Last September, the Pennsylvania Supreme Court struck down a vital component of the Commonwealth’s Gaming Act, known as the “local share assessment” – a section of law that provides local governments with a significant funding stream backed by an assessment on certain gross revenue from casinos located in or around their municipality. The court’s ruling, prompted by a lawsuit filed by Mount Airy Casino, located in Monroe County, put in jeopardy hundreds of millions of dollars in local funding for counties and municipalities across the Commonwealth.

The basis of Mount Airy’s lawsuit revolved around its belief that the local share assessment violated the Article VIII, Section 1 of the Pennsylvania Constitution – the Uniformity Clause – which provides, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.”

Mount Airy argued that the local share assessment violated the Uniformity Clause because language contained in statute set a minimum amount of tax certain casinos were required to pay, regardless of how much gaming revenue they produced. Specifically, the Gaming Act required casinos, except those located in Philadelphia and resort-based casinos (referred to as “Category 3” casinos), to pay 2 percent of their gross gaming revenue, or $10 million, whichever was higher, to their local municipalities. Since none of the state’s 12 operational casinos had gross gaming revenue from slot machine gaming above $500 million, casinos located outside of Philadelphia were required to pay the minimum $10 million amount.

Mount Airy argued that the flat fee of $10 million created variable tax rates between casinos outside of Philadelphia, in violation of the Uniformity Clause. The Supreme Court agreed, and struck down the tax, and in doing so gave the Pennsylvania General Assembly a mandate to fix the problem, or have this important funding stream end for several municipalities across the Commonwealth.

After several months of negotiation, and amid a larger debate on gaming expansion, on October 26, 2017, the General Assembly passed a sweeping gambling reform bill that included a “fix” for the local share assessment issue. The legislative fix removes any reference to the $10 million minimum local share assessment. To ensure that municipalities continue to receive the same level of funding, however, the new law imposes a “slot machine operation fee” on all casinos with the exception of Category 3 casinos, (but including casinos in Philadelphia), that is anticipated to result in $10 million paid by each casino per year.

It is yet to be seen whether the new fee structure created under this legislation will be challenged by any of the state’s casinos, and if so, how the courts may react to the language. But at least for now, municipalities who received local share funding from slot machine gaming can expect to continue to receive the same level of funding they previously received, and municipal officials can once again budget in reliance on the receipt of these funds for their municipality.

The author thanks William Thomas, who assisted in the preparation of this post. Bill served as the Executive Director of the House Gaming Oversight Committee from 2010-2014, and remained heavily involved in gaming policy for the House as the Leadership Executive Director for the House Democratic Caucus Secretary from 2014-2017. He now is President of Mid-Atlantic Strategic Solutions, a McNees subsidiary government affairs and political consulting firm. Bill can be reached at 717-574-2923.

Chairman Kevin Brady of the U.S. House of Representatives, Committee on Ways and Means today introduced the “Tax Cuts and Jobs Act,” H.R. 1, and it does not contain good news for municipal issuers of tax-exempt bonds and private sector entities able to borrow on a tax-exempt basis.

Among other things, H.R. 1 would eliminate municipalities’ ability to issue advance refunding bonds, i.e. refunding bonds where the refunding occurs more than 90 days after the date of issuance. Congress already had heavily restricted the issuance of advance refunding bonds through the enactment of the 1986 Internal Revenue Code, which limited governmental and 501(c)(3) bond issues to a single advance refunding. Beginning in 2018, advance refundings could not be issued on a tax-exempt basis.

H.R. 1 would also eliminate all private activity bonds, currently authorized under sections 142 (exempt facility bonds), 143 (certain mortgage bonds), 144 (small issue bonds), and 145 (501(c)(3) bonds). Again, beginning in 2018, all such private activity bonds could not be issued on a tax-exempt basis.

The bill would also eliminate municipalities’ ability to issue bonds to finance professional sports stadiums – a controversial ability in its own right that seems unlikely to generate the kind of opposition that may be seen on the other proposals (unless you’re Jerry Jones).

These proposals, if enacted, would apparently not affect existing bonds issued and outstanding prior to the effective date. However, preliminary analysis suggests that any change in the terms of an existing bond resulting in a “reissuance” for tax purposes would result in a loss of tax-exempt status, if the reissued bond fell within one of the disfavored categories.

With H.R. 1 just being introduced today, it remains to be seen what becomes of it. However, the Trump Administration and Congressional Republicans have made it clear that they want to pass this bill before the end of 2017. Municipalities, 501(c)(3) organizations, and other private businesses affected by it may have to move fast if they want to push for changes to the bill.

