Pa. Lawmakers Return with Budget Deadline Looming
The Pennsylvania General Assembly will be in voting session the week of June 7. With a General Fund budget surplus approaching $3 billion (see “State Revenue Collections Post Strong May ” below), plus another $7.3 billion in federal American Rescue Plan stimulus funding, state lawmakers face a new fiscal challenge – how to spend these new resources. There is no shortage of ideas in how to spend it. Negotiations on a spending plan are ongoing, with lawmakers hoping to have a budget in place by the June 30 deadline.
The PICPA is monitoring two bills on the House calendar. House Bill 1059 would increase the personal income tax threshold for estimated payments from $8,000 to $20,000, require personal income tax payments of more than $5,000 to be made electronically, and make technical changes to reflect the recent federal changes to Form 1099-NEC for reporting nonemployee compensation. The other bill, House Bill 1303, would increase the accountability of tax credit and tax benefit programs by giving agencies sufficient tools to properly verify applications, requiring agencies to adequately train their employees in the operation of the programs, and establishing a tax credit broker registration requirement. These reforms are based on the recommendations of a 2019 grand jury that investigated a sophisticated scam to steal $10 million in tax credits.
There are also a number of committee meetings and public hearings scheduled.
The House Finance Committee convenes a voting meeting on June 9. It is scheduled to consider House Bills 128, 1006, 1177, and 1539.
The House Commerce Committee also meets on June 9. One of the bills on its agenda is House Bill 1377. The bill would prohibit qualified businesses from “zone-hopping” from one Keystone Opportunity Zone to another and receiving multiple tax breaks. The committee also plans to consider House Bills 424 and 1438.
Review all the meetings and hearings scheduled for this week.
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State Revenue Collections Post Strong May
Pennsylvania collected $3.9 billion in General Fund revenue in May, which was $1.6 billion, or 65.4%, above expectation, according to the Department of Revenue. Fiscal year-to-date General Fund collections total $36.6 billion, which is $2.9 billion, or 8.5%, above estimate.
Revenue Secretary Dan Hassell noted that personal income tax (PIT) revenue in May was $1.9 billion ($1 billion above estimate), in large part a result of the department extending the deadline for filing 2020 personal income tax returns and making final 2020 income tax payments. But it was more than the filing deadline change.
“In addition to this expected shift, the PIT revenue that we collected in May went well beyond making up for the PIT shortfall from April,” Hassell said, noting that PIT revenue in April was $571.8 million below estimate. “We are also nearly $2.9 billion above our estimate for the fiscal year as of today. This is very positive news with one month to go in the current fiscal year.”
The Independent Fiscal Office (IFO) May Monthly Revenue Update shows actual collections were $1.33 billion above IFO projections. According to the report, May 2021 General Fund revenues of $3.95 billion reflect an increase of $1.84 billion (87.5%) compared to the same month in the prior year.
Sales tax receipts totaled $1.2 billion for May, $211.8 million above estimate. Year-to-date sales tax collections total $11.6 billion, which is $741.7 million, or 6.8%, more than anticipated.
PIT revenue in May was $1.9 billion, $1 billion above estimate. This brings year-to-date PIT collections to $14.9 billion, which is $747.7 million, or 5.3%, above estimate.
May corporation tax revenue of $430.1 million was $163.7 million above estimate. Year-to-date corporation tax collections total $5.6 billion, which is $892.2 million, or 18.9%, above estimate.
Inheritance tax revenue for the month was $136 million, $53.5 million above estimate. This brings the year-to-date total to $1.2 billion, which is $216.5 million, or 21.1%, above estimate.
Realty transfer tax revenue was $56.9 million for May, $14.8 million above estimate. The fiscal-year total is $575.1 million, which is $95.5 million, or 19.9%, more than anticipated.
Other General Fund tax revenue – including cigarette, malt beverage, liquor, and gaming taxes – totaled $191 million for the month, $24.5 million above estimate. This brings the year-to-date total to $1.6 billion, which is $132.3 million, or 9.1%, above estimate.
Nontax revenue totaled $57.7 million for the month, $45.6 million above estimate. This brings the year-to-date total to $1.1 billion, which is $42.8 million, or 4%, above estimate.
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DCED Urges Local Governments to Request Local Funding Allocations
The Pennsylvania Department of Community and Economic Development (DCED) is urging all counties, metropolitan cities, and local governments to request their portion of federal Local Fiscal Recovery funding provided by the American Rescue Plan (ARP).
