Pennsylvania 2018-2019 Budget Finalized Ahead of Deadline
With more than a week remaining in the current fiscal year, lawmakers approved a $32.7 billion state budget for the 2018-2019 fiscal year that begins July 1. Gov. Tom Wolf signed the General Appropriations bill (House Bill 2121) into law June 22. The plan increases spending by $560 million, or 1.7 percent, over the current budget, and makes significant investments in basic and higher education and workforce development, contains no new taxes, and, for the first time in years, makes a transfer to the state’s rainy day fund.
PICPA member Sen. Pat Browne, CPA (R-Lehigh), chair of the Senate Appropriations Committee, noted, “The financially responsible work the General Assembly has done the past several years in limiting spending growth to an average of 1.2 percent – below the rate of inflation – has resulted this year in revenues exceeding estimates for the first time in 10 years. This brighter financial outlook allowed for increases in spending of 1.7 percent over the previous year without the need for new or increased taxes.”
In addition to the General Appropriations bill, other major components of the budget agreement sent to Wolf include the Fiscal Code (House Bill 1929); the Tax Reform Code, which only addresses business depreciation (Senate Bill 1056); the Public School Code (House Bill 1448); the Human Services Code (House Bill 1677); and the nonpreferred appropriations for Penn State University (House Bill 2242), the University of Pittsburgh (House Bill 2243), Temple University (House Bill 2244), Lincoln University (House Bill 2245), and University of Pennsylvania for veterinary activities and infectious disease research (House Bill 2246). Except for SB 1056, Wolf signed into law all these measures on June 22.
The budget agreement includes an expansion of the Educational Improvement Tax Credit (EITC), a program that allows businesses to make contributions to approved scholarship organizations. Contained in House Bill 1448 is an increase in the amount of the EITC by $25 million, from $135 million to $160 million, and an increase in the maximum annual household income from $75,000 to $85,000. The bill also allows businesses wishing to participate in the EITC program to file in Commonwealth Court if the Department of Community and Economic Development misses notification deadlines by more than 10 days.
Among other investments, the General Appropriations budget accomplishes the following:
- Provides an increase of $189.6 million for pre-K through 12th grade, including $25 million for pre-K/Head Start, $100 million for basic education funding, and $10 million for career and technical education.
- Increases funding for higher education, including additional investments in Pennsylvania’s community colleges, the Pennsylvania State System of Higher Education, and state-related universities.
- Invests more than $61.4 million for school and community safety (see more below), including a $1.4 million increase for the Safe Schools Initiative.
- Launches the PAsmart initiative to align workforce development efforts across commonwealth agencies to more efficiently deliver services for Pennsylvanians, which will prioritize $30 million for investments in computer science and STEM education programs and expand apprenticeship and industry partnerships.
- Increases funding for child care services by $6.8 million.
- Increases funding by $5.3 million for community-based family centers, which includes $4.5 million to provide home-visiting services for families affected by opioid use disorder and $800,000 in increased rates for home-visiting providers.
- Provides additional investments to assist individuals with intellectual disabilities and autism, including $16 million for an additional 965 individuals with intellectual disabilities or autism to access waivers to provide support and services so they can remain in their home and community.
- Provides $2.5 million for Lyme disease awareness, prevention, and surveillance.
- Provides $6 million for the Pennsylvania State Police pilot program to purchase body-worn cameras.
- Provides $43 million for the communication and infrastructure purchases to continue the modernization of Pennsylvania’s statewide radio system and comply with federal requirements.
- Invests additional funding to train three state police cadet classes.
- Includes $3 million in new funding to increase spotted lanternfly detection, control, and eradication efforts to protect Pennsylvania business and agriculture.
For a line-by-line look at the $32.7 billion plan, click here.
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PICPA-Supported Depreciation Measure Heads to Governor
PICPA-backed legislation that decouples the state’s corporate net income tax law from the bonus depreciation provided in last year’s federal Tax Cuts and Jobs Act has landed on Gov. Wolf’s desk. Pennsylvania is the only state to fully disallow depreciation on certain assets.
Senate Bill 1056, sponsored by Sen. Michelle Brooks (R-Crawford, Erie, Mercer, Warren), disallows the federal bonus depreciation deduction from taxable income provided in Section 168(k) of the IRC, and provides an additional deduction equal to the depreciation as determined in accordance with IRC Section 167 (Depreciation) and IRC Section 168 (Accelerated Cost Recovery System).
The bill also reverses Pennsylvania Corporate Tax Bulletin 2017-02, which disallows all depreciation on certain property.
Wolf is expected to sign the bill into law, with the provisions going into effect immediately.
The PICPA thanks Brooks and Rep. Frank Ryan, CPA (R-Lebanon), sponsor of a companion bill (House Bill 2017), for their leadership on this issue.
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U.S. Supreme Court Overturns Quill
The United States Supreme Court overturned more than two decades of precedent that maintained a physical presence standard to collect sales tax, and held that states may collect state tax for purchases made online. In South Dakota v. Wayfair Inc., et al, the Court in a 5-4 decision overturned the Quill Corp. v. North Dakota decision from 1992.
Writing for the majority, Justice Anthony Kennedy explained, “Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the states. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.”
As part of Act 43 of 2017, Pennsylvania lawmakers enacted requirements for marketplace sales tax collection, notice, and reporting. Under the law, beginning April 1, 2018, certain marketplace facilitators, remote sellers, and referrers facilitating, making, or referring sales to Pennsylvania customers must make an election to either register to collect and remit sales tax or comply with tax notification and reporting requirements.
