Pa. Treasury Paints Bleak Outlook of State’s Financial Condition
The Pennsylvania Treasurer’s Office provided members of the state House Finance Committee a sobering picture of the commonwealth’s fiscal condition.
Christopher Craig, executive deputy state treasurer, told lawmakers that Pennsylvania’s General Fund will have a negative balance that will continue into February 2021 and reach $5.1 billion. According to Craig, the 2020-2021 fiscal year-end General Fund balance will be a deficit of $1.8 billion. Federal CARES Act funds have propped up the General Fund for the first part of the new fiscal year, which began July 1. "If we do nothing,” Craig told lawmakers, “we will run out of money sufficient to make all the expenditures on time as appropriated by the legislature."
Craig briefly discussed Pennsylvania’s Standard & Poors (S&P) rating, saying that there is at least a one-in-three chance S&P could lower the state’s current A+ rating. S&P believes it likely that the state “will primarily rely on one-time measures, rather than structural adjustments, to address its budgetary gap for fiscal 2021, which is estimated to be about 7.1% of General Fund expenditures across fiscal 2020 and fiscal 2021," Craig said.
According to Craig, Treasury is actively considering three short-term borrowing options: private bank direct placement, the Federal Reserve Municipal Liquidity Facility, and the Pennsylvania Treasury line of credit. Treasury is proposing a hybrid solution involving a small line of credit from a bank along with Treasury's line of credit. Under Pennsylvania law, these funds must be repaid by June 30. "If the General Assembly does not appropriate sufficient funds to pay the interest or principal on the debt, the treasurer is mandated to withdraw a sufficient amount to repay that debt," Craig reminded lawmakers.
In response to Pennsylvania’s growing financial challenges, the PICPA Fiscal Responsibility Task Force (FRTF) is being reconvened. PICPA Council established the FRTF in October 2010 with the goal of providing state policy makers and the public with objective, nonpartisan expertise and strategic leadership to address the state’s growing financial challenges.
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PICPA Seeks Guidance on Remote Working Nexus
PICPA’s Committee on State Taxation is seeking guidance from the state on work-site location as a result of the pandemic. PICPA is responding to members’ questions about how to determine work-site location and sourcing of income for local earned income tax during the COVID-19 shutdown.
Thousands of Pennsylvanians are working remotely, and this could continue well into 2021. The issue is whether taxpayers who are now working from home (not their regular work location) because of the pandemic should be subject to a nonresident earned income tax provided under the Local Tax Enabling Act (Act 511). Tax collectors are reporting that some taxpayers are beginning to seek refund requests.
The PICPA is working with tax collectors in seeking guidance from the state Department of Community and Economic Development and Department of Revenue.
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New Overtime Rule Takes Effect in Pennsylvania
Pennsylvania’s new overtime rule took effect Oct. 3 when the final, approved regulation was published in the Pennsylvania Bulletin.
The final rule updates the salary threshold to reflect current wages paid to Pennsylvanians working in executive, administrative, and professional occupations. It also ensures that the duties tests for executive, administrative, and professional workers more closely align to those in the Fair Labor Standards Act’s (FLSA) federal overtime regulations.
The FLSA regulations update that took effect Jan. 1, 2020, raised the federal overtime salary threshold to $35,568. While Pennsylvania’s overtime rule aligns more closely with the FLSA, Pennsylvania’s minimum salary threshold is set at $45,500. and the increase will be phased in three steps:
- $684 per week, $35,568 annually (per federal rule), on Jan. 1, 2020
- $780 per week, $40,560 annually, on Oct. 3, 2021
- $875 per week, $45,500 annually, on Oct. 3, 2022
Starting in 2023, the salary threshold will adjust automatically every three years.
Pennsylvania’s new overtime rules also allow up to 10% of the salary threshold to be satisfied by nondiscretionary bonuses, incentives, and commissions paid annually, quarterly, or more frequently.
The state Department of Labor and Industry notified businesses operating in Pennsylvania of the new overtime rule.
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Senate Committee Scheduled to Consider PPP Loan Forgiveness
The state Senate Finance Committee will consider PICPA-supported legislation that clarifies the treatment of Paycheck Protection Program (PPP) loan forgiveness under the Pennsylvania personal income tax (PIT) law at its Oct. 6 meeting.
House Bill 2497, sponsored by Rep. George Dunbar (R-Westmoreland), amends the Tax Reform Code to exempt forgiveness of indebtedness granted under Section 1106(B) of the federal Coronavirus Aid, Relief, and Economic Security Act from taxation under the state’s PIT law (Article III). Pennsylvania personal income tax does not conform to the federal individual income tax base and, as a result, there is uncertainty as to whether such forgiveness for PPP loans would be considered taxable income for state PIT purposes. The bill passed the House on June 9 by a vote of 201-1.
