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Legislative Update

Week Ending April 4, 2008

• EIT Collection Reforms Back on the Move
• Save the Date -- 2008 PICPA Day on the Hill
• Bill Banning Medical Underwriting Clears House
  
• Governor Withdraws Insurance Commissioner Pick
• House to Consider Municipal Financial Assistance
• Capital Projects Budget Bill Passes Senate
• Rendell Scraps Rebate Checks Plan
• Pennsylvania Has Dismal Showing in Tort Liability Index
• Revenue Department Releases March Collections
  

EIT Collection Reforms Back on the Move

PICPA-supported legislation reforming Pennsylvania’s archaic and inefficient system of collecting local earned income taxes cleared the state Senate Appropriations Committee on April 1 by a vote of 19-6. The bill appears to be headed for a May vote by the full Senate. 

Pennsylvania is unrivaled in the number of jurisdictions levying local taxes—almost 2,900. About 560 local tax collectors are used to collect and distribute over $1.9 billion in annual revenue. Lack of standardized practices, coordination, reporting and accountability among and between jurisdictions and collectors plague the process.

Senate Bill 1063 would establish much needed administrative standardization and reforms in relation to the collection of the earned income tax. For example, the bill would require the Department of Community and Economic Development (DCED) to develop uniform forms, notices, reports, returns, schedules and codes for school districts, municipalities and tax collectors. It also requires DCED to issue one set of rules and regulations.

The bill establishes uniform withholding, remittance and distribution requirements. Employers would be required to withhold all local income taxes imposed on the compensation of their employees, and remit those taxes to only one collector, even if the employer operates in multiple jurisdictions.

Enhancements are also made to auditing tax collector records. SB 1063 requires collectors to keep a record of all public monies received and distributed, and submit monthly reports to each taxing jurisdiction and the tax collector that must be reconciled with other records in an annual audit.

Legislative reforms as proposed in SB 1063 are not without their political challenges. As PICPA members are all too aware, Pennsylvania’s labyrinth local tax collection system is the source of much frustration. Senate Bill 1063 proposes to consolidate collection at the countywide level, reducing the number of collectors from 560 to 66. (Philadelphia, which is governed by the Sterling Act, is not included in this legislation.) Consolidation is necessary to combat the severe fragmentation and lack of standardization that plagues the system.

Members are urged to join PICPA’s advocacy efforts to reform and streamline the earned income tax collection system. Write a letter. Send an email. Make a phone call. Attend PICPA’s 2008 Day on the Hill for the opportunity to speak with your state senator directly to urge them to support SB 1063. For more information, see PICPA’s EIT Reform Web page. 

Save the Date -- 2008 PICPA Day on the Hill

Members, mark your calendars for Wednesday, June 11 to attend PICPA’s 2008 Day on the Hill program in Harrisburg. At that time, you will receive legislative briefings from some of the General Assembly’s most prominent figures, learn about issues important to the CPA profession, and meet with legislators to address your local and state concerns.

Senate Majority Leader Dominic Pileggi, Senate Democratic Floor Leader Robert Mellow, and Deputy House Speaker Josh Shapiro are scheduled to discuss their respective caucus’s legislative agendas. Also, the Department of Revenue will provide an update.

Bill Banning Medical Underwriting Clears House

Health insurance companies would not be able to base rates on a member’s health, age, gender or other demographic factors under legislation approved by the state House April 1 by a vote of 131-72.

House Bill 2005 would prevent health insurers from adjusting rates for individuals and small groups according to the aforementioned qualifications of the plan participants. Also, the bill requires insurers to spend 85 cents of every premium dollar on health care. Lastly, it provides the state Insurance Commissioner with the authority to review whether insurers had taken steps to reduce costs by reducing hospital-acquired infections, better management of chronic diseases and other best practices.

The House also approved House Bill 2098, which allows private insurers to deny payments to hospitals and health care providers for procedures that result in avoidable medical errors.

Both bills are now headed to the Senate for consideration.

Governor Withdraws Insurance Commissioner Pick

In a game of political cat and mouse, the Senate Republican majority once again refused to consider Gov. Ed Rendell’s nominee for insurance commissioner, Joel Ario, forcing Rendell to withdraw the nomination April 2, rather than risk outright rejection from the chamber.

Mr. Ario’s performance as acting commissioner, in particular his position in refusing to extend state subsidies to assist more than 35,000 doctors and other medical professionals pay for medical malpractice insurance, do not warrant his confirmation, argued Senate Republicans.

This continues what has been an ongoing conflict between the Senate GOP and the administration concerning many health care-related issues, such as the merger of Highmark and Independence Blue Cross.

House to Consider Municipal Financial Assistance

Legislation creating the Tax-exempt Property Municipal Assistance Act was the subject of a state House Local Government Committee hearing on April 1. This is the latest of a series of informational hearings the committee has held across the state.

