Budget Season: It’s Over, But Not…

by Buchanan Ingersoll & Rooney PC

The General Appropriations bill was passed on time, with the fiscal code bill quickly following in early July. However, in what was one long hot summer week, both bills sat unsigned on the governor’s desk for the better part of 10 days. Then, with the stroke of a pen, Gov. Corbett signed the 2014-15 budget bill – but not before he took the legislature to task for not addressing pension reform and line-item vetoed $65 million of their general appropriations and $7.2 million in legislature designated spending.

The gubernatorial exercise of line-item veto authority is a rare event; it was last used by Gov. Rendell in 2009. However, true to the doctrine of separation of powers, it doesn’t end there – the legislature can still override the veto by a 2/3 vote in each chamber. The bill can be called up for an override vote any time between now and the end of the legislative session.

Adding to the excitement, the House will be returning to Harrisburg for a rare summer session day on Monday, August 4. (See below: August 4… What to Expect). The date was scheduled before the governor’s veto, and it’s expected that the House will continue debate on H.B. 1177, which authorizes Philadelphia to increase its cigarette tax, the proceeds from which would fund the Philadelphia public schools.

While the Senate has passed a pension reform proposal that effects legislators and the judiciary, there is no indication that the House will take up the Senate bill, or any other pension reform bill for that matter. Further, the Senate hasn’t announced any additional session days beyond what they’ve scheduled starting in September. Right now, it’s fruitless to even try to read the tea leaves; it’s anyone’s guess if there will be more action that week.

Budget Highlights

So what’s in and what’s out? Let’s take a look at what was accomplished this budget cycle.

Despite a billion dollar deficit, there are no new taxes in the budget, which also means no severance tax will be imposed on the extraction of natural gas. Additionally, the Capital Stock and Franchise Tax will continue to be phased out by 2016.

Even with a lawsuit pending, the budget allows leasing state parks and forests for natural gas drilling which will generate $95 million in revenue and additional future royalties.

Early education and public schools get a boost this year. The governor’s news release reported a record $12 billion in state funding for early, basic and post-secondary education, an increase of $323 million over last year’s budget. This funding includes a $10 million increase in Pre-K counts and an increase of $305 million in state funding for public schools.

The budget also includes $200 million in funding for the governor’s Ready to Learn Block Grant, which was part of his budget proposal in February, and $20 million increase for special education funding, which is the first increase in special education in six years.

In higher education, the budget includes $5 million for the Ready to Succeed Scholarship initiative. The program is designed to provide tuition assistance to middle-income students by providing up to $2,000 to students who meet income eligibility and academic merit requirements.

There are increases in funding for county welfare assistance offices, the community-based health care program, mental health services, county child welfare services and funding for Medicaid-eligible people with intellectual disabilities. Just this week, the administration announced that the $7.2 million appropriation in this year’s budget to provide home and community-based services for Pennsylvania adults with physical disabilities eliminates the entire Act 150 waiting list.

The budget also counts on $125 million in savings from changes to the state’s Medicaid program that still require approval from the federal government.

In the category of law and order, the budget provides for an increase for Pennsylvania State Police and will help fund cadet classes to train new state troopers. In all, the PSP operations and cadet classes will increase by $15 million.

Something Funny Happened on the Way to the Fiscal Code

Normally, the Fiscal Code bill is the follow-up bill for the budget. It’s the instruction manual for the budget document; it’s the “how to” for all those numbers, providing all of the substantive provisions necessary for the enactment of a balanced state budget. The fiscal code can contain language to raise revenue, to impose limitations on spending on a particular item or to provide for transfers between funds in the state treasury.