Monetization is the process of converting assets into economic value. Looking for options to generate greater revenue, municipalities and public sector entities have begun to consider the transfer to private operators of a greater variety of public assets than in the past. There has also been the development recently of more creative and profitable public-private partnerships. Continue Reading Generating Value from Public Assets

There was a collective sigh of relief from bond lawyers across the country today, as the Department of the Treasury announced that it intends to withdraw in their entirety the regulations proposed by the IRS on political subdivisions, originally published on February 23, 2016. A copy of Treasury’s press release announcing the decision can be accessed here.

The political subdivision regulations were met with immediate criticism from municipal finance professionals. The criticism directed at IRS representatives attending the 2016 Tax and Securities Law Institute sponsored by the National Association of Bond Lawyers was particularly animated. Treasury in its announcement appears to have admitted that the proposal was flawed, stating that the “regulations would have been costly and burdensome.”

While this news is a welcome development, municipal issuers and their advisors should be aware that the definition of a “political subdivision” may be the topic of proposed regulations in the future. In a report prepared by Treasury in connection with the announcement, it was noted that Treasury and the IRS “will continue to study the legal issues relating to political subdivisions,” and “may propose more targeted guidance in the future.”

 

 

In a Notice of Proposed Rule Making published September 28, 2017, the IRS announced new proposed regulations on the public approval requirement of section 147(f) of the Internal Revenue Code, 26 U.S.C. §147(f). A copy of the Notice can be accessed here. The announcement should not come as a surprise – IRS representatives announced earlier this year at the annual Tax and Securities Law Institute sponsored by the National Association of Bond Lawyers that the finalization of regulations interpreting section 147(f) was a regulatory priority for the agency. Continue Reading IRS Proposes New Regulations on Public Approval Requirement for Private Activity Bonds

The Pennsylvania General Assembly continues to battle over revenue sources while the state remains without a complete state budget. And when it seems impossible, things actually continue to worsen with the House and Senate scheduled sessions to begin this afternoon. Over the weekend, the idea of a storage tax was discussed and it now seems to be more of a reality than a week ago.  And this tax is allegedly to replace a Marcellus Shale production tax.  This means the new targets for tax revenue are those who provide and use warehousing services and storage of items (“items” as defined by the proposed language seems to encompass almost anything) as well as anyone in the logistics business.  In essence, this tax would impose a 6% sales tax and have broad and expensive impact on almost every business. And the idea appears to be moving quickly through the capitol.

As covered in the media, the Pennsylvania General Assembly approved a budget spending bill without revenue sources at the end of June, and Governor Wolf allowed it to become law without his signature. Since then, lawmakers have fought over how to come-up with the $2.2 billion to pay for it.  Recently, the Republican-controlled Senate passed a revenue package that included more than $500 million in new taxes, including an extraction tax on shale gas drillers, new and increased taxes on consumer utilities such as electric, natural gas, telephone and expansion of the sales tax to online retailers. Also, the Senate plan would borrow against the tobacco settlement fund and include revenue from expanded gambling. Governor Wolf supported the Senate plan.

Most recently, the Senate rejected the House GOP’s no-new tax revenue plan that relied heavily on fund transfers and the sale of future tobacco settlement fund payments. Similar to the Senate plan, it included revenue from expanded gambling. Last week, it was expected that a conference committee process would begin soon.  This would be the most recent effort to settle the differences and write a new revenue bill.  However, the chambers and parties within them have strong positions on what should and should not be included for raising revenue.

The now fast moving issue that arose on Friday night during budget discussions in the Pennsylvania General Assembly involves a Storage Tax.  And, as of today, there remains uncertainty as to whether or not the language is written to reflect the intent of the tax.  This potential tax has been raised before during this year and in prior years under prior governors, but it was eventually pulled from the table.  However, it is now alive again and during a time of critical need for resolution on how to find revenue to support the already passed spending plan.  At this juncture, we believe there are a number of legislators opposed to the idea, including many in the south central caucus.  However, the idea appears to have enough support that it continued to be discussed through the weekend with potential for momentum beginning on Monday.

If this tax is passed, it will have a significant and expensive impact on many Pennsylvania businesses.   The draft language is very concerning because it appears to impact all businesses that provide warehousing and storage space as well as those who pay for storage space and warehousing services in PA.  Also significant is that it provides full discretion to the Commonwealth to implement, and, we expect the Department of Revenue to apply it very broadly in order to raise much needed revenue.

