Log In | About PICPA | Contact | FAQs

Legislative Update

Week Ending July 6, 2007

• Governor Signs County Audit Bill into Law
• Tax Bill Moves to House
• Budget Negotiations at a Stand-Still
• Commonwealth Ends Fiscal Year with $650 Million Surplus
• House Passes Historic Preservation Grants Proposal
• House Passes Bill to Aid Independent Films
• Gov. Rendell Signs Storage Tank Bill into Law
• House Passes “Green” Schools Bill
• Senate Approves Another “Blues Merger Oversight"
• Corporate Net Income Tax Reforms Introduced
• PICPA Local Government Conference

Governor Signs County Audit Bill into Law

On July 2, Gov. Rendell signed into law a bill that gives county auditors in Pennsylvania an additional three months to conduct audits of county finances and expenditures. The bill was sponsored by Rep. Dan Surra and is now Act 22 of 2007.

Surra said the additional time would ensure county audits are comprehensive and thorough, and that auditors are able to meet the audit deadlines in state law.

“County audits have become much more complex,” Surra said. “Extending the audit deadline protects taxpayers and keeps county auditors from routinely having to ask the courts for extensions of their deadlines. This law will save local taxpayers and our courts money.”

House Bill 635 would extend the deadline for completing county audits from April 1 to July 1. The bill takes effect immediately.

Last year, Gov. Rendell signed into law House Bill 2185 (Act 142 of 2006) that provided similar relief from the filing deadline.

Tax Bill Moves to House

On July 3, the House Finance Committee held an “off the floor” meeting to discuss – and vote to amend – Senate Bill 97, legislation amending the Tax Reform Code. As originally drafted, the bill would have excluded from the Bank Shares Tax goodwill created as a result of the purchase method of accounting for business combinations.

In the meeting, Committee Chairman Rep. David Levdansky offered a “gut-and-replace” amendment that, while keeping with the original intent of the bill, also provided for a number of additional changes, including the following:

• Language contained in House Bill 518 regarding neighborhood assistance tax credits 
• An increase in the Capital Stock and Franchise Tax threshold to $175,000
• An exemption from the sales tax for materials used for the rebuilding of locomotive engines
• Language contained in House Bill 1528, which provides for a film production tax credit program

The bill, as amended, passed through the committee unanimously and will now be considered – and possibly further amended – by the full House.

Budget Negotiations at a Stand-Still

This week, the “five caucuses” – the House and Senate Republicans, House and Senate Democrats, and the Administration – continued their seemingly futile attempts to negotiate the 2007-08 budget.

On the evening of Saturday, June 30, the Democrat-led House moved to non-concur in the Senate-passed budget bill – House Bill 1286 – by a vote of 102-96. The Senate had previously passed the bill by a vote of 49-1. When volleyed back to the Senate, the chamber predictably insisted on their version of the bill – an action which dictates that a conference committee be appointed to work out their differences.

As late as Thursday evening, Gov. Rendell continued to insist that he will not sign a budget bill until the legislature has passed his energy plan, transportation funding proposal, and parts of his health care plan. He is also insisting that lawmakers restore funding to programs cut in the Senate-passed budget. These items include funding for computers in high school classrooms, early childhood education, and job training and economic development programs.

The response from the Senate? According to Senate President Pro Tem Sen. Joe Scarnati, Gov. Rendell "has gotten his way with this type of tactic in the past. But this is a different group of people than were in here last year. ...And he is not going to shove his initiatives down our throat…"

Leaders of all four caucuses have said there was at least conceptual agreement on a transportation funding bill, HB 1590. According to sources, the Senate plan will increase the amount of new first-year state funding from $700 million to $750 million in the 2007-08 fiscal year. The Senate amendments also are expected to reconfigure local taxing options and reduce the House-mandated local contribution rate of 20 percent of mass transit costs to 15 percent.

However, on Friday, June 29, Secretary of Revenue Tom Wolf reported that the state collected $2.6 billion in General Fund revenue in June, $240.3 million, or 10.1 percent, more than anticipated. Fiscal year 2006-07 General Fund collections totaled $27.4 billion, which was $649.6 million, or 2.4 percent, above estimate.

Secretary of the Budget Michael Masch said that this higher-than-estimated revenue collection for fiscal year 2006-07 will eliminate the need for a broad-based sales tax increase, although the surplus will not completely fill the gap created by lost federal funding in fiscal year 2007-08. 

Negotiations continued through the July 4 holiday, although Wednesday was technically a non-voting session day to allow House members to attend district functions. Thursday, however, members of both chambers were back and working late into the night behind closed doors to try and work out a compromise. Members are expected to keep up this fierce pace into the weekend to avoid the impending furloughs if a budget is not at least agreed upon by Sunday. Gov. Rendell has said that he will not sign a stopgap budget until such an agreement among the four caucuses is in place.

Commonwealth Ends FY with $650 Million Surplus

As mentioned in the above article, on June 30, Secretary of Revenue Tom Wolf reported that the state collected $2.6 billion in General Fund revenue in June, $240.3 million, or 10.1 percent, more than anticipated. Fiscal year 2006-07 General Fund collections totaled $27.4 billion, which was $649.6 million, or 2.4 percent, above estimate.