House Bill 2018, introduced by committee chairman Rep. Bob Freeman (D-Northampton), would require the Commonwealth to reimburse municipalities for lost property tax revenue due to the tax-exempt status of certain properties. The bill compels each county assessment office to annually assess the value of all property within the county – including that which has tax-exempt status – and determine the proportion of each municipality’s total assessed value of tax-exempt property to the total value of all assessed properties. If this value equals or exceeds 17 percent, the municipality would be eligible for financial assistance from a newly created Tax-exempt Property Municipal Assistance Fund.

This restricted fund would be established within the State Treasury by using tax revenue generated by the Johnstown Flood Tax. Each eligible municipality would be allowed no more than 10 percent of the funds available for distribution. Annual reports from each county assessment office must be submitted to the Department of Community no later than July 31st.

Chairman Freeman introduced four amendments to the legislation, including a provision to lower the eligibility threshold from 17 percent to 15 percent, and another to cap the amount of funds a municipality may receive. The committee is expected to consider and vote on the bill as early as next week.

Capital Projects Budget Bill Passes Senate

By a vote of 47-2, the state Senate approved legislation on April 2 authorizing officials to undertake nearly $13 billion in capital projects in the current 2007-08 fiscal year. The bill is a leftover from last summer’s budget negotiations.

House Bill 1589 authorizes capital project spending, but it is no guarantee that the projects listed will be funded right away. Virtually all of the projected spending would be funded by new debt, and go toward public building, redevelopment, transportation and other state capital projects.

The capital projects budget bill includes funding authorizations of $6.5 billion for redevelopment assistance projects; $5.1 billion for public improvement projects; $751 million for transportation assistance projects; $166 million for furniture and equipment; and $74.5 million for flood control projects. It authorizes the incurring of debt for specific projects under each of those categories, as well as for $79.1 million for programs under the Fish and Boat Commission.

The bill also authorizes capital projects funded by the Environmental Stewardship Fund ($143.6 million); the General Fund ($29.6 million); the Keystone Recreation, Park and Conservation Fund ($28.6 million); the Motor License Fund ($24.1 million); oil company franchise tax revenues ($8.3 million); and the Manufacturing Fund ($3 million).

The bill now heads back to the House for approval.

Rendell Scraps Rebate Checks Plan

Gov. Rendell’s federal government-styled tax rebate plan is dead. Rendell’s plan, unveiled in February, was to give low-income working families with children tax rebates of $200 to $400. He made the decision after hearing from state lawmakers in both parties who opposed the plan because it did not include middle-class workers. 

The Governor made clear his intention to continue pushing for the remaining components of his economic stimulus package, which include:

• $240 million in new debt to fund Rebuild Pennsylvania’s roads and bridges.
• Extending tax credits by seven years for undeveloped land in Keystone Opportunity Zones.
• $500 million in new debt for the Jonas Salk Legacy Fund.
• An alternative energy plan.   
• An increase in the job creation tax credit from $1,000 to $3,000.
• $100 million more in debt for the Business in Our Sites program.
• An increase in the debt ceiling on the Redevelopment Assistance Capital Program (RACP) by $750 million.

The General Assembly and the governor have until June 30 to have a Fiscal Year 2008-09 state spending plan in place.

Pennsylvania Has Dismal Showing in Tort Liability Index

When it comes to lawsuit abuse, the Commonwealth is classified as a "sinner," according to the U.S. Tort Liability Index 2008 Report. Pennsylvania scored a dismal 45th ranking when compared to other states in the rest of the nation.

The state's "sinner" status is based on its relatively high monetary tort losses and high litigation risks, combined with relatively weak tort rules, according to the Pacific Research Institute's latest study.

PICPA continues to be a staunch advocate for legal liability reform in Pennsylvania, and is actively working to see legislation passed that would provide our members with a more impartial judicial system.

Revenue Department Releases March Collections

On March 31, Secretary of Revenue Tom Wolf reported that Pennsylvania collected $4 billion in General Fund revenue in March, $109.8 million, or 2.7 percent, less than anticipated. Fiscal year-to-date General Fund collections total $19.8 billion, which is $180.5 million, or 0.9 percent, above estimate. 

The most recent statewide job count dropped by 8,000 and the state’s unemployment rate increased to 4.9 percent.

Sales tax receipts totaled $621.9 million for March, which was $8 million above estimate.  Sales tax collections year-to-date total $6.4 billion, which is $27.7 million, or 0.4 percent, above estimate.    

Personal Income Tax (PIT) revenue in March was $785.5 million, which was $26.2 million above estimate. This brings year-to-date PIT collections to $7.2 billion, which is $82.5 million, or 1.2 percent, above estimate.

March corporation tax revenue of $2.3 billion was $112.3 million below estimate. Year-to-date corporation tax collections total $4.2 billion, which is $94.8 million, or 2.3 percent, above estimate.

Realty transfer tax was $24.5 million for March, bringing the total to $330.7 million for the year, which is $2.3 million more than anticipated.

The Gaming Fund received $44 million in unrestricted revenues for March. Fiscal year-to-date collections for the fund total $588.1 million. Gaming Fund receipts include taxes, fees and interest. Of the total for the month, $43.5 million was collected in state taxes for property tax relief, bringing the year-to-date total to $330.1 million.