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Senator Pat Browne


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Senate Appropriations Committee Report
January  2016

Committee Website


General Fund Revenue Collections Are 0.8% Ahead of Last Year.

The 2015-16 Official General Fund Revenue Estimate has been certified by the Governor at $30,871,700,000; however, the monthly distribution against which to compare actual revenue collections is not expected to be released until later in January.  The Official Estimate calls for General Fund revenue growth of 0.9%. Through the first half of the 2015-16 fiscal year, General Fund revenue collections are 0.8% ahead of last year.

For the fiscal year-to-date, total General Fund revenue is $101 million, or 0.8%, higher than FY 2014-15.  Fiscal Year 2014-15 included a $100 million Inheritance Tax windfall and over $200 million of one-time special fund transfers that did not occur in this fiscal year, and this has the effect of boosting last year’s revenues when compared with this year’s.  Total tax revenue for FY 2015-16 is 2.6% higher than it was through December 2014.  Excluding the Inheritance Tax windfall from FY 2014-15, tax revenue collections in FY 2015-16 would be 3.4% more than last year on an equivalent basis.

Total General Fund revenue for December 2015 was $2.73 billion, which was $14.4 million, or 0.5%, more than General Fund revenue collected in December 2014.

December 2015 corporation tax collections were $35.6 million, or 6.3%, below last year.  For the fiscal year-to-date, corporation tax payments are 1.8% less than last year for the first half of the fiscal year.

Sales and Use Tax (SUT) collections were $20.1 million, or 2.5%, ahead of last December.  General SUT was above last December by $22 million, or 3.2%, while SUT on motor vehicles was $1.8 million, or 1.6%, below December 2014.  Year-to-date Sales and Use Tax are 2.9% ahead of last year at this time.  However, the IFO’s FY 2015-16 revenue estimate calls for SUT growth of 3.5% over the entire fiscal year.  Therefore, after the first half of the fiscal year, SUT collections are slightly off pace as compared with the IFO revenue estimate.

Personal Income Tax (PIT) collections were $47.1 million, or 4.6%, above last year.  PIT from employers’ withholding was $6.5 million, or 0.7% higher than last year.  Non-withheld PIT was $40.5 million, or 28.5%, higher than December 2014.  Non-withheld PIT collections were significantly higher in December 2015 due to what we believe could be early deposits and quarterly returns which would normally be due in January 2016. Total PIT collections during FY 2015-16 are 4.8% more than last year at this time.  The IFO revenue estimate forecasted PIT revenue growth at 4.8% for FY 2015-16.

Realty Transfer Tax (RTT) collections for December 2015 were $7.3 million, or 18%, lower than last year for the month.  RTT is $32.4million, or 15%, higher than last year through December.  Inheritance Tax is $72 million, or 13.8%, less than last year, which is a result of the $100 million windfall received in October 2014.  Table Games Tax is $2.4 million, or 5.1%, higher than last year through the month of December.  Cigarette Tax is 1.2% lower than last year, but Liquor Tax is 3.8% higher than last year through December.  Capital Stock and Franchise Tax (CSFT) collections are 11.2% below last year at this time, which is expected because of the continued phase-out of the tax.  The CSFT rate is zero for taxable years beginning in 2016.

Motor License Fund collections are $107.8 million, or 9.2%, ahead of last year at this time. 

Senate Sends Budget to Governor. Wolf Exercises Line Item Veto

Two days before Christmas, and with limited options, the Senate sent a House of Representatives-passed budget to the Governor. The spending plan totaled $30.26 billion and included $150 million in increased funding for basic education and accountability block grants, $30 million for early education programs and $30 million for Special Education. 

This action was necessary because the agreed-to “framework” budget and associated policy initiatives encountered delays in the House of Representatives. On December 19th, the House failed to advance the hybrid pension reform plan by a vote of 52 to 149. The pension reforms are an integral component of the “framework” agreement and are directly tied to revenue enhancements necessary to support the $30.78 billion “framework” budget. Senate Leadership has been emphatic that, without pension reform, there is no capacity in the majority caucus to support increased revenues.

In passing House Bill 1460, it was the Senate’s intent to provide the Governor with a mechanism to allow state payments to flow to school districts, non-profit and other service providers and vendors. The Administration had indicated that systems were in place to enable payments to be processed almost immediately upon enactment of spending authority.

On December 29th, Governor Wolf exercised his line item veto authority and reduced the spending contained in House Bill 1460 by $6.86 billion (inclusive of funding for the state-related universities which are non-preferred appropriations and have not reached the Governor’s desk). Presumably, the Governor took this action to force the General Assembly to return in the New Year to complete the FY 2015-16 budget process and increase revenues sufficiently to support the larger “framework” spend. The Governor’s vetoes include a $3.1 billion reduction in funding for basic education, $939 million for state correctional institutions and nearly $2 billion in medical assistance programs.

At the moment, we are uncertain why the Governor item vetoed Corrections and Medical Assistance funding since those costs have been paid during the impasse under the health and safety exclusions. We suspect reducing these lines by 50% provides cover to the Governor for his 50% reduction to Basic Education Funding. The Governor also exercised his line item veto on House, Senate and Government Support Agency appropriations to the same, disproportionate level imposed by Governor Corbett.

Budgetary discussions continue, and it is incumbent upon the House of Representatives to advance a proposal that can gain the support of its members, the Senate and the Governor.

Capital Stock and Franchise Tax Elimination

Beginning January 1, 2016, Pennsylvania’s Capital Stock and Franchise Tax (CSFT) was finally phased out after its elimination was first proposed in Act 23 of 2000 – more than 15 years ago.  

The CSFT rate was reduced significantly in 1998 and 1999 during the Ridge administration.  The tax rate was again reduced for 2000, and under Act 23 of 2000, the CSFT was scheduled to be completely phased out for the year beginning January 1, 2009.  However, the original phase-out schedule was delayed during the Rendell and Corbett administrations.  Both Democrat and Republican administrations recognized the importance of eliminating this onerous tax, but the timetable for the CSFT elimination was altered due to fiscal constraints. However, the eventual phase-out was never entirely halted during these years.

The CSFT dates back to 1844, and it was imposed on corporations with capital stock, joint-stock associations, limited liability companies, business trusts, and other companies doing business within Pennsylvania.  Domestic corporations were subject to the capital stock tax while foreign corporations were subject to the foreign franchise tax on capital stock apportioned to Pennsylvania.  

The CSFT was imposed on the “capital stock value” of a company, as derived by the application of a formula that considered a five-year history of book income and the value of a company’s net worth.  As a result, there was often a disparity between the tax owed and a taxpayer’s ability to pay because a tax liability could exist even though a business had a loss in a given year or years.  Furthermore, small businesses such as S corporations and limited liability companies were subject to this tax even though they are pass-through entities not subject to the Commonwealth’s corporate net income tax.

Companies having business activity both in-state and out-of-state could apportion the tax using either a single exempt assets factor or a three factor apportionment, which included equally-weighted property, payroll and sales factors.

By including property and payroll in the three factor apportionment formula, the amount of CSFT owed would increase in relation to any increase in the amount of property owned or used in Pennsylvania or compensation paid to employees in the state.

Because the CSFT had no direct relationship to a company’s ability to pay, and the fact that a company’s tax liability would increase as a result of expanding business operations in the state, it was widely regarded as an archaic and unfair tax on business expansion and job creation, which hurt the Commonwealth’s ability to retain and attract businesses in a global economy.  

 


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