For a full slate of committee hearings and meetings for the week, click here.
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September State Revenue Collections Better Than Projections
Pennsylvania collected $3.3 billion in General Fund revenue in September, which was $248.7 million, or 8.3%, more than anticipated. Fiscal year-to-date General Fund collections total $9.9 billion, which is $459 million, or 4.9%, above estimate.
The Independent Fiscal Office’s (IFO) Monthly Revenue Update, which compares fiscal year (FY) 2020-2021 revenues to the IFO's official estimate released in June, shows actual collections were $347.3 million above IFO projections. The report also compares collections to the prior year. September 2020 General Fund revenues of $3.26 billion reflect an increase of $76.7 million (2.4%) compared to the same month in the prior year.
Revenue collections are ahead of estimate to this point due to better than expected economic activity through the first quarter of the fiscal year. The department will continue to closely monitor the situation so that the governor and members of the General Assembly have the latest information as it becomes available.
Below is an overview of September revenues by tax type.
Sales tax receipts totaled $996.5 million for September, $90.7 million above estimate. Year-to-date sales tax collections total $3.3 billion, which is $183.4 million, or 5.9%, more than anticipated.
Personal income tax (PIT) revenue in September was $1.3 billion, $19.5 million above estimate. This brings year-to-date PIT collections to $4.5 billion, which is $62.4 million, or 1.4%, above estimate.
September corporation tax revenue of $597.3 million was $104.5 million above estimate. Year-to-date corporation tax collections total $1.1 billion, which is $132.7 million, or 13.2%, above estimate.
Inheritance tax revenue for the month was $98.1 million, $28.5 million above estimate. This brings the year-to-date total to $308.5 million, which is $34.3 million, or 12.5%, above estimate.
Realty transfer tax revenue was $53.4 million for September, $18.8 million above estimate. The fiscal-year total is $127.8 million, which is $33.1 million, or 34.9%, more than anticipated.
Other General Fund tax revenue, including cigarette, malt beverage, liquor, and gaming taxes, totaled $163.7 million for the month, $21.8 million above estimate. This brings the year-to-date total to $478 million, which is $53.7 million, or 12.7%, above estimate.
Nontax revenue totaled $19.6 million for the month, $35 million below estimate. The year-to-date total is $54.4 million, which is $40.5 million, or 42.7%, below estimate.
In addition to the General Fund collections, the Motor License Fund received $216.7 million for the month, $6.1 million below estimate. Fiscal year-to-date collections for the fund — which include the commonly known gas and diesel taxes, as well as other license, fine, and fee revenues — total $770 million, which is $0.3 million above estimate.
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Bill Would Create a False Claims Act
The Pennsylvania House State Government Committee approved legislation that would create the Pennsylvania False Claims Act.
House Bill 2352, sponsored by Rep. Seth Grove (R-York), would adopt a state version of the Federal False Claims Act. It would allow Pennsylvania, during national settlements, to recoup an additional 10% from false claims made against Medicaid. Additionally, this legislation empowers the attorney general’s office, or a district attorney designated by the attorney general, to investigate other potential cases of false claims made against the Commonwealth. While in committee, the bill was amended to include limited civil liability protections for entities that follow all state and federal directives regarding COVID-19. This liability protection was added to the bill along with civil fraud provisions that match federal law.
House Bill 2352 is now before the full House for consideration.
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Wolf Administration Announces Health Reform Plan
Gov. Tom Wolf unveiled a plan to address comprehensive health reforms focusing on both physical and behavioral health and promoting affordability, accessibility, and value in health care.
The plan includes a new Interagency Health Reform Council (IHRC), which will be composed of state agencies involved in health and the governor’s office. The initial goal will be to develop recommendations by Dec. 30 to find efficiencies in the health care system by thinking about how to align programs where feasible, including the joint purchasing of medications, aligning value-based purchasing models, and using data across state agencies to promote evidence-based decisions.
Wolf’s plan also calls for Regional Accountable Health Councils (RAHCs). The Department of Human Services will add requirements to form five RAHCs across the state into the managed care agreements. RAHCs will be required to collectively develop regional transformation plans — built on community needs assessments — to reduce disparities, address social determinants of health, and align value-based purchasing arrangements.
A new Health Value Commission is charged with keeping all payors and providers accountable for health care cost growth to provide the long-term affordability and sustainability of our health care system and promote whole-person care. As proposed, the newly created entity would be led by up to 15 commissioners appointed by the governor and the General Assembly who have an expertise in the health care marketplace, including five state agency heads.
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