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Legislative Update

Week Ending July 20, 2007

• New Budget Supports Agenda for Pa. Progress, Rendell Says
  
• Tax Reform Code Changes Part of Budget Package
  
• Transportation Funding Bill Signed Into Law
  
• Rendell Signs Long-Term Care Insurance Incentive Bill
• Fall Legislative Agenda Taking Shape
• Pa. Businesses Can Now File Their State Corporate Taxes Electronically

New Budget Supports Agenda for Pa. Progress, Rendell Says

Gov. Ed Rendell on July 17 signed into law a new $27.5 billion fiscal year 2007-08 spending plan for the Commonwealth that implements much of his Agenda for Pennsylvania Progress. In addition to a “historic” investment in education, the new budget also makes new investments in health care, the environment, job creation and training, noted the governor at the bill signing.

“We’re increasing Pennsylvania’s education investment by $600 million, and that will be money well spent,” Rendell said. “We’re also delivering immediate help for people who need better options for staying healthy; for older Pennsylvanians who need the option of being cared for at home; and for businesses looking for a dynamic place to start and grow.”

The 2007-08 budget as contained in House Bill 1286 calls for $27.162 billion in General Fund spending, and an additional $317.5 million in state funding for mass transit from the Public Transportation Fund. This accounts for a $1.16 billion increase over the last fiscal year, or 4.45 percent growth. Fiscal Year 2007-08 will start off with a $300 million beginning balance (unspent surplus funds). In addition, $160 million is transferred to the Rainy Day Fund, bringing its balance to $690 million.
 
None of the seven new taxes originally proposed by Gov. Rendell back in February are contained in this budget.

A summary of the major budget line-items follows.

Education
Basic Education: Pennsylvania school districts will receive more than $4.95 billion to support efforts to educate children and youth—a $167.2 million increase, or 3.5 percent growth.
Special Education: More than $1 billion will be allocated to schools to help support Pennsylvania’s special-needs students—a $29.4 million increase, or 3 percent growth.
Growth Schools: The budget allocates $2.5 million to 46 school districts with rapidly increasing populations.
School Block Grants: Schools will receive $275 million in state funding through the block grant program—a $25 million increase, or 10 percent growth rate.
Pre-K Counts: This is a new initiative that provides $75 million to support pre-K programs throughout the state.
Head Start Programs: Programs supporting children from low-income and disadvantaged families received $40 million.
Early Intervention: The Department of Education and the Department of Public Welfare will receive $292.8 million for this program which supports special-needs children.
Classrooms for the Future: This program, which provides laptops for high school students, will receive $90 million, a $70 million increase (350%) over fiscal year 2006-07.
Science in Motion: State funding of $2.5 million was restored for this program which helps rural schools receive science education support from state colleges and universities.
Science - It’s Elementary: This program will receive $13.5 million to provide science education support to elementary school students—an increase of $3.5 million over fiscal year 2006-07.
Public Libraries: Public libraries will receive $75.75 million—a $250,000 increase in funding.

Higher Education
PHEAA: The state will provide $451.97 million to support higher education assistance. Student-aid education grants were level-funded at $386.198 million. Institutional Assistance Grants were funded at $42.013 million—an increase of $621,000 or 1.5 percent.
SSHE: The State System of Higher Education will receive more than $504 million—$16.4 million more than last year.
State Related Universities: State-Related universities will be funded as follows:

• Penn State: $334.2 million—a $6.5 million increase
• Pittsburgh: $168.2 million—a $3.5 million increase
• Temple: $172.9 million—a $3.4 million increase
• Lincoln: $13.8 million—a $270,000 increase

Non-State Related Universities and Colleges: All non-state related institutions received a 0.5 percent increase over the 2006-07 fiscal year.

