LEG-REG REVIEW
SPECIAL REPORT on the BUDGET

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LEG-REG REVIEW

SPECIAL REPORT on the BUDGET

December 23, 2003

 

Prepared by PHILLIPS ASSOCIATES

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PLEASE SHARE AS YOU SEE FIT.

 

HOUSE PASSES TAXING, SPENDING BILLS

 

In an evening session December 22, the PA House of Representatives passed a billion-dollar series of tax increases; companion spending measures, and added some financial relief for doctors.  Governor Rendell is expected to sign the legislation into law today, bringing to an end the last unresolved state budget in the U.S.

 

Specifically, there were several bills.

 

TAXING BILL #1 (HB 200)

 

The most divisive of the legislation considered, HB 200 passed with the help of 34 Republicans.  This was more than the 25 needed to pass an earlier version of HB 200.  Last night’s vote (as with most of the others) was for the House to concur with Senate amendments.  This bill is the taxation bill.  Debate raged between tax opponents who felt that PA’s economic recovery is threatened by more taxes to supporters who cried out for the need to restore human services and education funding.  The debate was angry and impassioned although tinged with humor such as when Rep. Bud George (D-Clearfield) told opponents to “stop scratching their butts”.  Considerable time was spent on the so-called structural deficit blamed by Democrats as the result of one-time stop gaps masking the fact that revenues were not keeping pace with expenditures.  Republicans countered by suggesting that controlling spending was the essence of the first state budget passed in March and that we should not have a billion dollar tax increase AND expansion of state education programs.

 

Governor Rendell and Minority Leader Bill DeWeese extended an olive branch to the GOP leadership to compliment them on their bipartisanship in addressing the state’s woes.  Gov. Rendell promised to tackle property tax relief and slots as his first 2004 priority. 

 

Some highlights of HB 200 include:

 

·         Delay in the phase out of the Capital Stock and Franchise Act for another year.  This means that for 2003, the tax stays at 7.24 mills.  In 2004, unless delayed again by the General Assembly, the rate will be 6.99 mills with the new phase-out date of 2010.

·         A permanent increases in the Personal Income Tax (PIT) to 3.07 percent.  This will also affect about one-fifth of all smaller PA businesses.

·         A 2004 gross receipts tax on mobile phone use includes 40% payments on March 15 and June 15 with the remaining tax to be paid on September 15, 2004.

·         Cigarette excise taxes are increased 1.75 cents per cigarette to a new rate of 6.75 cents per smoke.  Of the 35 cents per pack, 25 cents goes to fund the MCARE surcharge abatements for physicians (Medical Malpractice) – see HB 44.

 

On the exclusions/tax credit side, the tax credit for research and development increased by $ 15,000,000 to $30 million. Doubled is the amount of the credit specifically reserved for small business to $6 million.  A new exclusion has been added for materials and building supplies used by construction contractors employed by a school district to build or repair a structure damaged or destroyed in a disaster warranting a Declaration of Disaster Emergency issued by the Governor.  A credit against telecommunications taxes may be granted to telephone call centers.

 

HB 200 also strengthened the state’s ability to collect unpaid taxes through wage deductions of up to ten percent and makes employers responsible for paying the owed taxes.

 

 

TAXING BILL #2 (HB 172)

 

House Bill 172 increased fees on numbers of business activities with increased revenue to the Commonwealth of about $29 million.  Some of these (followed by the bill page number include:

·         Restaurant licensing fees of $103.00 for new establishments with under 50 in seating capacity and $241.00 with more than 50; Renewals or change of owner is $82; Duplicate licenses for additional locations and temporary licenses are $14.00 (p.6)

·         Insurance companies will see 32 increased fees including an increase in appointment fees to $15.00 (formerly $12 per year); Insurance producers will pay $25 for a duplicate license, a certified license history, or an amended license (p.7).

·         Surplus Lines Binding Authority agreements go from $65.00 to $200.00.

·         49 Labor & Industry inspections of elevators, ski lifts, and boiler fees will increase.  An escalator inspection fee, for example, goes to $290.00 from $200.00.  A ski lift inspection increases to $508.00 from $350.00.  Approval of plans for high-pressure boilers increases to $73.00 from $50.00.  A certificate of operation for an unfired pressure vessel increases to $44.00 from $30.00 (p.13).

·         Securities fees take ten pages in the bill.  Examples include $80 when an investment advisor changes employers, new or renewal brokers’ fees are now $350.00, and the Securities Commission now has the authority to set exam charges and publication fees by regulation (p.20).

·         Department of State Corporation Bureau fees increase in 50 areas relating to corporations.  A fictitious name registration is now $70.00, Amending an LLC registration is $250.00, and Incorporating a domestic PA company is $125.00 (p.30).

