Pa. Revenue Department Provides Economic, Budget Updates
The Pennsylvania Department of Revenue (DOR) told the state House Finance Committee that it may take several years before General Fund revenues return to prepandemic levels. Daniel Hassell, secretary, and Amy Gill, deputy secretary for tax policy, provided lawmakers with an economic and tax revenue update.
Hassell also provided an update on DOR’s internal operations during the pandemic. He noted that the department moved quickly in March to ease tax collections due to the shutdown. It also halted liens, license revocations, and referrals to tax collection agencies; delayed payment plans; and offered to abate audit penalties and delay interest fees to the end of the year.
The DOR and its field offices are back at full operation. Hassell said that by Aug. 1 all tax season paper checks were deposited, and personnel had resumed most normal processes for outgoing and incoming mail, tax return review, refund issuance, and appeal review. More than 100 nonworking DOR employees were reassigned to the state Department of Labor and Industry to assist with phone calls and emails, according to Hassell.
The DOR provided information to lawmakers that shows state revenues fell from $34 billion in fiscal year (FY) 2018-2019 to $31.6 billion in FY 2019-2020, a 7.2% drop, largely due to moving the April 15 tax due date to July 15. General Fund revenues for FY 2020-2021 are expected to grow 7.4% over FY 2019-2020 to $33.9 billion. Gill told lawmakers that tax revenues are not expected to exceed tax revenue for FY 2018-2019 until FY 2023-2024 at the earliest.
Personal income tax receipts took the biggest hit due to the COVID-19 shutdown. FY 2019-2020 receipts were $12.8 billion, down $1.3 billion, or 8.9%, over the previous year because of the filing and payment deadline extensions. Corporate net income tax revenues were down by 16.8%, or $571 million, for FY 2019-2020, noted Gill. These revenues are expected to be flat this budget year before beginning to return to pre-COVID-19 levels in FY 2021-2022. Sales and use tax receipts were also down. Total sales tax receipts for the recently concluded FY 2019-2020 was $10.8 billion, 2.5% less than FY 2018-2019. DOR anticipates a rebound in FY 2020-2021 due in large part to revived economic activity and federal stimulus.
Gill cautioned lawmakers that the revenue forecasts are volatile. She told lawmakers that federal stimulus checks and enhanced unemployment compensation benefits have helped sustain some economic activity, but a full recovery could be years away.
Watch the entire hearing here.
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Acting DOR Deputy Secretary for Compliance and Collections Appointed
Dale Simpson, who has been with the Department of Revenue for more than 27 years, was appointed the department's acting deputy secretary for compliance and collections. Simpson takes over for Radee Skipworth, who left the department to become director of collections and enforcement for the District of Columbia Office of Tax and Revenue.
"Dale has proven himself as a valuable asset for Revenue's team," Revenue Secretary Dan Hassell said. "I'm certain his experience and the positive attitude that he brings to work every day will continue to serve him well in a new leadership position."
Simpson began his tenure with the Department of Revenue in 1993 as a tax account collections technician in Pittsburgh. Since that time, he has emerged as a leader within the department, particularly when it comes to work in the field.
Simpson has worked in several different capacities focusing on compliance and collections efforts. Most recently, he has served as director of the Bureau of Enforcement and Taxpayer Assistance. In that role, Simpson had a leading role in the department's home headquartering project, which involves field agents prioritizing interactions with taxpayers in the field by making their homes their main offices. This initiative has been a great success and was expanded significantly as Revenue employees worked remotely during the COVID-19 pandemic.
In his role as acting deputy secretary for compliance and collections, Simpson will oversee overall compliance and collections functions of the department.
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State Lawmaker Proposes NOL Changes for COVID-19 Losses
State Rep. George Dunbar (R-Westmoreland) introduced legislation to temporarily relax deductibility limits for net operating losses (NOLs).
“Many of our businesses both large and small have suffered huge losses due to circumstances out of their control. As we continue to battle the COVID-19 pandemic it is also important to begin the task of identifying economic recovery tools that we can utilize to reinvigorate these businesses,” said Dunbar. One such tool would be the temporary relaxation of deductibility limits for NOLs.
House Bill 2871 would allow an NOL deduction up to 100% of income next tax year to allow these companies a chance to recover. The additional 60% deduction can only be from losses that occurred in this tax year and does not apply to losses carried forward from prior tax years. The reduction in tax revenue would have no effect on the fiscal year end June 30, 2021, budget.
Prior year NOLs are allowed to be deducted from current year income for state tax purposes, but is limited to 40% of income, notes Dunbar.
House Bill 2871 has been referred to the House Finance Committee.
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Small Restaurants Grant Program Bill Passes House Committee
The House Commerce Committee passed legislation sponsored by Rep. Todd Stephens (R-Montgomery) to help restauranteurs who have been financially hobbled by the coronavirus pandemic.
House Bill 2615 would dedicate $250 million to a new Small Restaurant Grant Program to assist restaurants negatively affected by COVID-19. To be eligible for a grant, a restaurant must operate no more than 10 restaurant locations under an identical name within the state and employ no more than 75 full-time equivalent employees per restaurant location, and demonstrate that it lost at least 50% of its monthly sales in April and May. Restaurants would be eligible for up to $25,000 per location to use as working capital to support payroll expenses, rent, mortgage payments, utility expenses, or the purchase of food and beverage materials for restaurant operations.
Sens. Scott Martin (R-Lancaster) and Pat Stefano (R-Fayette) announced plans to distribute up to $500 million to Pennsylvania restaurants, bars, and businesses in the tourism and hospitality industries that are suffering due to the COVID-19 pandemic. Martin and Stefano will introduce a bill that would provide direct financial assistance to these businesses. Funding would come from Pennsylvania’s share of funding from the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act.
