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Legislative Update

Week Ending June 6, 2008

• Finance Committee Approves Tax Stimulus Package
• Committee Approves KOZ Bill
• After Meeting with Legislators, Rendell Hopeful for June 30 Budget
• Education Funding Bill Heads to Full House
• Pa. House Debates 'Independent Contractor' Legislation
• Smoking Ban Bill Hits Snag
• Revenue Department Releases May Collections
  

Finance Committee Approves Tax Stimulus Package

The Senate Finance Committee approved a four-bill stimulus package June 2 that would provide nearly $96 million in tax relief in the upcoming fiscal year—$246 million by 2010-11—for lower-income working Pennsylvanians and small businesses looking to expand, as well as major employers and job creators.

“These bills are intended to provide tax relief across various segments of Pennsylvania’s economy,” Sen. Pat Browne, CPA and Finance Committee chairman said. “I am encouraged that the Governor has expressed his willingness to consider these proposals as part of Pennsylvania’s 2008-09 budget. Therefore, it is imperative that the Senate and House quickly act to put these measures in place for enactment.”

The bills approved by the Finance Committee include:

Senate Bill 1385, sponsored by Senator Jake Corman (R-Centre), would raise the cap on the Net Operating Loss provision of the Corporate Net Income Tax to $5 million or 20 percent of taxable income. If enacted, the effective date of the increase would be January 1, 2009.

Senate Bill 1386, sponsored by Senator Bob Regola (R-Westmoreland), would increase the eligibility limits for special tax forgiveness for low-income families by a total of $2,000 over three years, and the dependent allowance by $500 over the same period. Under SB 1386, families earning $37,000 or less would be exempt.

Senate Bill 1387, sponsored by Senator Pat Vance (R-Cumberland), would double the amount that small businesses may deduct as Section 179 expenses on their income tax filings to $50,000.

Senate Bill 1388, sponsored by Senator John Eichelberger (R-Blair), would amend Pennsylvania’s Corporate Net Income Tax to expand the sales factor to 85 percent. Currently, the sales factor accounts for 70 percent of the apportionment formula, and the property and payroll factors each accounting for 15 percent.

Committee Approves KOZ Bill

During the same June 2 meeting of the Senate Finance Committee, members also approved legislation that extends and expands the state’s Keystone Opportunity Zone program.

Senate Bill 1412, sponsored by Sen. John Pippy (R-Allegheny), extends the tax-free status for unoccupied zones for an additional seven years beyond the current Dec. 31, 2008 expiration date. Municipalities must opt into the extended program by July 31, 2009. The bill also authorizes the creation of seven new Keystone Opportunity Expansion Zones of up to 350 acres, and as small as less than 10 acres, if they are contiguous to a current zone.

The bill also allows counties to swap less developable land within an existing KOZ zone for other land, and eliminates the sales tax on all building materials used to develop land in a KOZ zone, among other provisions. Municipalities would have to apply for one of the new zones by July 31, 2009.

On May 7, the state House approved, by a vote of 126-72, similar legislation extending and expanding the KOZ program.

After Meeting with Legislators, Governor Rendell Hopeful for June 30 Budget

After meeting with House and Senate leaders Monday to discuss a new state budget, Gov. Ed Rendell said he is hopeful that a spending plan can be hammered out before the June 30 deadline.

“There was a spirit of cooperation in the air,” Governor Rendell said of the meeting. “We won’t have what happened last year because the priorities - health care, energy independence, economic stimulus and education funding - have been around for a long time.”

Gov. Rendell has said he will be available for budget negotiation meetings with legislators 24-hours-a-day, seven-days-a-week. The Governor and legislative leaders agreed to meet weekly to keep the budget moving forward.

Education Funding Bill Heads to Full House

On June 4, the state House Education Committee overwhelmingly approved a key piece of the 2008-09 education budget sponsored by committee Chairman James Roebuck (D-Philadelphia).

"This bill entails the most significant portion of state education funding for the 2008-09 state budget and would help increase the state's share of education spending by more than $291 million," Roebuck said. "It also includes a new accountability proposal to make sure school districts that increase local spending are focusing those new dollars on helping students to achieve."

