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Legislative Update

Week Ending April 14, 2006

• Week in Review
• Political News & Notes
• Consolidation of Police Pension Plans Proposed
• Interim Auditing Standards Proposed for Private Schools
• Proposal Urges Congress to Block IRS Rules
• A New, Better Property Tax Relieve Proposal???
• A View from the Inside

Week in Review

Democrat Shawn Flaherty won Tuesday's special election to fill out the unexpired term of the resigned Republican Jeff Habay. Flaherty, the son of former Pittsburgh Mayor Pete Flaherty who died a year ago, defeated Republican Mike Dolan.

The stalemate on property tax relief continued this week after yet another meeting of the committee appointed to negotiate a compromise that will be presented to each chamber for a yes/no vote. At the April 13 meeting, House Republicans pressed one more time to persuade their colleagues to increase the state sales tax, but senators once again rejected the idea.

Political News & Notes

Flaherty Wins House Special Election. Fox Chapel attorney Shawn Flaherty claimed a narrow victory in the April 11 Special State House Election to fill out the unexpired term of Republican Jeff Habay, who resigned because of legal problems. Flaherty defeated Republican Mike Dolan by a mere 108 votes out of 11,000 cast. Republicans still hold a 15-seat majority in the state House-109 to 94. A Flaherty-Dolan rematch is likely as the two will meet again in November for the term that begins in January 2007.

Diamond in the Run. Ending months of speculation, populist gadfly Russ Diamond announced on April 13 that he will run for Governor of Pennsylvania as an Independent. Diamond founded the grassroots organization PACleanSweep. His platform for a new Pennsylvania includes facilitating a constitutional convention, repealing the slots bill, reducing property taxes, eliminating government waste and planning for the Commonwealth's looming pension crisis.

Consolidation of Police Pension Plans Proposed

On Tuesday, April 11, the state House Local Government Subcommittee on Boroughs held a public hearing on legislation that would transition all local police pension plans into a statewide pension plan administered by the State Employees Retirement System (SERS).

A representative from the Public Employee Retirement Commission (PERC) provided a detailed review of the issue. There are currently 970 defined benefit plans for municipal police, including Philadelphia and the average active membership of those plans are 18.6 members, but 70 percent have ten or fewer members. The average administrative cost per member in the police pension plans is $865, and the average for those plans with ten or fewer members is $1,500, whereas the average cost per member in SERS is $175. The lack of benefit uniformity across the 970 plans is also a problem.

House Bill 1599 would replace the existing benefit structures with an accrual rate system. New members would automatically join the statewide system, but current members would be given the option to join, provided certain caveats are met, he noted. State aid under Act 205 would remain unchanged, except any surplus in excess of 10 percent would be returned to the General Fund. It is estimated that the aggregate normal costs after 20 years will be $243 million, representing an increase in normal cost of $75 million.   

The bill will also provide for centralized management of pension fund assets, PERC explained. The current structure precludes the investment diversification appropriate for public pension fund assets and, in many instances, the total assets available for investment do not satisfy the threshold level required to access certain types of desirable investment vehicles, which lead to lower returns. Data was cited indicating that SERS has had a 2 percent higher rate of return in recent years than average return of the individual police pension plans, and that gap is projected to widen.

The PICPA's Committee on Local Government Auditing and Accounting will be reviewing the proposal immediately after tax season.

Interim Auditing Standards Proposed for Private Schools

The state Department of Education proposed in the April 11, 2006 Pennsylvania Bulletin interim standards for auditing approved private schools and the four chartered schools for the education of the deaf and the blind. The interim standards take effect immediately with a sunset date of June 30, 2007.

The objective of these audit standards, according to the DOE, is to ensure that revenues provided by the Commonwealth for approved students and the expenses of the schools have been presented appropriately in accordance with Generally Accepted Accounting Principles.

The interim standards are necessary to ensure that the approved private schools and the chartered schools for deaf or blind children continue to receive predictable funding and to reform the audit structure, thereby enhancing each school's ability to focus on students and programs. The interim standards will result in a 20 to 30 percent increase in auditing costs to the schools, the DOE reports. There will be no increase in cost to the Commonwealth.

The PICPA has reviewed the proposal and is providing the DOE comments.

Proposal Urges Congress to Block IRS Rules 

Upon its return to session the week of April 24, the state House could consider a measure urging the President and the U.S. Congress to prohibit the IRS from promulgating rules permitting tax preparers to share consumers' tax returns with an unaffiliated business.

House Resolution 689 states that while the proposed rule requires express written permission from consumers to allow their information to be sold, there are concerns as to whether consumers will realize they have signed a consent form or will feel pressured into signing away their private rights. It further urges that appropriate action be taken to stop the proposal.

The PICPA strongly supports protecting the confidentiality of taxpayers' personal information. We believe protection of taxpayers' privacy is one of the more important reasons for a taxpayer to choose a CPA to prepare their return.  Furthermore, the members of the PICPA are subject to an enforceable Code of Conduct that prohibits the member from sharing taxpayer information without first adequately notifying the taxpayer. Failure to abide by this rule could cause the loss of their license to practice as a CPA.

Moreover, under the Gramm Leach Bliley law, every client of every CPA every year receives a notice that clearly states that the CPA does not share their information except as might be necessary to prepare their return or, in the unusual circumstance that the information is shared, the notice must specify that circumstance.

A New, Better Property Tax Relief Proposal???

The Commonwealth Foundation unveiled a property tax relief proposal on April 11 that could provide five times more school property tax relief to every Pennsylvania homeowner than does Gov. Ed Rendell's property tax relief law, Act 72 of 2004.

The proposal would create the Property Tax Relief Scholarship Fund into which policymakers could allocate revenues from Act 71 of 2004, the Pennsylvania Race Horse Development and Gaming Act. These funds would be used to guarantee every homeowner the property tax relief promised under Act 72 of 2004, the Homeowner Tax Relief Act (HTRA). The HTRA would provide an average of $289 per household per $1 billion in revenue from Act 71 of 2004.

In addition to guaranteeing the HTRA relief without shifting or raising other taxes, the Property Tax Relief Scholarship Act would empower low- and middle-income students with the opportunity to use $3,000 scholarships to attend an alternative school. This innovative approach to the property tax issue has the potential of quintupling the amount of relief promised under Act 72.

How would the Property Tax Relief Scholarship Act work?

Funds deposited in the Property Tax Relief Scholarship Fund would be converted into $3,000 scholarships for children in low- and middle-income families. Since these scholarships will make alternative schools more affordable, parents will be financially empowered to transfer their children from higher-cost district schools to lower-cost alternative schools. When even one district school student utilizes a Property Tax Relief Scholarship, property taxes decrease for every district homeowner.

A View from The Inside

The PICPA's 6^th Annual Day on the Hill legislative program is set for Tuesday, June 6, 2006 in Harrisburg. The theme for the day is "A View from the Inside." Join your fellow CPAs from across the state as they learn more about the legislative process and current issues of interest to the profession.