City Hall Update

After a frenzy of legislative activity in the final days of its winter-spring session, Philadelphia City Council adjourned for the summer on June 20th and was most notable for what it did not do at its final session: pass a double-digit increase in the business Use & Occupancy tax to help fund the Philadelphia School District.

Confronting a debate about how best to raise local revenues to help city schools, Council, under the leadership of Council President Darrell Clarke, opted instead to support two local revenue measures: Embarking on a much more energetic program to collect delinquent taxes ($28 million), and a new $2 a pack cigarette tax projected to raise $45 million in its first year and $90 million in its second year.

The delinquent tax collections measure is moving forward. But the cigarette tax, after passing Council unanimously, still required state enabling authority from the Pennsylvania legislature. The Senate seemed poised to grant that authority, but the House was not willing, and the cigarette tax was not approved by the legislature before it adjourned last week.

The Greater Philadelphia Chamber of Commerce helped lead a coalition of small business owners and other citizens opposing another increase in the U & O tax, arguing it would have sent a powerful, negative signal to businesses in Philadelphia – or businesses thinking of locating here.  Chamber leaders, including President & CEO Rob Wonderling and present and past Chairs Dan Fitzpatrick and David L. Cohen, worked tirelessly behind the scenes in Philadelphia and in Harrisburg, helping to craft a schools funding package that ultimately will send $140 million more in aid to the School District this coming year, and $150 million more next year.

GPCC supported the cigarette tax proposal as a new method of raising a dedicated funding source for schools. Council President Clarke remains committed to this policy idea, and GPCC will continue to support it.

Council also approved a new property tax rate for Philadelphia of 1.34 percent, with a homestead exemption of $30,000, each designed in response to the city’s implementation of a new, citywide property assessment for 579,000 city properties – the Actual Value Initiative (AVI). The property tax rate approved by Council is revenue-neutral. Some residential property owners’ taxes will rise as a result of AVI, and some property owners’ taxes will decline, but overall, the vast majority of taxpayers will see little or no change in their property tax bills, city officials said.

The other, major legislative battle waged this winter and spring was legislation that would have mandated that city employers provide paid sick leave to their employees.  Paid sick leave, proposed by Councilman Bill Greenlee, was considered for the third time in the past several years. The Chamber has consistently opposed mandatory paid sick leave legislation, and although the bill passed Council, six members opposed the bill – just enough to sustain Mayor Nutter’s veto of the legislation.  GPCC testified against paid sick leave this spring, arguing it was another disincentive to businesses doing business in Philadelphia, and helped lead a citywide coalition opposed to this unfunded mandate.

Council will return in the Fall, resuming its legislative session in early September. Among the topics likely to be on its agenda: The city’s unfunded pension liability problem, property tax abatements, spurring economic development in outlying neighborhoods, and an array of other issues.

State Legislative Update

In addition to the Chamber’s efforts in Philadelphia and Harrisburg to help close a $300 million funding gap facing the school district, GPCC was fully engaged with stakeholders and state lawmakers, working to advance many of our highest priority public policy goals.

As the June 30 budget deadline neared, state legislators seemed on pace to enact one of the Greater Philadelphia Chamber of Commerce’s public policy priority goals, a new transportation investment strategy for Pennsylvania.  By a vote of 45-5, the Pennsylvania Senate passed a $2.5 billion plan that included adequate investment in highways, bridges, transit, ports and airports. Funding levels were altered in the House, then progress on infrastructure funding became entangled with consideration of liquor store privatization, and talks stalled on both issues…..setting the stage for a busy fall legislative calendar.

And, despite attempts by the Corbett Administration and the Legislature to address the state’s $42 billion unfunded pension liability, lawmakers did not agree upon pension reforms that would provide needed budget relief.  GPCC will continue to urge action on meaningful pension reform for SERS & PSERS, and Act 111 changes to aid local governments in maintaining fiscal solvency.

The Chamber also continued ongoing advocacy to create a more competitive state business tax structure that eliminates the onerous Capital Stock and Franchise tax (CSFT), lifts the cap on net operating losses and reduces PA’s 9.9% corporate net income tax rate, the second highest in the nation.  Without the projected savings from pension reform, lawmakers were forced to slow the CSFT phase-out until 2016.  Budget constraints also slowed progress on increasing the film tax credit, which was again level-funded at $60 million.  Other important tax changes are detailed in the state budget and tax update below.

PA Budget and Tax Update

Despite rising pension obligations and revenue collections that did not meet expectations, Governor Tom Corbett and the Pennsylvania General Assembly enacted an on-time, balanced budget that does not raise taxes.  The Chamber was pleased that the $28.375 billion spending plan boosts basic education funding statewide by $123 million and maintains current investment levels in higher education and programs that promote job creation and economic development.

As part of the 2013-14 spending and tax plan, state lawmakers also approved $140* million in additional funds for the Philadelphia School District this year, and $150 million next year.  *(The Pennsylvania House of Representatives is poised to act on the final piece of the 2013-14 state budget, a fiscal code measure that includes a one-time $45 million allocation to the School District of Philadelphia.  A vote on the measure could come as soon as July 15.)

Tax Code Changes

Without the projected savings from meaningful pension reform, Governor Corbett and lawmakers were forced to find other revenues to balance the 2013-14 state budget and fund vital programs and services.  Key tax elements of the Commonwealth’s new budget plan include:

• Continues phase-out of the Capital Stock and Franchise Tax (CSFT), however, at a slowed rate – the current 0.89 mills tax rate will decline to 0.67 mills in 2014 and 0.45 mills in 2015, and finally eliminates the CSFT in 2016

• Expands Net Operating Loss  (NOL) relief – from $3 to $5 million, and from 20 to 30 percent of income over a two year period

• Eliminates inheritance tax on small family-owned businesses

• Repeals the Corporate Loans Tax in 2014

• Reforms Tax Appeals Process

• Reforms Bank Shares Tax

• Clarifies and improves economic development and tax credit programs that promote job creation, film industry, and opportunity scholarships

• Creates the Innovate in PA Tax Credit program and the Mobile Telecommunications Broadband Investment Tax Credit program

In addition, state lawmakers also enacted changes that could impact the tax liability of some employers:

• Requires companies to addback intangible expenses and costs including the interest expense associated with the intangible expense and cost – adjustment does not apply to a transaction that did not have as the principal purpose the avoidance of tax and was done at arm’s length rates and terms.

• Provides for market-based sourcing for the sales apportionment factor with regard to the sales of services – such sales will be sourced to where the benefit is being derived by the customer

To review specific provisions of the legislation described above, visit www.legis.state.pa.us and enter bill numbers:  HB 465 (tax code) SB 591 (fiscal code)  HB 1075 (welfare code) HB 1141 (education code) HB 1437 (general fund appropriations).

Throughout the summer months, GPCC will be preparing for an active fall advocacy campaign to urge action on important issues including:

• Passage of needed state legislation authorizing improved tax collections and an increased cigarette tax in the City of Philadelphia

• A comprehensive transportation funding solution that includes adequate investment in highways, bridges, transit, ports and airports

• Meaningful pension reforms for SERS and PSERS to address a $42 billion unfunded liability, and related changes to aid local governments in maintaining fiscal solvency