As part of the ARP, the federal government is providing about $6.15 billion to Pennsylvania counties, metropolitan cities, and local government units to support COVID-19 response efforts, replace lost revenue, support economic stabilization for households and businesses, and address systemic public health and economic challenges.
The U.S. Department of Treasury established two separate methods for local governments to request these funds, depending on the type of local government:
- County governments and metropolitan city governments must request funds directly from the U.S. Department of the Treasury via its submission portal.
- Local governments that are not metropolitan cities or counties – called nonentitlement units of local government (NEUs) – must request the funds through Pennsylvania by visiting the DCED website.
Due to the Treasury Department’s requirement that states disburse all Local Fiscal Recovery funding within 30 days of the state receiving the federal funds, DCED strongly recommends that NEUs request their funding immediately to allow adequate processing time for each request.
Information about how to request funds, eligible uses for the funding, and federal allocation amounts for counties, cities, and NEUs can be found on the DCED website and the U.S. Department of Treasury website. Local governments with further questions about accessing these funds should email firstname.lastname@example.org.
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Jobs Initiative Package Reintroduced
Sen. Bob Mensch (R-Berks, Bucks, Montgomery) reintroduced a series of bills with the aim of enabling new job creation and helping to protect existing jobs.
The jobs initiative package includes the following:
- Senate Bill 720 reduces the personal income tax to 2.99%.
- Senate Bill 721 reduces the corporate net income (CNI) tax rate to 8.99% in fiscal year (FY) 2020-2021, 7.99% in FY 2021-2022, and 6.99% thereafter.
- Senate Bill 722 uncaps the net operating loss carryforward to encourage new capital investment in our state.
- Senate Bill 723 establishes a career development credit program. Through this program a percentage of qualified employer costs for training employees and upgrading their skills would be credited against Pennsylvania's corporate and income tax liability.
The bills are pending consideration by the Senate Finance Committee.
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CNI Rate Reduction Proposal Tied to Performance
Sen. Ryan Aument (R-Lancaster) is taking a different approach to reducing Pennsylvania’s corporate net income (CNI) tax rate.
Under Aument’s proposed legislation, Pennsylvania’s CNI rate of 9.99% would drop over a period of three years to 8.99% in 2022, 7.99% in 2023, and 6.99% in 2024. Once the rate hits 6.99%, if the revenues generated from the reduction match or exceed the Independent Fiscal Office (IFO) revenue projection for 2024 at the 9.99% rate, the rate would drop further to 5.99% in 2025.
Once the bill is formally introduced it will be referred to a committee for study.
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Lawmakers to Advance Mental Health Initiatives
A bipartisan group of state lawmakers will introduce a package of bills to modernize Pennsylvania’s mental health and substance use disorder laws to promote “whole person” health care initiatives.
The legislative package – sponsored by House Speaker Bryan Cutler (R-Lancaster) and Reps. Mike Schlossberg (D-Lehigh), Frank Farry (R-Bucks), and Tina Pickett (R-Bradford, Sullivan, Susquehanna) – includes three bills. Two amend Pennsylvania’s Mental Health Procedures Act and Drug and Alcohol Abuse Control Act to align with the standards of the Health Insurance Portability and Accountability Act of 1996. This will allow providers, facilities, and health plans to share patients’ mental health and substance use disorder-related information more easily. The third bill would amend the Achieving Better Care by Monitoring All Prescription Program Act to enable data sharing with insurers and to strengthen Pennsylvania’s efforts in combatting the opioid crisis.
Under current Pennsylvania law, mental health and physical health information cannot be fully shared among providers. The proposed changes would bring Pennsylvania in line with a majority of states that already share this information and are seeing improved patient outcomes.
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Brown Named Chair of State House Committee
State Rep. Rosemary M. Brown (R-Monroe, Pike) has been appointed majority chair of the House Urban Affairs Committee for the remainder of the 2021-2022 legislative session.
“As chairwoman, I look forward to working with members to help improve our communities and assist on matters that remain important to municipalities, townships, developments, cities, etc., regardless of their size or location throughout Pennsylvania,” Brown said.
The Urban Affairs Committee is responsible for reviewing legislation regarding housing, community redevelopment, economic development, land-use planning and zoning, growth management, infrastructure financing, and issues regarding Pennsylvania's cities.
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