship dollars are not an extra; for many families they are the difference between enrolling and not enrolling. A shift in scholarship funding shows up first in family decisions at admission time, then in enrollment counts, then in school budgets.
What schools and families can do now
The Senate’s inaction on House Bill 2632 is not the end of this debate, and the calendar is the reason.
The new program in the bill would take effect for the 2027-28 fiscal year. Even if the Senate never acts and the bill expires when the session ends November 30, a reintroduced version early in the next session could pass in time to hit that same effective date. Control of the State Senate is contested in this November’s election, as is the governor’s office, and the next General Assembly’s posture toward this legislation could differ from the current one’s. The ideas in this bill, consolidation, rate changes, targeting, and new oversight, will be back in some form. The time to be heard is before the next vote is scheduled, not after.
If your school participates in EITC or OSTC, or your family receives a scholarship, three actions matter most:
Know how your legislators voted. The House roll call on HB 2632 is public. If your State Representative voted against the bill, thank them and tell them why the program matters in your community. If they voted for it, reach out respectfully and make sure they understand what the change would mean for the families and schools they represent. Legislators hear from lobbyists constantly. They hear from actual scholarship families rarely, and those are the conversations that stick.
Focus on your State Senator. The Senate is where this bill lives now, and where any future version will be decided. Your Senator should hear directly from schools and families in their district before this comes to a vote.
Tell a real story. Statistics inform, but a specific family’s story persuades. What did the scholarship make possible? What would change without it? Personal, local, and concrete beats abstract every time.
FundEDU built a free advocacy kit for exactly this purpose. It helps you identify your State Senator and Representative, see how your Representative voted on HB 2632, and generate a personalized letter in minutes.
Use the advocacy kit at eftc.fundedu.org/legislative-action/protect-eitc/
The bottom line
The signed 2026-27 budget delivered real gains for public schools and left tax credit scholarships fully intact under current law. Both outcomes are worth acknowledging. But current law is only guaranteed through the 2026-27 fiscal year if House Bill 2632 or a successor advances, and the bill’s own timeline means the decisions that matter get made over the next twelve months. The schools and families with the most at stake are the ones legislators most need to hear from.
FundEDU will continue tracking this legislation and publishing the facts as they develop.
FundEDU facilitates connections between donors and educational organizations through Pennsylvania’s tax credit programs. FundEDU does not select scholarship recipients or allocate funds. For questions about how tax credits apply to your specific situation, consult your CPA or tax advisor.
Sources: Governor’s Office budget signing announcement, July 12, 2026 (pa.gov); Pennsylvania Department of Education enacted 2026-27 Education Budget (pa.gov); House Bill 2632, Printer’s Number 3651, engrossed text as passed by the House (palegis.us); House Appropriations Committee Fiscal Note, HB 2632 (palegis.us); Pennsylvania General Assembly bill history and House roll call, HB 2632 (palegis.us); PA Department of Community and Economic Development EITC program page (dced.pa.gov).