House Bill 2449 would provide $5.2 billion in state basic education funding for Pennsylvania's 501 school districts in 2008-09. The bill represents Gov. Ed Rendell's 2008-09 state education funding proposal, and would increase state funding for basic education by $291.3 million over 2007-08.

Roebuck said a "costing out" study completed in late 2007 identified two key shortcomings in the state's current approach to funding education: adequacy in some school districts and equity across school districts. Accordingly, HB 2449 represents the beginning of a six-year, $2.6 billion plan to increase state funding for education in general, and to begin providing more equitable state funding across school districts.

The bill would also require school districts that increase spending and taxes above a certain level to put at least 80 percent of the new revenues directly towards increased student achievement - services or programs such as tutoring, additional classroom time, early childhood education, teacher and principal recruitment, and performance contracts for superintendents and principals.

House Bill 2449 now heads to the full House for consideration.

Pa. House Debates 'Independent Contractor' Legislation

On June 3, the House considered for the second time, House Bill 2400—legislation introducing stricter penalties on employers who misclassify legitimate employees as “independent contractors” to avoid providing requisite benefits and additional federal and state tax withholdings.

Under the amended bill’s provisions, the unintentional misclassification of an employee by his or her employer is considered a summary offense with a fine of no more than $1000. However, an employer, who knowingly misclassifies an employee, incurs far graver penalties. For a first offense, these penalties include a fine of no more than $15,000 and prison time of up to three and one-half years—or both. The fine and sentence double with subsequent offenses: up to $30,000, and/or up to seven years in prison.

The largely party-driven debate on the House floor, however, focused on yet another penalty provision - that of possible stop-work orders for those employers accused of misclassification. According to the amended legislation, if the Secretary of the state Department of Labor and Industry receives information implicating an employer of willing misclassification, the employer will be issued an order giving him or her twenty days to file a written counter-statement to the accusation. If this rebuttal is received beyond the grace period or found insufficient, the employer may be subject to immediate debarment from operations. 

The amendment passed by a vote of 120-82, and the bill is expected to be considered finally by the House next week. House Bill 2400 will then go to the Republican-run Senate for committee consideration.

Smoking Ban Bill Hits Snag 

After months of negotiations, the statewide smoking ban bill was finally reported out of conference committee on  June 3, only to receive a split decision from Pennsylvania legislators. By a surprising 31-19 vote following an often-angry and contentious debate, the state Senate temporarily derailed the smoking ban conference committee report yesterday.

Senators, representing areas already imposing stricter smoking bans that would not be allowed under the proposal, joined forces with a united Democratic caucus to defeat the measure. About a half hour after the state Senate voted down the bill, the House adopted the plan by a vote of 163-38. While the bill was defeated in the Senate on Wednesday, a procedural move to reconsider the vote could still result in the bill heading to Gov. Ed Rendell’s desk next week.

Revenue Department Releases May Collections

Secretary of Revenue Tom Wolf on June 2 reported that Pennsylvania collected $1.8 billion in General Fund revenue in May, $142.2 million, or 7.2 percent, less than anticipated.  Fiscal year-to-date General Fund collections total $25.3 billion, which is $294.4 million, or 1.2 percent, above estimate. 

Sales tax receipts totaled $695.6 million for May, which was $5.6 million below estimate.  Sales tax collections year-to-date total $7.8 billion, which is $2.2 million below estimate.    

Personal Income Tax (PIT) revenue in May was $726.7 million, which was $97.9 million below estimate.  This brings year-to-date PIT collections to $9.9 billion, which is $166.7 million, or 1.7 percent, above estimate.

“As reported last month, a portion of May’s lower-than-estimate income tax collections are because annual income tax returns were processed much more quickly in April than in prior years,” Wolf noted.     

May corporation tax revenue of $113 million was $31.5 million below estimate.  Year-to-date corporation tax collections total $5 billion, which is $95.2 million, or 2 percent, above estimate.