State Rep. Jake Wheatley (D-Allegheny), Democratic chair of the House Finance Committee, plans to introduce legislation to help live music venues. Wheatley’s legislation would earmark federal CARES Act dollars so a grant fund can be created for these businesses.
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Distressed Municipalities Aid Passes House
Legislation sponsored by state Rep. Robert Freeman (D-Northampton) that would aid distressed municipalities in the Act 47 program struggling to achieve recovery objectives passed the House. It now moves to the Senate for consideration.
House Bill 2548 would extend recovery plan deadlines in consideration of the ongoing pandemic crisis and better position a distressed municipality to meet these deadlines. According to Freeman, there are currently 16 distressed municipalities in the Act 47 program. His legislation would allow any distressed municipality to extend its recovery plan by 18 months.
The legislation also includes a retroactivity provision clarifying that a municipality that relied on the Fiscal Code provision to extend its exit plan prior to the enactment of this bill would be covered by the clarification.
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House Democrats Unveil COVID-19 Housing Relief Package
State House Democrats recently announced a package of bills to protect Pennsylvanians as the state’s moratorium on evictions and foreclosures expires. The House Democratic Housing Working Group was formed to help renters, homeowners in debt, and small “mom and pop” landlords survive the COVID-19 pandemic.
The bills in the Safe at Home package include the following:
- House Bill 2382, sponsored by Rep. Elizabeth Fiedler (D-Philadelphia), would seal the records of any and all “not for cause” evictions and foreclosures to ensure families don’t have unfair negative records following them as they try to find a place to live.
- House Bill 2501, sponsored by Reps. Jim Roebuck (D-Philadelphia) and Morgan Cephas (D-Philadelphia), would waive all interest and costs associated with homeowners refinancing their loans during any declared disaster emergency.
- House Bill 2623, sponsored by Cephas, would make sure small “mom and pop” landlords who own, manage, and, in many cases, live in smaller rental properties get full access to the Home Emergency Mortgage Assistance Program.
- House Bill 2834, sponsored by Rep. Sara Innamorato (D-Allegheny), would protect people facing job loss or slowdowns during a declared disaster by stopping landlords from being able to report late or unpaid rent to credit reporting agencies.
- House Bill 2836, sponsored by Reps. Summer Lee (D-Allegheny), Fiedler, and Innamorato, would grant Gov. Tom Wolf the ability to extend the moratorium on evictions and foreclosures.
- House Bill 2837, sponsored by Reps. Austin Davis (D-Allegheny), Fiedler, and Cephas, would increase funding to the PA Housing Finance Agency to provide more assistance to renters and homeowners, cut down on red tape for applicants, and earmark a portion of the funding for smaller, in-state “mom and pop” landlords instead of giant management companies.
- House Bill 2838, sponsored by Reps. Maureen Madden (D-Monroe) and Mike Schlossberg (D-Lehigh), would allow tenants who fell behind on rent due to COVID-19-related job losses or slowdowns to set up payment plan options with landlords to get back rent paid in a reasonable time.
- House Bill 2839, sponsored by Madden and Schlossberg, would make it easier for tenants and mortgage holders who fell behind due to COVID-19-related job losses or slowdowns to get back to good payment standing by waiving late fees on payments.
- House Bill 2840, also sponsored by Madden and Schlossberg, would create a landlord-tenant mediation program to make sure both sides are fairly heard and every chance to solve problems is explored before eviction proceedings begin.
- House Bill 2841, sponsored by Reps. Malcolm Kenyatta (D-Philadelphia), Innamorato, and Cephas, would ensure that low-income renters and homeowners who are in debt have qualified legal representation in disputes with landlords and management companies.
The bills have been referred to committees.
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Constitutional Amendment to Eliminate School Property Tax Proposed
Sen. John DiSanto (R-Dauphin/Perry) introduced a proposal that would allow Pennsylvania residents to vote directly on the elimination of school property taxes through an amendment to the Pennsylvania constitution.
Much like the Property Tax Independence Act, this constitutional amendment would have the General Assembly replace school property tax revenues with a combination of state and local sales and income taxes.
DiSanto’s proposal would guarantee that local school districts would receive the same amount of revenue as they did from property tax, so education funding would be more equitable for taxpayers while ensuring school needs are met.
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Retirement Reform Package Clears House
Efforts to reform and secure Pennsylvania’s pension system moved forward in the state House. Lawmakers approved a package of bills advanced by the Public Pension Management and Asset Investment Review Commission. As part of the study the commission made several recommendations to improve the system, save taxpayers money, and protect investments.
House Bill 1961, sponsored by Rep. Lou Schmitt (R-Blair), would require the State Employees’ Retirement System (SERS) to prepare a report on its investment performance data for the period of July 1 through June 30 of each year. This report will be in addition to any other reports SERS currently prepares. The Public School Employees’ Retirement System (PSERS) currently prepares investment performance data on the same basis.
House Bill 1962, sponsored by Rep. Dawn Keefer (R-York), would require the actuaries for SERS and PSERS to perform an annual stress test that includes a scenario analysis, a simulation analysis, and a sensitivity analysis.
House Bill 1963, sponsored by Rep. Garth Everett (R-Lycoming), would remove language from the State Employees’ Retirement Code and the Public School Employees’ Retirement Code to make it clearly known that contribution collars are no longer in effect and to ensure that Pennsylvania pays the annual required contribution each year.
All three bills go to the Senate for consideration.
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