Budget Revenue Impasse Continues
As Pennsylvania’s budget stalemate moves into its second month, expectations are dimming that a compromise will be found before Labor Day. Neither the House nor Senate is officially scheduled to be in session before then, although rumors in the capital hint that the House may return later this month. Pennsylvania has been without a complete state budget since lawmakers approved a $32 billion spending plan on June 30 that went into effect on July 10 without Gov. Tom Wolf’s signature. Missing from the budget was a revenue plan on how to pay for it.
Capitolwire reports that Wolf “has put $188.3 million in state discretionary spending in reserve as a budget stalemate continues with no sign of near-term resolution. The action involves 68 appropriations spread among a dozen state agencies and offices. About 70 percent of those appropriations have been put entirely in reserve.”
The Capitolwire article adds that among the items held in reserve – items that are apart from budget requests or mandated spending – are $8.6 million for trauma centers, $9 million for municipal emergency relief, $600,000 to support regional cancer institutes, and $100,000 for diabetes programs.
Republican members of the House Appropriations Committee, as well as other groups of lawmakers, are going over the Senate’s tax plan (House Bill 542) with a fine-toothed comb. The centerpiece of that bill provides $2.2 billion in borrowing and recurring revenues necessary to balance last year’s and the current year’s budgets, which a growing number of legislators find objectionable. To read more about HB 542, click here.
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PICPA Poll: How Should Pa. Close Its Structural Deficit?
Pennsylvania has a more than $2 billion structural deficit, and is looking for ways to fix it. We want to hear from you. The state’s deficit is an issue that affects you, your clients, and your business. Sound off in this quick poll.
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Representative Wants More Transparent and Accountable Budget Process
State Rep. Chris Rabb (D-Philadelphia), announced he will introduce legislation that would require the leaders of Pennsylvania’s executive and legislative branches to hold daily public hearings on the state budget whenever there is a budget impasse.
Rabb’s bill would require executive and legislative leaders to hold public hearings if comprehensive spending and revenue bills for the upcoming fiscal year have not been introduced by June 19. These leaders include the governor, state treasurer, secretary of revenue, auditor general, director of the Independent Fiscal Office, and majority and minority leadership for both the House and Senate. These individuals would be required to participate in hearings until such legislation is introduced.
Rabb said he wants Pennsylvanians to see democracy in action and require all relevant parties to work together to meet the needs of the Commonwealth. Hearings would be required to last at least two hours, and would be preceded with a memo addressing the status, concerns, and suggestions regarding the budget. The memo would be available to the public at least 24 hours prior to the start of the hearing. The bill also would require that hearings be broadcast live on the General Assembly’s public website.
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Changes at Pennsylvania Board of Appeals
Earlier this year, the Pennsylvania Department of Revenue made changes to the tax appeals process. These changes will have an impact on many tax practitioners and the public.
Recently, PICPA Conversations sat down with Lauren Zaccarelli, chair of the Board of Appeals, to discuss changes to the appeal schedule and petition form. She also provides some best practices for CPAs when working with the board on behalf of clients or themselves.
Zaccarelli also discusses the department’s changes to its procedure for handling large sales and use tax refund petitions. In April, the department posted Sales and Use Tax (SUT) Bulletin 2017-01 outlining the changes to the process.
For more information on SUT Bulletin 2017-01, listen to Mark A. Balistrieri and Daniel L. Westover, both members of the PICPA Committee on State Taxation, as they talk about these changes and what practitioners can expect.
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Treasury Takes $750 Million Line of Credit for General Fund
Pennsylvania Treasurer Joe Torsella announced that he has authorized a short-term, two-week $750 million line of credit from Treasury’s Short-Term Investment Pool (STIP) to the Commonwealth’s General Fund from Aug. 14 to Aug. 28. Without this line of credit, the General Fund would fall into negative territory during that period.
Short term public borrowing, such as Tax Anticipation Notes, requires the consent of both the State Treasurer and the State Auditor General. Torsella has previously stated it would be financially irresponsible to go to the public markets to borrow for Pennsylvania’s operating expenses without a finalized 2017-2018 budget and revenue plan in place.
“There are limits to what Treasury can prudently do to bolster the General Fund.” said Torsella. “I therefore urge action by the General Assembly to pass a responsible revenue package.”
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Lawmaker Proposes Education Savings Accounts
Sen. John DiSanto (R-Dauphin) joined parents, students, school officials, and community leaders at the Joshua Learning Center in Harrisburg to announce his Education Savings Account (ESA) legislation, Senate Bill 2, for students attending public schools performing in the bottom 15 percent statewide.