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Senate Confirms Paul Gitnik to Board of Finance and Revenue
Paul Gitnik, an attorney from Pittsburgh, was unanimously confirmed by the state Senate to a six-year term as a member of the Pennsylvania Treasury's Board of Finance and Revenue. Gitnik replaces R. Scott Shearer, whose term expired.
Gitnik, of counsel with Vuono & Gray LLC, concentrates in the areas of business, estates and trusts, municipal, nonprofit, natural resources, real estate, and tax law. He received his BA and JD from Duquesne University, and his LLM in taxation from the Georgetown University Law Center. Gitnik has served as an adjunct faculty member at Duquesne University School of Law, teaching business planning; Mercyhurst College, teaching estate planning; and Penn State Continuing Education for Accountants, teaching choice of business entities.
The Board of Finance and Revenue is an independent administrative tax tribunal responsible for the second and final level of administrative appeal (with minor exceptions) before appealing to court. Since it is generally the second level, an appeal must first be filed by a taxpayer at the Board of Appeals. The Board of Finance and Revenue consists of three members. Two members are appointed by the governor and confirmed by the Pennsylvania Senate. The state treasurer, or his designee, is the third member and chair.
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Wolf Signs Comprehensive School Safety Measure into Law
A comprehensive school safety initiative that dedicates additional resources to help prevent school violence was signed into law by Gov. Wolf.
Senate Bill 1142, sponsored by Sens. Pat Browne (R-Lehigh), Vince Hughes (D-Philadelphia), and Scott Martin (R-Lancaster), creates the School Safety and Security Grant Program to distribute $60 million in new school safety funding that was included in the state budget. The new funding is in addition to the $10 million dedicated to an existing grant program created in 2013.
The grant programs will provide funding for a variety of measures designed to improve student safety and reduce school violence, such as:
- Hiring school police officers, school resource officers, counselors, and/or mental health counselors
- Alternative education and diversion programs
- Violence prevention initiatives
- School safety and emergency preparedness plans
- Physical upgrades to school buildings and equipment to improve safety
The legislation also creates a school threat reporting and monitoring system for students, teachers, and community residents to anonymously report unsafe, potentially harmful, dangerous, violent, or criminal activities in schools. The new Safe2Say Program would be patterned after the Safe2Tell program that was created in Colorado in 1999 after the school shooting at Columbine.
The Pennsylvania attorney general would administer the system and ensure the information regarding potential threats is sent to the appropriate law enforcement agency and school officials for further investigation.
The bill also requires the Pennsylvania Commission on Crime and Delinquency to develop school safety assessment guidelines. These guidelines will offer a uniform approach to evaluating current security measures in every school building in Pennsylvania.
In addition, Senate Bill 1142 requires schools to provide employees with mandatory training on school safety and security.
Wolf signed Senate Bill 1142 into law on June 22.
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Legislation to Combat Neighborhood Blight Now Law
Gov. Wolf signed two bills aimed at eradicating blight. House Bill 653 and Senate Bill 667 will help municipalities by providing new tools to help increase redevelopment opportunities statewide.
House Bill 653, sponsored by Rep. Kurt Masser (R-Columbia, Montour, Northumberland), provides for an accelerated foreclosure process for vacant and abandoned property while maintaining appropriate protections for property owners. The foreclosure process in Pennsylvania currently can last from 300 to 540 days. This bill is expected to reduce the timeframe for foreclosure on abandoned and vacant property by 240 days.
Senate Bill 667, sponsored by Sen. Pat Stefano (R-Fayette, Somerset, Westmoreland), will grant redevelopment authorities the same powers currently allotted to land banks to increase opportunities to combat neighborhood blight. The legislation will allow established redevelopment authorities to get into the fight against blight, saving time and money.
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Pa. Announces Approval of Nominated Economic Opportunity Zones
The state Department of Community and Economic Development (DCED) announced that the U.S. Department of the Treasury approved the commonwealth’s nominations for 300 census tracts across Pennsylvania as designated Qualified Opportunity Zones.
The list of approved tracts, an interactive map, and additional information about the opportunity zone program can be found at DCED’s Qualified Opportunity Zones website. The U.S. Department of the Treasury is still in the process of developing the Opportunity Zones program, and the IRS is expected to provide further information regarding opportunities for investment in zones in the coming months.
The federal Tax Cuts and Jobs Act created Qualified Opportunity Zones as a tool for promoting long-term investment in low-income communities. Through this program, investors are provided tax benefits for investing capital gains in low-income community census tracts, as well as certain tracts adjacent to low-income tracts. The new tax incentive is for private investors making private equity investments in funds that will then invest in businesses, real estate, and other ventures in low-income communities. The incentive offers deferral, reduction, and potential elimination of certain federal capital gains taxes.
Opportunity funds that invest in Qualified Opportunity Zones provide investors the chance to put that money to work rebuilding the nation’s distressed communities. The fund model will enable a broad array of private equity fund managers and investors to pool their resources, increasing the scale of investments going to under-served areas.
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State Agency Releases Impact Fee Numbers
The Pennsylvania Public Utility Commission announced the distribution of impact fees on natural gas producers for this year, which totaled $209.6 million. This brings the total amount collected and distributed to nearly $1.5 billion to communities in all 67 counties across Pennsylvania.
In accordance to Act 13 of 2012, over $114 million will be directed to county and municipal governments directly affected by drilling, and over $76 million will be transferred to the Marcellus Legacy Fund, which will provide funds for environmental, highway, water, and sewer projects across the state. This year’s distribution is roughly $36 million higher than the previous year due to economic optimism resulting in more wells drilled.
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