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Legislative Update

Week Ending March 16, 2007

• 2007 Fair Share Act Introduced
• Public Charities Law Goes Under Microscope
• Graham Packaging Correction Bill Introduced
• Budget Hearings Conclude
• House Adopts Rules Reforms
• House Majority Outlines Priorities
• PICPA Responds to GASB Intangible Assets Proposal
• Committee Approves Insurance Initiatives
• PICPA Members Confirmed to State Accountancy Board

2007 Fair Share Act Introduced

Legislation repealing Pennsylvania’s Doctrine of Joint and Several Liability—a top PICPA legislative priority—was introduced this week in the state Senate. It is identical in bill number and in substance to a proposal last session that ultimately made its way to Gov. Rendell’s desk only to have him veto it.

Senate Bill 435 of 2007, the Fair Share Act, eliminates joint liability for defendants in civil cases found to be less than 60 percent liable, replacing it with a system of comparative responsibility in which a defendant is responsible for paying only his “fair share” of the damages. That means if a party is responsible for 10 percent of the fault, that party would be accountable for paying only 10 percent of the total award.

Under current law, the doctrine of joint and several liability establishes that any defendant in a multidefendant civil case may be required to pay any or all damages associated with the actions of their co-defendants.

Under the bill, joint and several liability would still apply in certain limited circumstances, such as where the defendant is responsible for a majority of the damages, an intentional misrepresentation, an intentional act, or actions related to the release or threatened release of hazardous substance under the Hazardous Sites Cleanup Act.

Reforming Pennsylvania’s civil justice system has been an ongoing legislative battle for several years. In 2002, the General Assembly approved the Fair Share Act only to have it struck down by Commonwealth Court on the grounds that it violated the single subject requirement of the state constitution.

The bill was referred to the Senate Judiciary Committee.

Public Charities Law Goes Under Microscope

The state Senate Finance Committee, under the chairmanship of PICPA member Sen. Pat Browne, held a public hearing Wednesday on Act 55 of 1997, The Institutions of Purely Public Charities Act. Sen. Browne opened the hearing saying the law is now 10 years old and may be in need for some legislative updates.

PANPHA, an association of non-profit senior services, offered testimony that the law has failed to meet its intended objective to eliminate inconsistent application of eligibility standards of charitable tax exemptions, to reduce confusion and confrontation among traditionally tax-exempt institutions and political subdivisions, and to ensure that charitable and public funds are not unnecessarily diverted from the public good to litigate eligibility for tax-exempt status. PANPHA also noted that its members are seeing their renewal applications for sales tax exemptions denied by the Department of Revenue.

The PA School Boards Association, the County Commissioners Association of Pennsylvania, and the Hospital & Healthsystem Association of PA also provided testimony. Sen. Browne noted that he plans to hold additional meetings on the Act to determine if provisions of the law are still appropriate and if any amendments are needed.

Graham Packaging Correction Bill Introduced

Senate Bill 420, legislation that statutorily addresses the Commonwealth Court’s decision in Graham Packaging by clarifying that electronic downloads are excluded from the definition of tangible personal property for Sales and Use Tax purposes, was introduced this week in the state Senate. The bill was referred to the Senate Finance Committee.

In September of 2005, the Commonwealth Court held in Graham Packaging Company, LP v. Commonwealth of Pennsylvania that all canned software is taxable as “tangible personal property” under Pennsylvania’s Sales and Use Tax. In doing so, the Court expanded the taxation of software to include software that is electronically downloaded. The decision is troubling because it invalidates 25 years of DOR statements of policy and rulings that treated electronic downloads as non-taxable.

The impact of this decision on Pennsylvania’s economy is considerable. The Department of Revenue indicates the decision initially costs the Commonwealth’s taxpayers $55 million annually. That figure is expected to increase substantially over time.

Budget Hearings Conclude

This week, both the House and Senate Appropriations Committees heard the last of the 2007-08 budget testimonies. While the House concluded with a rescheduled day of presentations by fellow House members touting their own budget priorities and critiquing Gov. Rendell’s proposed spending plan, the Senate requested that a number of research and advocacy groups testify regarding the governor’s proposed budget. Included among these were the Commonwealth Foundation, the Keystone Research Center, the Pennsylvania Budget and Policy Center, and the state chapter of the National Federation of Independent Businesses (NFIB).

Perhaps the two most diametrically opposed testimonies came from the Pennsylvania-based conservative think tank, the Commonwealth Foundation, and the Pennsylvania Budget and Policy Center.

Representing the former was Nathan Benefield, who commented that state government spending has been excessive and that Pennsylvania should consider limiting its spending to the average inflation rate plus the average percentage change in state population – approximately 3.2 percent. Benefield also expressed the Foundation’s support for not only leasing the Turnpike, but also for the privatization of liquor stores, mass transit and PHEAA, in order to limit the need for tax increases and help promote innovations and better service. He further touted the expansion of education income tax credits (EITC); suggested implementing tax benefits for those who buy health care insurance, reducing insurance mandates, tort reform limiting non-economic damages, and expanding the use of health savings accounts (HSAs).