ESAs are state-funded, flexible spending accounts that parents can use to pay for Department of Education-approved educational expenses, such as private school tuition, higher education tuition, textbooks, and industry certifications. Eligible expenses for children with disabilities would also include occupational, physical, speech, and behavioral therapies. Unused ESA money may be carried over from one year to the next.
Parents will receive the statewide average funding per pupil, between $5,000 and $6,000, and students with special needs will be eligible for additional support based on their disability. Unused funds roll over from one year to the next. Unspent ESA dollars can also be used to pay for college.
Earlier this year, the House and Senate Education Committees held a joint public hearing on ESAs, and received testimony from parents and education experts. DiSanto said committee members were interested in the concept, and he expects the Senate to consider this legislation in the fall.
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Senate Committee Plans Hearings on Legal Gaming Devices
State Sen. Chuck McIlhinney (R-Bucks) announced that the Senate Law & Justice Committee will be holding hearings in September on the issue of legal gambling devices. The hearing will also cover Liquor Control enforcement of “Stop-and-Go’s.”
McIlhinney, who chairs the committee, noted that recent statements by leaders in the state House regarding the possible legalization of video gaming terminals (VGTs) have made clear that there appears to be widespread use of illegal VGTs across portions of Pennsylvania.
“I think it is important that we show the people of Pennsylvania we can address the problem of illegal VGTs before we talk about adding 55,000 new machines into venues across the state,” McIlhinney continued. “These hearings are an important first step in that process.”
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Bill Seeks to Provide Guidance on Independent Contractors
Rep. Fred Keller (R-Snyder, Union) is working on legislation that would provide a method to certify whether or not an individual is an independent contractor for the purposes of worker’s compensation.
Keller’s legislation would allow a business to register independent contractors with the Department of Labor and Industry if those individuals are considered independent contractors for federal tax purposes and they sign an affidavit certifying that they know they will not be considered an employee for the purposes of workers’ compensation. The independent contractors will be allowed to withdraw their affidavit at any time.
Keller’s proposal does not change anything for those businesses and independent contractors who do not utilize this registration process. It would simply create a process to expeditiously determine that an individual is an independent contractor in situations where both the employer and the independent contractor agree that no employer-employee relationship exists.
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Pennsylvania SERS Releases 2016 Comprehensive Annual Financial Report
The Pennsylvania State Employees’ Retirement System (SERS) released its 2016 Comprehensive Annual Financial Report (CAFR) that details the audited financial statements of the system for the year, as well as investment, actuarial, and statistical information.
The independent auditor’s report included an unmodified opinion that the system’s fiduciary net position and changes in fiduciary net position, as reported in the financial statements, are fairly presented, in all material respects, in accordance with generally accepted accounting principles.
The SERS portfolio returned 6.5 percent net of all fees and expenses in 2016, which provided nearly $1.6 billion to the fund.
Highlights of the 2016 CAFR include the following:
- In 2016, SERS served 103 agencies/employers, with about 240,000 members – more than 104,000 active employees, about 127,000 retirees and beneficiaries, and more than 7,000 inactive members no longer working for the commonwealth but owed a benefit.
- As of Dec. 31, 2016, the SERS Fund stood at approximately $26.4 billion after paying out $3.2 billion in retirement benefits to nearly 127,000 retirees and beneficiaries; $2.9 billion – more than 90% - was paid to people living in Pennsylvania. SERS benefit payroll obligations continue to steadily grow, from about $1 billion two decades ago.
- Last year, nearly 6,700 employees retired and were added to the annuity payroll with an average annual benefit of about $28,700; about 4,000 retirees, who had an average annual benefit of about $15,000, were removed from the rolls.
- Based on the actuarial methods used for funding purposes as of Dec. 31, 2016, the unfunded actuarial accrued liability was $19.9 billion. SERS funded ratio was 58.1 percent. Based on the actuarial methods used for financial reporting purposes as of Dec. 31, 2016, the net pension liability was $19.3 billion. SERS’s fiduciary net position as a percentage of the total pension liability was 57.8 percent.
- With 2016’s returns, the SERS Fund achieved positive annual earnings for 17 of the past 20 years, and actual earnings have exceeded the assumed long-term rate of return for 12 of them.
- Employers contributed about $1.6 billion to the SERS Fund in 2016; members contributed approximately $375 million.
SERS also released the 2016 Actuarial Report that details SERS’s current membership, explains assumptions underlying the pension system’s calculations, projects future cash flow, and reports liabilities and funded status.
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