Legislative Alerts: Legislative

May 26, 2009 Legislative Update

State tax revenues for April were way down, continuing a disappointing trend. State Budgeteers are now projecting a $3 to $3.2 billion shortfall for FY 2008-09. By most counts that number will grow to an even larger structural deficit for the coming fiscal years. Even with the federal stimulus and other infusions of one-time monies, some are suggesting that gone are the days when either more spending cuts or tax increases can get the Commonwealth out of this hole. Even with this bleak outlook, however, there currently doesn’t appear to be any appetite for any broad tax increases (personal income, business, sales, etc.).

Earlier this month, GCAP successfully lobbied members of the Senate Finance Committee in support of Senator Pat Browne’s (R-Lehigh) legislation to overturn the Pennsylvania Supreme Court’s decision in Redina v. Harrisburg. Redina reverses long standing legal precedent by allowing a municipality to levy a business privilege tax (BPT) tax on the business transactions of an entity that does not have a permanent base of operations within its boarders.

With the bill currently in the Senate Appropriations Committee, GCAP continues to work with the Pennsylvania Institute of Certified Public Accountants, the PA Chamber, Associated Pennsylvania Constructors and others to ensure passage of this important legislation. To that end, GCAP and its business partners met with key Senate Appropriations staff on May 18 to discuss the need to move SB 601 forward.

As a result of that meeting, GCAP is currently collecting additional information regarding the impact of Redina on our members. If you or your company are located in a municipality that levies the BPT, please contact Terry McDonough at 717-731-6272 or email hidden; JavaScript is required.

On May 5, by a bi-partisan vote of 126-72, the State House passed HB 400 (Lentz, D-Delaware). As approved by the House, this legislation seeks to penalize companies in the construction industry who intentionally misclassify workers as independent contractors to avoid paying taxes, insurance costs and payroll deductions or to hire illegal aliens. During the weeks leading up to the vote, GCAP advised House Members that these practices result in lost tax revenue, higher workers’ compensation premiums, illegal profits and a grossly uneven playing field when it comes to cheaters entering into competitive bids with those of us who abide by the rules.

The House-passed version included several amendments that improve and strengthen the legislation, including a re-scaling of penalties and a rebuttable presumption protection for employers. However, GCAP has told the State Senate Labor and Industry Committee that additional changes are required to make the bill an even more effective tool to combat the problem of employee misclassification. The most important of these changes is a specific safeguard for general contractors and subcontractors who operate in full compliance with the law, regardless of the business or hiring practices of their subcontractors or sub-sub.

GCAP is working with the Senate on proposed amendments to the bill. For more information about this legislation and what you can do to help, please call contact Terry McDonough at 717-731-6272 or email hidden; JavaScript is required.

Pennsylvania collected only $3.9 billion in General Fund revenue for the month of March – that’s $334.6 million, or 7.9 percent, less than anticipated. That continues a depressing trend with regard to state finances. Fiscal year-to-date General Fund collections total $18.7 billion and are $1.6 billion or 7.9 percent below estimate. With the most serious budget negotiations still weeks away, there is a growing debate as to whether or not the Commonwealth can balance its budget on spending cuts and economic stimulus funding alone. Most in Harrisburg don’t believe that any major tax increase (personal income, sales, corporate, etc.) will be a part of the final budget package. However, there are those who argue that we must to do something to increase state revenues. Otherwise, key services and programs will go unfunded.

In a recent decision, the Pennsylvania Supreme court reversed its previous position that a municipality cannot tax an entity that lacks a permanent base of operations within its boarders. What this means for general contractors is that a local taxing jurisdiction where the construction company is permanently located can impose a business privilege tax (BPT) on gross receipts of the firm. The local taxing jurisdiction where the construction project is located may also impose a BPT on the firm for work done in that jurisdiction. This creates a possibility that the general contractor will be “taxed twice” for the same work. Senate Finance Chairman Pat Browne (R-Lehigh) has introduced SB 601 to resolve this issue. His bill would reverse – by statute – the Redina v. Harrisburg decision that caused the problem. GCAP is working with the PA Chamber, Associated Pennsylvania Constructors and others to ensure passage of this important legislation.

Earlier this month, GCAP Executive Director, Terry McDonough, outlined GCAP’s support for the overall intent of HB 400 (Lentz, D-Delaware) during an informational hearing held by the House Labor Relations Committee on the bill. HB 400 establishes the Construction Industry Independent Contractor Act and provides specific criteria for independent contractors in the construction industry McDonough said employee misclassification has a severely negative impact on the entire construction industry and told the Committee that HB 400 was a step in the right direction. However, he was clear that the legislation must be amended to include safeguard language for contractors who properly classify their employees, but who may be engaged in a construction project with other employers who do not. McDonough emphasized that GCAP believes a contractor is responsible for its own workers. A general or prime contractor is not involved in the relationship between a subcontractor and its workers and may not know how those workers have been classified. There should be no liability for a GC/prime contractor due to any misclassification by a subcontractor. That is why GCAP continues to work on safeguard language to make HB 400 an effective tool to prevent the problem of employee misclassification. The House Labor Committee would like to report the bill in the near future.

At its March 27 Board Meeting, the General Contractors Association of Pennsylvania (GCAP) heard presentations from several state agencies, including the Departments of General Services, Conservation and Natural Resources and Military and Veterans Affairs, about their capital construction plans for 2009-10 and beyond. During the meeting, key personnel from seven agencies addressed the GCAP Board of Directors to share details about their capital priorities. Among the largest projects discussed were the Department of Corrections plans for four new correctional facilities as well as major construction efforts on campuses throughout the State System of Higher Education.

The Pennsylvania School Boards Association has introduced a package of 20 legislative proposals intended to give school districts relief from unfunded and underfunded mandates. The initiative, Focusing Resources on Educational Expenses (FREE), includes legislation that would give school districts the unencumbered option to choose either single prime or multi-prime contracting for school construction projects. A district would not be required to bid the project both ways, rather they would be able to choose for themselves the method that makes the most sense for them.

GCAP continues to support efforts to eliminate the Separations Act mandate and will work with the education community to give school districts the option of choosing the method that works best for them.

David G. Argall was sworn in as the Pennsylvania State Senate’s newest member on March 17, 2009.  A 12 term Member of the State House prior to joining the Senate, Argall won a special election on March 3rd to fill the seat vacated when Sen. James Rhoades was killed in a tragic automobile accident last fall. The addition of Argall gives the Senate Republicans a 30-20 majority in that chamber.