After a protracted four-month standoff, Pennsylvania lawmakers have approved key components of a $50 billion spending plan, ending a budget impasse that threatened funding for public schools and social services across the state.

Democratic Governor Josh Shapiro signed several critical budget bills shortly after their passage on Wednesday. The approval came after Democrats conceded to Republican demands to eliminate a regulation that would have made Pennsylvania the only major fossil fuel-producing state requiring power plant owners to pay for greenhouse gas emissions.

“This is a great budget,” Shapiro declared during a Capitol news conference, characterizing the deal as the product of weeks of closed-door negotiations between leaders of the politically divided Legislature. “We stayed at the table and we all stood up for the things that mattered most.”

The $50.1 billion no-new-taxes budget authorizes approximately $2.4 billion in new spending, representing a 5% increase. Republican lawmakers hailed the scrapping of the power plant emissions rule as a significant victory for the energy economy in Pennsylvania, the nation’s second-largest natural gas producer.

“This is one of the biggest policy wins in the past 10 years,” declared Senator Wayne Langerholc, a Republican from Cambria County.

The abandoned emissions regulation was originally introduced six years ago by then-Governor Tom Wolf as the centerpiece of his climate change agenda. The plan would have implemented a carbon dioxide cap-and-trade program through the Regional Greenhouse Gas Initiative, bypassing resistant Republican lawmakers. The regulation had been stalled in legal challenges before Pennsylvania’s highest court, which was considering whether the carbon-pricing scheme constituted an unconstitutional tax without legislative approval.

Environmental advocates and clean energy producers had championed the regulation as a landmark step in Pennsylvania’s fight against climate change. The Sierra Club called its elimination a “major setback for Pennsylvania’s environment, economy and public health.”

Opposition came from Republicans, fossil fuel interests, and labor unions representing workers at pipelines, refineries, and power plants, who argued the regulation would drive energy companies to build new gas-fired plants in other states. Governor Shapiro had previously expressed reservations about the plan and proposed an alternative that failed to gain traction amid Republican opposition.

The budget stalemate had created mounting pressure across the state since July 1, when Pennsylvania lost some of its spending authority without a signed budget. School districts, counties, and social service agencies had been operating under significant strain, warning of potential layoffs, increasing borrowing costs, and damage to the state’s social safety net.

“The stalemate pushed counties and their providers to the brink of disaster on several fronts,” the County Commissioners Association of Pennsylvania said Wednesday.

While Democrats didn’t secure all the funding Shapiro initially proposed, the agreement delivers substantial new money to public schools and establishes Pennsylvania’s first refundable earned income tax credit. The tax credit, projected to cost nearly $200 million annually, would reduce or eliminate state income tax for lower-income residents depending on family size. Had it been in effect this year, eligible families would have received an average tax break of $650.

Senate Majority Leader Joe Pittman, a Republican from Indiana County, described the budget as an “imperfect product” reflecting the difficult compromises required in a divided government. “While it may have taken time, more time than any of us would have preferred, we have brought a divided government together and proved that it is not dysfunctional government,” Pittman said during remarks on the Senate floor.

The budget maintains current tax and fee levels but relies on over $4 billion in surplus funds to achieve balance. This marks the second consecutive year Pennsylvania has run a multibillion-dollar budget deficit, reflecting a slow-growing economy and shrinking workforce that generates relatively modest gains in tax revenue.

Despite the compromise, the budget falls short in several areas. It doesn’t provide the increased public transit funding Shapiro requested, the mental health services funding counties sought, or the Medicaid reimbursement increases that nursing homes, insurers, and home-care providers had advocated for.

Almost all of the spending increase will be directed toward Medicaid and public education, two of the state’s largest budgetary obligations.