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Legislative Update

Week Ending Oct. 27, 2006

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• Local Tax Measure to be Reformed for 2007
• “Westinghouse” Bill Clears House and Senate
• National Guard Bill Set to Become Law
• Workers’ Comp Reform Measure Heads to Governor’s Desk
• Governor Gets Kid’s Health Care Bill
• Long-Awaited Lobbyist Disclosure Reform Passes

Local Tax Measure to be Reformed for 2007

A compromise measure that makes significant reforms to the Emergency Municipal Services Tax Act of 2004 was approved this week by lawmakers and sent to the governor.

The joint Senate-House Conference Committee Report on Senate Bill 157 requires that the tax, which would be renamed the “Local Services Tax,” be withheld on a payroll-period basis with a maximum deduction of $1 per week, if the tax is levied at a combined rate exceeding $10 in a calendar year. If the combined rate is less than $10, it can be collected in one lump sum. Employers would be required to remit the LST collections on a quarterly basis.

The Conference Committee Report also specifically exempts those earning $12,000 or less per year from the tax, again, if the tax is levied at a combined rate exceeding $10 in a calendar year.

Senate Bill 157 further restricts the use of the money for only emergency services including police, fire, and emergency medical services; road construction and maintenance; property tax reduction; and/or property tax relief through the use of homestead/farmstead exemption.

Senate Bill 157 also specifically ensures that individuals are liable for a maximum annual payment of $52, regardless of the number of jobs or work locations that the person may have.

Generally, the measure allows only the municipality/school district in which the employee is primarily employed to levy the LST. In cases of concurrent employment, the priority for collecting the tax would be:

• Where the person is primarily employed or has his principal office;
• Where the person resides and works; and,
• Where the person is employed closest to his place of residence.

Gov. Rendell has already voiced his approval of the provisions and is expected to sign SB 157 into law shortly.

“Westinghouse” Bill Clears House and Senate

Among the many pieces of legislation voted on by the two chambers this week was Senate Bill 854—a bill originally introduced in the fall of 2005 to exempt employer and employee contributions to Health Savings Accounts from personal income tax.

The bill received its final modification on Oct. 23, when it was stripped and replaced with new language. As now written, SB 854 would create new “strategic development areas.” Much like the Keystone Opportunity Zone Act, the Strategic Development Areas (SDAs) will be designed so as to encourage capital investment, to promote job creation and retention, and in the long run to provide additional tax basis for the Commonwealth and the affected municipalities.

Under SB 854, a maximum of four SDAs will be initially identified by the governor. The bill mandates that such SDAs must receive formal support from all municipalities affected before the benefits accrue to the landowners and operators. Once approved by the municipalities, the areas will receive the same package of tax and other benefits as are currently afforded to KOZs. The designation will continue for a term of 15 years, unless the municipalities and property owners agree to an earlier termination.

Each zone must be at least ten acres and no more than 1,500 acres in size. The aggregate acreage for all four SDAs is to be 5,000 or less. Gaming uses will not be permitted in the SDAs.

To qualify, a business must be able to create or retain at least 500 jobs or invest a minimum of $45 million within the first three years of operation. SDAs are also reserved for businesses in the areas of energy, bioscience, or manufacturing.

Gov. Rendell is expected to sign the bill when it reaches his desk in the next few days.

National Guard Bill Set to Become Law

House Bill 2282, a bill exempting from state income tax the pay of Pennsylvania National Guard members who are called to active state duty during an emergency, is now on its way to the governor's desk. Gov. Rendell is expected to sign the bill into law.

Under current law, income derived from the U.S. Government from active duty outside the Commonwealth of Pennsylvania as a member of its armed forces is excluded from the definition of compensation.

The new law will apply to taxable years beginning after Dec. 31, 2005.

Workers' Comp Reform Measure Heads to Governor's Desk

A bill reforming the state's Workers' Compensation system is on its way to the governor’s desk for his approval. The reforms in House Bill 2738 are aimed at reducing workers' comp litigation costs and streamlining the process to benefit both employees and employers in the Commonwealth.

In its effort to avoid costly litigation and prevent delays, the bill would require workers' compensation judges to establish a mandatory trial schedule to be attended by all parties, as well as mandatory mediation, which is currently not required for workers' compensation cases in Pennsylvania.

HB 2738 also restructures the workers' compensation appeals board by establishing a code of ethics for board members and a more streamlined process for final appeal decisions. The bill also creates Uninsured Employers Guaranty Fund to provide workers' compensation benefits to injured workers whose employers did not carry the required coverage.

Governor Gets Kid’s Health Care Bill

Gov. Rendell applauded lawmakers this week for passing his “Cover All Kids” initiative, House Bill 2699, which will enable Pennsylvania families to purchase affordable health insurance for their children. 
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Currently, CHIP is free for children of families with incomes under $40,000 (family of four – 200 percent of the federal poverty level) and available at a reduced cost for children with family incomes of $47,000 (family of four - 200 percent - 235 percent of FPL).

Under Cover All Kids, 100 percent of the parents who currently cannot afford to insure their children will get assistance from the state to ensure that the cost of health insurance for their children is reasonable.

If parents can purchase coverage for their children through their employer but are unable to afford the full premium, the state will provide assistance to the family to pay the premiums for private insurance, rather than enrolling the child in CHIP – if the cost of the private premium is less than the monthly cost to the state of the Cover All Kids premium.

The bill includes a “go bare period” that requires families to demonstrate that their child has not had coverage for the last six months, unless the child is two years old or younger. The “go bare period” is not required for infants, children who have lost coverage because a parent lost their job, or those moving from another public insurance program.

The 2006-07 state budget includes $4.5 million for Cover All Kids, which will be used to draw down additional federal funds.

Long-Awaited Lobbyist Disclosure Reform Passes

A bill requiring all lobbyists, lobbying firms and principals to register and disclose their spending as they conduct their business with state government was approved this week by the legislature, but a printing error will temporarily delay it being sent to Gov. Rendell for his approval.

House Bill 700 would require reporting of gifts of $250 or more, and meals or other hospitality exceeding $650 in a year. The $250 reporting threshold for gifts and the $650 annual threshold for meals, lodging, transportation, recreation, and entertainment were based on the prior lobbyist disclosure law. The bill also requires a biennial $100 registration fee for lobbyists and principals.

The state Supreme Court struck down Pennsylvania’s previous lobbyist disclosure law in 2002, ruling that it infringed on the judiciary’s right to regulate the practice of law.