Here are the Fiscal Code highlights:

• Authorizes the lease of state lands for the extraction of natural gas, a proposed revenue raiser in Gov. Corbett’s budget;

• Requires the Department of Environmental Protection to use funds to promulgate separate conventional and unconventional oil and gas regulations;

• Allows the Liquor Control Board to reduce the license fee for bars and taverns that apply for a license under the Local Option Small Games of Chance Act, in order to increase applications for these licenses and subsequently yield additional revenue for the state;

• Provides for the establishment of a rural regional community college. The college will be located in a multi-county rural area that is underserved by comprehensive community college education and work force development;

• Drives out the basic education funding subsidy and the special education funding subsidy; and finally

• Suspends transfers to Budget Stabilization Reserve Fund. The Fund, also known as the Rainy Day Fund, holds a reserved amount of money that would be used in order to continue typical operations of the Commonwealth. Typically, this money is transferred through line-item budget appropriations or designating portions of budget surpluses. However, now all transfers to the Rainy Day Fund will be suspended.

This isn’t the last we’ve heard on the Fiscal Code bill. When the governor took the blue pen to the budget bill, he also line-item vetoed provisions of the Fiscal Code bill. The legality of this exercise is currently in question and hinges on whether or not the bill constitutes and appropriations bill or a substantive bill. The governor may use his line-item veto authority as to the former, but not the latter.

August 4 – What to Expect

While the Senate stands in recess until Monday, September 15, the House has sunshined a rare session day for the first week of August. As of now, the House plans to reconvene on August 4. No other days have been sunshined, but we understand that members have been told to plan for a three-day session week. To the best of our knowledge, the House plans to continue debate H.B. 1177, which has been at the center of a legislative ping-pong match since April.

H.B. 1177 amends the Municipal Code and, as originally passed by the House, contained only provisions related to local government referenda. However, the Senate used the bill as a vehicle for other changes to the Municipal Code, allowing for hotel taxes in certain counties and for an optional additional cigarette tax in Philadelphia to fund its public schools. The bill then returned to the House, where it was amended again, this time to include some provisions related to charter schools and to remove some of the hotel taxes put in in the Senate. The cigarette tax provision remained intact, and the bill was sent back to the Senate for concurrence. But there’s more…

The Senate received the bill and amended it once more, this time to provide an expiration date or “sunset” for the Philadelphia cigarette tax; Philly’s ability to impose the tax would expire as of June 30, 2019. While they were at it, the Senate also moved the provisions in Pennsylvania law related to the creation of City Revitalization Improvement Zones (or CRIZ) to the Municipal Code and included language to provide for additional zones. The bill was passed by the Senate on July 8 and referred to House Rules Committee on July 9, where it has been sitting since.

Other Legislative Actions

It felt a little like “all budget, all the time” in late June and early July, but we did see some other bills hit the governor’s desk for signature. Among them:

Safe Haven for Infants

Act 91 (Youngblood, D-Philadelphia) – This new law, amending the Newborn Protection Act, provides that in addition to hospitals, police stations could serve as safe havens for new mothers who are unable to care for their newborns.

Power of Attorney Changes

Act 95 (Keller, R-Perry) – Introduced as H.B. 1429, this addresses issues related to powers of attorney. The bill clarified the law to immunize a third party, such as the State Employees Retirement System, when that third party accepts a document indicating the assignment of the power of attorney in good faith without knowing that the power of attorney document is invalid. This bill came in response to a Pennsylvania Supreme Court case, Vine v. Commonwealth, in which the court interpreted the previous statute in a way that did not immunize a third party.

HMO Business Organizational Structure

Act 96 and Act 97 (Killion, R-Delaware/Chester) – Before H.B.1574 and H.B 1575 became law, Pennsylvania HMOs were prohibited from operating as limited liability companies (LLC’s). This prohibition limited certain business opportunities for non-profit HMO’s that have both for-profit and non-profit hospital owners. The legislation’s supporters advocate that this change will facilitate for-profit ownership and investment in HMO’s in Pennsylvania.

“Rocco’s Law”

Act 110 (Smith, D-Allegheny/Washington) – Commonly referred to as “Rocco’s Law,” S.B. 1261, now Act 110, increases the penalty for the torture and/or murder of police animals. The bill came about after Pittsburgh police K-9 Rocco died of a stab wound suffered in the line of duty.

Public Infrastructure Cost Containment

Act 120 (D. White, R-Indiana) – Formerly S.B. 1096, this new law clarifies language in existing law related to limit reimbursement of appraisal, attorney and engineering fees allowing property owners challenging a right of way or easement to seek reimbursement up to $4,000 per owner of the property as opposed to per property. The law closes that loophole to prevent driving up the costs for public infrastructure improvement projects.