Health Care and Human Services
Rx for Pennsylvania: More than $17.6 million is provided in this budget to fund portions of the Governor’s health care plan, including $4.0 million for the health care-associated infections initiative. The health insurance proposal “Cover All Pennsylvanians” is not included.
Support for Hospitals: The budget includes the following monies for hospitals:

• $7.1 million to restore funding for Community Access Program
• $8.5 million to restore funding from the Tobacco Settlement Fund for uncompensated care payments
• $5 million to restore burn center payments
• $2.7 million to retain the current medical assistance seven-day readmission policy
• $5 million in new funding to improve access to obstetric and neonatal services
• 2 percent rate increase for hospitals

Long Term Care: This program will receive $762.59 million in state general fund monies—a $67.31 million increase (9.7%). Nursing homes will receive a 3 percent increase under this appropriation. Additional funds will be provided for long term care from the Lottery Fund and the Tobacco Settlement Fund, $248.8 million and $104 million, respectively.

Jobs and Economic Development
PennPORTS: This budget appropriates $17.25 million for Pennsylvania’s ports, including $11.044 million for the Philadelphia Regional Port, $2.64 million for the Port of Erie and $1.5 million for the Port of Pittsburgh.
Industrial Resource Centers: This budget maintains the $15.2 million appropriation for the seven non-profit Industrial Resource Centers located throughout the Commonwealth.
Job Training: The Customized Job Training program was funded at $22.5 million, a cut in funding of $7.5 million (-25%). Workforce Leadership Grants were cut by $1.0 million (-25%), while the Community Conservation and Employment program received a $15 million increase for grants.

Tax Reform Code Changes Part of Budget Package

As part of the budget package, the General Assembly cobbled together various amendments to the Tax Reform Code in the form of Senate Bill 97, which is currently on Gov. Rendell’s desk awaiting his signature of approval. The new tax cuts will cost the Commonwealth about $67 million this fiscal year.

The major components of SB 97 include the following:

Bank Shares Tax: Provides that for the value of shares reported on tax returns due on March 15, 2008, and thereafter, any goodwill recorded as a result of the use of purchase accounting for an acquisition or combination occurring after June 30, 2001, may be subtracted from the book value of total equity capital and disregarded in determining the deduction provided for obligation for the United States for the six-year moving average.PICPA supported this provision.

Film Tax Credit: A new $75 million tax credit for the film industry is included in this budget. The credits available to a film production company would be up to 25 percent of its qualified production expenses, meaning those expenses purchased from Pennsylvania residents or companies subject to Pennsylvania taxation.

Resource Enhancement and Protection Tax Credit: This is a new tax credit for businesses or individuals implementing eligible conservation practices. The credit is capped at $10 million.

Neighborhood Assistance Tax Credit: The bill provides that at least $2,000,000 of the total $18,000,000 in available tax credits in this program shall be allocated exclusively for small businesses.

Sales and Use Tax: Exempts the remanufacture of locomotive parts from the sales tax.

The bill also provides for refund of sales tax attributed to bad debt.

It also repeals the sales and use tax exemption for commercial feature-length motion picture production.

Corporate Taxes: The bill provides tax exemption for companies that only lease dies, mold, tooling and other items used by an unaffiliated manufacturer of powdered metal products.

Also, it limits the requirement that the Department of Revenue must send tax assessments by certified mail to those assessments over $300. The provision would apply to assessments issued after Dec. 31, 2007. PICPA supported this change.

Other: The bill removes the sunset dates for the Personal Income Tax check-off for Breast and Cervical Cancer Research. The sunset dates for the Wild Resources check-off and the Organ Donation check-off were also extended to 2010.

In addition to these omnibus amendments, the legislature adopted changes to the Public School Code, in the form of House Bill 842, that increases the Education Improvement Tax Credit program from $59 million to $75 million. This bill is also awaiting Gov. Rendell’s approval.

The phase-out of the Capital Stock and Franchise Tax was not changed by this budget. The rate, which is currently 3.89 mills as of Jan. 1, 2007, is scheduled to be reduced by an additional 1 mill on Jan. 1, 2008.

Transportation Funding Bill Signed Into Law

State transportation funding will increase by $750 million next year, and by an average of almost $1 billion annually over the next 12 years, so say proponents of legislation signed by Gov. Ed Rendell on July 18.

In the 2007-08 fiscal year, House Bill 1590 would direct $450 million to highway and bridge projects around the state and $300 million to mass transit. By the 2009-10 fiscal year, the total in new money would be $900 million—$500 million for highways and bridges and $400 million for transit. All amounts would increase by 2.5 percent each year afterward.