Secretary Wolf noted that overall revenue collections are above estimates for the fiscal year — mostly due to higher-than-anticipated collections in corporate and personal income taxes — which show that the Pennsylvania economy is continuing to grow and create jobs. Also, a one-time, unanticipated corporation tax settlement in November 2006 increased fiscal year collections by $42 million.

The Gaming Fund received $29.4 million in unrestricted revenues for June. Fiscal year 2006-07 collections for the fund total $456.3 million. Gaming Fund receipts include taxes, fees and interest. Of the total for the month, $29 million was collected in state taxes for property tax relief, bringing the fiscal year total to $150.7 million.

The 2006-07 fiscal year revenue collections are final, pending year-end adjustments.

House Passes Historic Preservation Grants Proposal

The State House on July 2 passed legislation, House Bill 221, which would create a state grant program for the restoration and commercial or residential use of historic properties.

Under the program, the state Department of Community and Economic Development (DCED) would work with the Pennsylvania Historical and Museum Commission to approve and provide the grants. The criteria used to designate properties in Pennsylvania as historically significant also would be used to determine if the owners of those properties qualify for the state grants.

The legislation stipulates that at least 31 percent of the total grant money reserved for the program be used for residential applicants, and that DCED take into consideration the geographical distribution of grant funding when making awards. It also would allow for properties in Elm Street, Main Street, enterprise zones and local government historic districts to be given priority.

The bill now moves to the Senate for consideration.

House Passes Bill to Aid Independent Films

The State House on June 30 passed legislation that would support the growing independent film industry’s presence in Pennsylvania by expanding the state’s Film Production Grant Program by 50 percent, from $10 million to $15 million.

Under House Bill 1529, the Film Production Grant Program would be limited to productions with a budget of less than $2 million. The grants, which could not exceed 20 percent of the production costs, would cover certain expenses incurred in Pennsylvania, including transportation, music and story rights, food, lodging and insurance coverage.

The bill now moves to the Senate for consideration.

Gov. Rendell Signs Storage Tank Bill into Law

Gov. Ed Rendell on June 30 signed into law legislation extending for another five years two important programs that address environmental threats from underground storage tanks.

Senate Bill 815 extends the authorization of the Underground Storage Tank (UST) Environmental Cleanup and Underground Storage Tank Pollution Prevention programs through June 30, 2012.

The new law also authorizes the Department of Environmental Protection to direct up to $500,000 from the UST Environmental Cleanup Program for the “Heating Oil Cleanup Program.” This program reimburses the owners of underground storage tanks, with a capacity of 3,000 gallons or less, up to $5,000 for corrective action. The tanks must be used for storing heating oil needed for use on the premises where it is stored.

Since the program began in July 1998, more than 900 grants have been approved, and nearly $4.6 million has been awarded through the Underground Storage Tank Pollution Prevention Program.

House Passes “Green” Schools Bill

Legislation that would give school districts incentives to construct cleaner and more efficient schools was passed by the House on June 30 and sent to the Senate for consideration.

House Bill 894 would allow school districts to forgo some cost restrictions when building environmentally friendly school buildings. Devised by the United States Green Buildings Council, the green building standards are known as Leadership in Energy and Environmental Design, or LEED.

The up-front cost of LEED construction has been deterring school districts from implementing the standards—even though the savings realized over the 30-40 year lifespan of a school are many times the initial additional cost.

Senate Approves Another “Blues Merger Oversight”

On June 30, the State Senate approved yet another bill intended to provide state oversight of proposed mergers involving non-profit health insurance companies. The bill is specifically targeting the proposed merger between Highmark and Independence Blue Cross.

Consistent with the previous versions, a key provision within House Bill 966 is the requirement that any merger involving the “Blues” be subject to approval by the Department of Insurance. The bill also establishes an Insurance Restructuring Public Interest Review Board comprised of representatives from the Auditor General’s Office, the Administration, and the four caucuses of the General Assembly, as well as a policyholder, to provide recommendations to the Department.

Two additions to the latest bill include a requirement that the board make its recommendations no later than Aug. 31, 2008, and the inclusion of a sunset provision that would disband the board 90 days after the Department of Insurance ruling on the merger.

The bill drops a requirement that the Department of Insurance develop a written determination that the merger or consolidation will result in a “sustained reduction in health care premiums.” Instead, the Department must determine the merger will provide “sustained benefits.”

Corporate Net Income Tax Reforms Introduced

A bill to reduce the state’s Corporate Net Income Tax rate has been introduced in the State House.

House Bill 1599, if approved, would lower the current CNI rate of 9.99 percent to 8.99 percent beginning in January of 2008, and 7.99 percent beginning in January of 2009. The bill would also increase the weighting of the sales factor in apportioning business income.

The bill has been referred to the House Finance Committee.

PICPA Local Government Conference

There’s still time to register for PICPA’s Local Government Conference scheduled for July 16 and July 17 at the Hershey Lodge & Convention Center. In two fact-filled days, receive updates on the latest technical standards and regulatory issues related to local government accounting and auditing.