·         Other components of HB 172 include an increase in birth and death certificate fees to $10.00 and $9.00 respectively; extension of PA Labor Relations Board authority to resolve collective bargaining disputes for school administrators in cities of the first class; Testing for newborn diseases in state-approved laboratories; and required energy audits for state buildings.

The vote on HB 172 was the closest, 102-98.  Two Representatives changed their votes because of “malfunctioning voting switches” so that the ultimate vote was a tie.  This did not change the status of the vote since the vote changes occurred after the Speaker ratified the vote as final. 

 

 

PROGRAM SPENDING BILL (HB 1589)

 

Passing 169-31, HB 1589 is the program bill listing all the funding enhancements made possible by passage of HB 200, the first tax bill.  Highlights include:

 

·         Restoration in funding cuts for Drug and Alcohol Treatment programs

·         Partial restoration of library cuts of $47.8 million

·         Selected Department budgets

-          Agriculture: $2 million Crop Insurance; $1 million plum pox; $16.45 million for food purchases ($3 million in Federal money appropriated for the farmers’ market food coupon program)

-          Dept. Community & Economic Development: $600,000 for PA film promotion; $1.25 million for the prevention of base closures; $5.5 million for emergency responder training; $1 million for minority business development; $2 million tourism; $ 20.5 million for local municipal resources and development; $50 million in community revitalization and development; $8.5 million for urban development

-          DCED community and business development, $2.3 million; community conservation & employment $21 million; PA Infrastructure Technology Assistance Program $4 million; manufacturing and business assistance $2.5 million

-          Education: $4.2 billion for basic education funding plus money for some of Governor Rendell’s educational initiatives in early childhood initiatives etc.  Funds were also restored for school improvement grants and vocational education

-          PennDOT: Mass transit assistance $270 million; MAGLEV (Federal) $5 million

-          Museum grants: $6 million

-          PA Infrastructure Investment Authority  sewage projects (Federal money) $90.4 million

-          Funding increases for the General Assembly and the Courts

 

 

EDUCATIONAL FUNDING DISTRIBUTION BILL (SB 80)

 

Passing 193-7, SB 80 governs the formula by which state education funds are disbursed.  Although existing formulas were maintained, there are some changes:

·         Compliance with Federal No Child Left Behind testing and assisting in tutoring programs for school districts where a schools has failed to meet at least one academic performance target.  (Governor Rendell believes that this funding could begin to flow after the Christmas break.)

·         Prohibition of school employment of someone found guilty of stalking

·         School districts may delay approval of budgets if the General assembly does not complete its budget work by June 30 but must do so 15 days after enactment of a state budget

·         School districts are prohibited from increasing property taxes if its reserves exceed a certain percent of the total budget (For example, a school district with a budget of greater than $19 million wishing to increase property taxes may not have a reserve exceeding 8 percent.)

·         Tightening up as to a person’s claim that a child is a resident of a school district.

·         Increased auditing of Approved Private Schools/Chartered Schools  (such as for the deaf, blind, etc.)

·         Supplemental Head Start assistance

·         100% tax credits given to businesses contributing up to $10,000 to pre-kindergarten scholarship organizations

·         School grants for districts implementing full-day kindergarten programs, maintaining academic performance targets, reducing class sizes, providing additional programs for professional continuing education, math and literacy coaching programs, and providing financial incentives for teachers to work in the most challenging environments, etc.

·         Establishing an assessment system to improve school district utilization of resources, cost savings, and management best practices.

 

DEBT INCREASE BILL (SB 870)

 

SB 870 passed 172-27 to increase the debt ceiling for redevelopment assistance capital projects undertaken by the Commonwealth.  The maximum amount of debt is raised from $1.45 billion to $1.51 billion.  Fiscal impact is not immediate but will be felt when interest charges are imposed on the bonds.

 

 

MEDICAL MALPRACTICE BILL (HB 44)

 

HB 44 passed 185-15 to establish the Health care Provider Retention Account and Program administered by the Insurance Department.  This fund shall be renewed annually through the appropriations process to absorb the 2003 and 2004 MCARE surcharges (assessments) for certain doctors in high-risk occupations.  Ineligible doctors would be those who have had their licenses or ability to write prescriptions revoked, who has had 3 or more medical liability claims in the past three years where a judgement was entered and a settlement of $500,000 was paid, or who has an unpaid MCARE surcharge.

 

100% abatements go to physicians in the four highest rate classes, an emergency doctor, a rural OB/GYN specialist, or a certified nurse midwife.  This includes osteopaths as well as M.D.s.  The bill also allows a refund to physicians who already paid the 2003 surcharge that was due December 31, 2003.  Anyone receiving abatement must sign an agreement to remain in practice in the Commonwealth for a full calendar year.  The Insurance department is required to submit a status report on the law by May 15, 2004 including numbers of physician participants as well as the number of doctors who have left the state.

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