Initially, the money would come from up to $5 billion in bonds issued by the Pa. Turnpike Commission. The debt would be repaid over time by revenue from higher tolls on the Pa. Turnpike—25 percent effective in 2009 and increasing by three percent annually thereafter—and from new tolls to be collected on Interstate 80. (Tolling I-80 will require the approval of the federal government.) The Turnpike Commission would enter into a fifty-year lease agreement with the state Department of Transportation (PennDOT), which will require the Turnpike Commission to make payments to PennDOT. In return, the Turnpike will be given the authority to toll and operate Interstate 80.

The new transportation funding law replaces a patchwork transit funding system with the new Public Transportation Trust Fund. It would dedicate 4.4 percent of state sales tax revenue to public transportation, an amount expected to total $392.8 million in the 2007-08 fiscal year. This conversion to a fixed percentage of sales tax revenue would help to ensure that the transit fund will grow with inflation.

Rendell Signs Long-Term Care Insurance Incentive Bill

Legislation sponsored by Sen. Jake Corman that would provide a strong financial incentive for consumers to invest in long-term care insurance and reduce financial costs to taxpayers was signed into law by Gov. Rendell on July 17.

Senate Bill 548—Act 40 of 2007—would create the Long-Term Care (LTC) Partnership Program, which would provide a financial incentive for individuals to buy LTC insurance. It also mandates that the state Department of Public Welfare file Pennsylvania's state plan for LTC insurance with the federal Centers for Medicare and Medicaid Services within 30 days after the bill has become law.

Under the LTC Partnership Program, individuals would be allowed to retain an amount equal to the amount of long-term care insurance they hold.

Fall Legislative Agenda Taking Shape

After the state House adjourned for the summer, House Majority Leader Bill DeWeese told reporters that Democratic leaders will prioritize property-tax reform legislation, an overhaul of open records laws and campaign finance reform, when the chamber returns in the fall. House Majority Whip Keith McCall, said energy policy and funding for the Hazardous Site Cleanup Fund (HSCA) will also be on the House’s agenda.

On the property-tax legislation, Rep. McCall said he was working with Rep. Sam Rohrer, and other pro-property tax reform lawmakers to put together a plan. “We’re going to see how we do this with the least amount of pain,” McCall said, noting that he plans to hold a press conference within the next week to 10 days to discuss the issue.

In the Senate, Majority Leader Dominic Pileggi said that improving Pennsylvania’s Right-to-Know Law is his top priority for the fall session.

The General Assembly is scheduled to return to session on September 17.

Pa. Businesses Can Now File Their State Corporate Taxes Electronically

Revenue Secretary Tom Wolf announced on July 20 that Pennsylvania businesses now can electronically file their state corporate tax reports, schedules and payments for tax year 2006.  

Pennsylvania joins six other states, including neighboring New York and Maryland, in partnering with the IRS and software vendors to provide a single-point electronic filing method that allows federal and state corporate tax returns to be filed simultaneously.

For a list of software vendors approved by the state to prepare electronic corporate tax reports, visit the Revenue Department’s e-Services Center. Software developers and products will be added to the list in alphabetical order as vendors are approved.

The Pennsylvania Corporate Tax Report (form RCT-101) is used to file the corporate net income, capital stock and foreign franchise and corporate loans taxes. Pennsylvania corporate tax reports are due April 15 for corporations operating on a calendar-year basis — Oct. 15 for those businesses that requested a six-month extension of time to file — or 30 days after the federal corporate tax due date for corporations operating on a fiscal-year basis.

The IRS has offered electronic filing for federal corporate tax returns since 2004 and now requires some large and mid-size corporations to file electronically. The IRS requires corporations with assets exceeding $10 million and that file at least 250 federal returns each year, such as Form W-2 and Form 1099, to file corporate tax returns electronically. These businesses can now electronically file their Pennsylvania corporate tax reports at the same time.

The Pa. Department of Revenue requires business tax payments of $20,000 or more to be submitted electronically.