Human Trafficking

Act 105 (Greenleaf, R-Montgomery) – As enacted, S.B. 75 changes the state’s definition of human trafficking with the goal of leading to more successful convictions and enhance punishments for traffickers. The new definition will give law enforcement more leverage in handling human trafficking cases.

School Nurse Certification

Act 107 (Vance, R-Cumberland) – This new law, formerly S.B. 193, requires all school nurses be certified in cardiopulmonary resuscitation (CPR) and requires school nurses to complete recertification training in a time frame established by a Department of Health approved certifying agency.

Successor Liability

Act 112 (Tomlinson, R-Bucks) amends Title 42 to create the Successor Business Entity Liability Act. Formerly S.B. 1422, the new law clarifies the liability status of companies who obtained a business and faced asbestos-related claims from actions of the previous owner. The Act will establish a limitation of liability for any eligible innocent merger successor company.

Whistleblower Laws

Act 87 (Ellis, R-Butler) extends Pennsylvania’s Whistleblower law protections to cover employees in private-sector companies or nonprofits who report the abuse, misuse or loss of taxpayer resources. The former H.B. 118 increases monetary and administrative penalties for parties who violate the provisions of the law. This bill would also allow employers to take disciplinary action against employees who submit a whistleblower complaint in bad faith. Previously, the law only provided this type of protection for public employees.

Act 88 (Gibbons, D-Lawrence) amends Pennsylvania’s Whistleblower Law to include employees of the General Assembly and Commonwealth agencies. The new law is former H.B. 185.

Community Services Block Grant

Act 90 (Sankey, R-Clearfield) reinstates the Community Services Block Grant Program, which expired at the end of 2011. The reenactment of the program will allow for community action agencies to provide job-training and other services to low-income individuals to assist them in obtaining employment. The bill, previously H.B. 927, will be in effect through 2017 and will provide a minimum funding level for each community of $250,000, an increase from $150,000.

Pulse Oximetry Test

Act 94 (Boback, R-Columbia) included amendments to H.B. 1420 from the Senate but now requires pulse oximetry testing for newborns in order to help detect congenital heart defects.

Unfinished Business

Despite a busy couple of months surrounding the budget, there are still a few big ticket items that remain unresolved as of now. We have a pretty good indication that the House will debate H.B. 1777 when it returns on August 4, but beyond that, some unfinished business remains.

Pension Reform

It’s no secret that pension reform is number one on the governor’s legislative agenda, but the probability of enacting a bill on pension reform is hard to gauge right now. The House seems to have made it clear that they do not intend to vote on pension reform, while the Senate has shown willingness to meet the governor half-way by altering the pension system for new legislators and judges. Whether or not this issue comes up for debate when the House convenes on August 4 will give us a better indication of the fate of this proposal.

Legislative Reforms

In early June, we reported that government reform had taken center stage, and a number of bills proposing to amend the Pennsylvania Constitution to reduce the size of state government were introduced and on the move. Since then, Sen. Elder Vogel’s S.B. 324, which would have reduced the size of the state Senate and the judiciary and would have eliminated the office of Lieutenant Governor, saw some movement but was amended such that it only reduces the size of the state senate. The bill has not yet passed in the Senate. Additionally, House Speaker Sam Smith introduced two separate bills to reduce the size of the legislature. H.B. 1234 would reduce the House of Representatives from 203 to 153 members. The bill has had first consideration in the Senate and is now on the table. H.B. 1716 would reduce the number of state Senators from 50 to 38; that bill cleared the House and is now awaiting action in the Senate State Government Committee.

Other reform measures on the move include S.B. 1327 (Baker, R-Luzerne), which would impose a ban on cash gifts to public officials and employees, and H.B. 1872 (Dunbar, R-Westmoreland), which would lower the limits on gifts that hospitality that must be reported under the State Ethics Act. Both bills are stalled in the House State Government Committee.

And that’s a wrap…for now.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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