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Legislative Update

Week Ending March 24, 2006

• Week in Review
• Political News & Notes
• Governor Vetoes Fair Share Act
• Hearing Examines State Earned Income Tax Credit Program
• White Paper Identifies Differences Between Financial Reporting

Week in Review

The State Senate Finance Committee this week reported out the first step in providing Pennsylvania's 7-million cell phone users with relief from double state taxation. Senate Bill 691 would roll back the 5 percent gross receipts tax on cell phone bills imposed on top of the 6 percent sales tax on calls. The proposal contains a five-year phase out of the tax that was imposed two years ago.

Senate leaders meeting with Gov. Rendell this week said that there would be a formal meeting next week of the Conference Committee on House Bill 39 of the Special Session on Tax Reform. "The final phase of the process has begun," said a senator who attended the meeting. "The governor's involvement is the crucial piece of the puzzle."

Political News & Notes

Court Busy Reviewing Petitions. Commonwealth Court knocked would-be election candidates off the May ballot this week. Rep. James Casorio and House Democratic incumbent John Myers are now without opponents in the Party Primary. Democratic Rep. Babette Josephs had been challenged in Court for an incomplete financial statement, but the Court allowed her to stay on the ballot after she filed an amended form. State House Democratic Appropriations Chairman Dwight Evans saw his only Primary Election opponent knocked off the ballot, while Republican Rep. Julie Harhart got the news that her potential Democratic opponent had dropped out of the race, making her unopposed for re-election.

Attorney General investigating Candidate's Claim... State Attorney General Tom Corbett is investigating claims made by candidate Jay Paisley that his Democratic primary opponent, state Rep. Mike Veon, and Beaver County Commissioner Chairman Dan Donatella offered him a job to quit the House race.

Governor Vetoes Fair Share Act

Governor Ed Rendell vetoed Senate Bill 435 - a decision that will prevent Pennsylvania from joining the 43 other states that have curbed lawsuit abuse by reforming liability laws. The bill, which would re-enact the Fair Share Act of 2002, was supported by many of Pennsylvania's employers, hospitals, doctors, and nonprofit and service organizations. PICPA was among those actively advocating our support for SB 435 throughout the legislative process, and urged the Governor to sign the bill into law.

The state House passed Senate Bill 435, by a vote of 118-81. The Senate approved this important measure by a vote of 32-18, in December 2005.

Senate Bill 435 would replace the doctrine of "joint and several liability" with "proportionate liability." The legislation takes a critical step toward creating a legal system in Pennsylvania that is fair to both plaintiffs and defendants, and one that holds parties responsible only for the harm they cause. Unfortunately, last summer, the Commonwealth Court ruled that this important measure was unconstitutional for procedural reasons, not substantive ones.

Over the years, employers and individuals have become targets as plaintiffs go in search of deep pockets when filing civil lawsuits. Often, in such a legal environment, parties found only marginally responsible are unfairly forced to pay an entire award simply because of their ability to pay. A major Pennsylvania manufacturer was nearly bankrupted by "joint and several liability" actions, and health care facilities continue to be among the hardest hit by judgments through medical malpractice liability lawsuits.

As a strong and consistent advocate for civil justice reform, the PICPA worked with lawmakers and stakeholders to win passage of the Fair Share Act, first in 2002 and again in 2005-2006. We have communicated with legislators and administration officials on numerable occasions urging support for legal reform and other measures that will promote economic growth and job creation throughout Pennsylvania.

Hearing Examines State Earned Income Tax Credit Program

On Wednesday, March 22, the House Finance Committee convened to hear testimonies from representatives of several entities on the subject of establishing a Pennsylvania Earned Income Tax Credit, or EITC, program. The Committee is currently reviewing testimony as it considers alternatives to the proposed minimum wage hike.

First to testify was Eileen McNulty, Executive Deputy Secretary of the Pennsylvania Department of Revenue. Rather than voicing the Department's position in the highly contested debate over raising the minimum wage versus incorporating a state EITC program, as those succeeding her did, McNulty focused on comparing and contrasting the federal EITC with Pennsylvania's current tax forgiveness program, known as the Special Provisions - or SP - program.

McNulty pointed out the different effect this program would have on senior citizens, when compared to the SP program. Unlike the SP program, a senior citizen over the age of 65 would only be eligible for an EITC if he/she had a qualifying child.

In addition, EITC considers eligible income to include any earned income such as wages, salary, or net earnings from self-employment and limited investment income. As these parameters encompass Social Security and pension payments, retired senior citizens are generally not eligible for an EITC.

McNulty then outlined the potential pitfalls of adopting a state EITC. Included among these is the obvious increase in complexity for individuals filling out an SP schedule that would now include additional calculations based on the EITC. Administration costs, too, could grow substantially. The Department would have to not only review claimants' PA-40 returns, but also independently verify the federal schedule EITCs to prevent fraudulent claims made to the IRS, as these would result in fraudulent claims attached to the state's PA-40 returns, as well.

Responding to questions from Committee members following her testimony, McNulty concurred that Pennsylvania is the third most generous state when it comes to tax forgiveness, incorporating a very low threshold regarding income levels. In addition, the SP program places no limit on the number of eligible dependents per household, the income limits rising by $9,500 each for 100% tax forgiveness. The EITC program, by contrast, sets the limit at two. She also clarified that the cost to the state would depend on the percentage of the federal EITC it planned to offer Pennsylvanians.

Additional hearings are likely to be held in the near future.

White Paper Identifies Differences Between Financial Reporting  

According to a white paper released March 21 by the Governmental Accounting Standards Board (GASB), individuals and organizations who are interested in the financial performance of state and local governments have substantially different information needs than those who follow the financial performance of for-profit entities.

These different and more diverse needs result from basic environmental differences between governments and businesses. According to the paper, the primary purpose of governments is to enhance or maintain the well-being of citizens by providing services in accordance with public policy goals. In contrast, for-profit business enterprises focus primarily on wealth creation, interacting principally with those segments of society that fulfill their mission of generating a financial return on investment for shareholders.

According to Federal data presented in this new white paper, revenue collected by state and local governments totaled $1.8 trillion or 20 percent of the 2002 U.S. gross domestic product, while state and local governments account for 12 percent of total U.S. employment.