Contradicting the Commonwealth Foundation’s assertions, Michael Wood from the Pennsylvania Budget and Policy Center remarked that reports of increases in state spending are greatly exaggerated, and that Pennsylvania is, in fact, below the national average in spending growth per capita. Wood also commented that the phase-out of the Capital Stock and Franchise Tax (CSFT) has caused the state a significant loss in revenue that it has not yet made plans to address. He noted support, as well, for applying the governor’s proposed cigarette and tobacco product taxes to fund his Prescription for Pennsylvania program, the “fair share” payroll tax for companies that do not provide health care to employees, the proposed Oil Company Gross Profits Tax and the use of unitary combined reporting for those subject to it. In his final statements, Wood promoted expanding the sales tax base over the governor’s proposed one percent increase.

House Adopts Rules Reforms

After several weeks of deliberations and two days of floor debate, the state House unanimously approved House Resolution 108, the new rules package created by Speaker of the House Dennis O’Brien’s Legislative Reform Commission.

This passage came despite efforts on behalf of the Republicans to add a chamber rule allowing either party’s floor leaders to request a voice roll call vote on legislation; as well as another rule requiring that members be physically present at committee meetings for a quorum to exist, thus disallowing the common use of proxy votes to count toward the number of committee members present.

The former of these was of particular importance to Republicans, who touted the rule as representing the end of so-called “ghost voting” on the House floor, requiring a verbal response from each voting member. This rule came as a result of critics who denounced the inclusion last session of votes on legislation from lawmakers not physically present in the chamber. However, although this amendment was defeated, the key component of it was, in fact, adopted: a provision requiring members to be on the chamber floor to cast votes. Absent only is the right of party leaders to demand verbal affirmation of it.

The votes on these defeated proposals followed party lines, with O'Brien’s vote in line with the opposing party tipping the scales in favor of the Democrats.

HR 108 contained a number of other, less hotly contested, provisions, including the following:

• All voting sessions are to take place between the hours of 8 a.m. and 11 p.m.; a three-quarters majority would be required to continue working past 11 p.m.;
• All House expenses, including payroll, are to be available electronically upon request;
• The Rules Committee no longer has the ability to change legislation;
• All House votes, all committee votes and all public documents associated with proceedings of the House are to be posted on the Internet;
• Private vehicle leases for House members and employees are eliminated;
• So-called “ghost voting” is prohibited;
• A 24-hour waiting period is required before bills could be voted on;
• A brief description of legislation has to be read prior to debate and voting on a bill;
• House-funded public service announcements cannot air past 60 days prior to an election;
• Members who are indicted will have to leave their leadership posts while under indictment; employees under indictment will be suspended.

Speaker O’Brien has indicated that he will initiate another round of legislative reforms through the commission in the near future.

House Majority Outlines Priorities

With the first round of Rules debates concluded, the House Democratic Caucus outlined their aggressive policy agenda at a Capitol Hill press conference on Thursday afternoon.

According to the caucus leadership, this marks a “new day in the House,” and emphasized that their intention is to allow the committees greater liberty in addressing issues affecting the state, rather than forcing an agenda to pass through them.

Democratic leaders commented that although additions would certainly be added to the list, a few of the issues expected to be addressed this session by House committees of particular interest to PICPA members, include the following:

• Finance will concentrate on the governor’s business tax reform recommendations and property tax reform.
• Professional Licensure will focus primarily on the governor’s health-care package.
• Local Government is tasked with overseeing land use and local government cooperation.
• State Government will tackle campaign finance reform, improved voter access, and the Right to Know law.
• Insurance will also make its priority the governor’s health-care plan.

Your PICPA Government Relations team will continue to update our members and contact our Key Person Contacts and other volunteers when opportunities for their “expert testimony” before these key committees are available.

PICPA Responds to GASB Intangible Assets Proposal

PICPA recently submitted comments in response to the Governmental Accounting Standards Board’s (GASB) Exposure Draft (ED) of a proposed Statement on intangible assets. The Statement was published for public comment in December.

The ED aims to reduce inconsistencies in the accounting and financial reporting of intangible assets among governmental financial reports. The proposal also is intended to result in a more faithful representation of the service capacity of intangible assets and the periodic cost associated with the usage of such service capacity in governments’ financial statements.

Committee Approves Insurance Initiatives

On Tuesday, the Senate Banking and Insurance Committee approved three bills that provide financial incentive for people to invest in long-term care insurance, give the Department of Insurance additional oversight power on health insurance company mergers, and help prevent insurance company insolvencies.

Senate Bill 548 would create the Long-Term Care (LTC) Partnership Program, which would provide a financial incentive for individuals to buy LTC insurance. The measure is intended to give people the opportunity to protect their personal assets by buying the insurance.

Senate Bill 550 would give the Insurance Department oversight power over mergers involving non-profit health care insurers, such as Blue Cross and Blue Shield. The Department already has oversight power over mergers involving for-profit companies.

Senate Bill 222 would establish a “trend test” as a way to give the Department of Insurance more time to help Property and Casualty Insurers prevent insolvency.

All three bills will be referred to the Senate Appropriations Committee for fiscal notes. 

PICPA Members Confirmed to State Accountancy Board

PICPA members Thomas Clark, William Park and Samuel Stephenson were all unanimously approved this week by the state Senate to each serve another four-year term on the State Board of Accountancy. Gov. Ed Rendell nominated the trio in February.

Clark is a sole practitioner in Port Royal, Pa.

Park, who currently serves as State Board chairman, is a partner with Deloitte & Touché, LLP, in the Philadelphia office.

Stephenson, currently vice chair of the State Board, is a shareholder and managing director of the Pittsburgh office of Terry & Stephenson, PC.