Some have argued in the past that a broad storage tax will result in layoffs and storage and distribution businesses closing and selecting other states to establish their business.  Others argue that a storage tax would result in consumers being double taxed when they purchase goods at the store and also when distribution centers pass along the storage tax to their consumers.  And, this tax would work against any efforts the Commonwealth or municipalities within it make to attract businesses to locate or expand in Pennsylvania because competing states could immediately look at least “6% cheaper” for doing business.  For example, it does not seem logical that Amazon, which is looking for a second headquarters in North America, would even consider a proposal from the Commonwealth if this tax is a reality and applicable to their business.

Clearly this will be very detrimental to the warehouses and trucking hubs that line Interstates as well as their clients.    In fact, this could affect the national supply chain that some argue already exists in Pennsylvania’s warehouse industry.  And, we expect it will also be very bad for business in the energy, gas industries such as refineries, those who are wet gas midstream operators and/or in the business of ordinary storage of gasoline, etc. as well as increase costs for Pennsylvania’s agriculture industry and food distributors.

Please contact us should you wish to discuss in detail.  We believe time is of the essence as the General Assembly works on closing the gap between its spending plan and funding sources.   We recognize the challenges for the state to find revenue. But we also know our clients and the challenges they already face with increased costs of doing business in PA.  McNees Wallace & Nurick’s Government Relations and State and Local Tax practice groups are working to help clients who oppose a storage tax.  Please contact us should you have interest in talking with legislators regarding the impact of a storage tax on your business.

The federal Fair Labor Standards Act (FLSA) establishes requirements for minimum wages and overtime pay.  The FLSA’s requirements can be complex, and employers can face significant liability for unpaid wages and liquidated damages by failing to ensure compliance with its myriad requirements.

The FLSA contains a somewhat unique quirk regarding its statute of limitations.  The statute of limitations for FLSA violations is two years.  However, if the plaintiff(s) can show that the violation was willful, the statute of limitations is extended to three years.  In other words, employees who commit willful violations face a potential additional year of damages (if the unpaid wages date back at least three years before the filing of the lawsuit).

In an FLSA case filed against Lackawanna County, the Third Circuit recently clarified what constitutes a willful violation to trigger the third year of liability under the FLSA.  In Souryavong v. Lackawanna County, the County failed to aggregate the hours worked by part-time employees who worked multiple jobs for the County.  For overtime pay purposes, all hours worked by a non-exempt employee for an employer must be recorded and counted.  If the total hours worked in any workweek exceeds 40, the employee is entitled to overtime pay, regardless of whether the hours were worked in one or multiple positions for the same employer.

Thus, it was undisputed that the County violated the FLSA by failing to aggregate weekly the hours worked for these part-time employees.  It also was undisputed that the County was liable for unpaid overtime pay and liquidated damages dating back two years from the date the lawsuit was filed.  What was in dispute was whether the County’s violation was willful, which would trigger a third year of damages.

The plaintiffs claimed that the violation was willful and pointed to testimony by the County’s chief financial officer and HR director that the County had been generally aware of its FLSA obligations since 2007.  The plaintiffs also identified an e-mail from the HR director to two other County officials regarding “wage and hour issues.”

The Third Circuit rejected the plaintiff’s willfulness argument.  Specifically, the Third Circuit found that the evidence did not establish that the County was aware of the specific overtime pay issue (i.e., aggregating hours worked by part-time employees who worked multiple jobs for the County) before or at the time that the FLSA violations occurred.  General awareness of the FLSA’s existence and its general requirements is not enough to prove a willful (i.e., intentional) violation of one of its specific requirements.

There are two important takeaways from the Third Circuit’s Souryavong decision:

  • To prove a willful FLSA violation and get that third year of potential damages, employees will need to prove that the employer actually knew of the specific FLSA requirement at issue at the time of the violation and intentionally did not comply with it. General FLSA awareness is not sufficient to prove a willful violation of a specific requirements.
  • Employers should keep this decision in perspective and understand what it means and what it does not. Even with the Third Circuit’s favorable decision, the County still was liable for two years of unpaid wages for multiple employees, an equal amount in liquidated damages, an additional $56,000 for the plaintiffs’ attorneys’ fees, and an additional undisclosed amount for its own attorneys’ fees.  FLSA violations present significant potential liability for employers, and it is in every employer’s interest to audit its pay practices and ensure compliance before a lawsuit is filed or a Department of Labor investigation begins.  While this decision confirms that it can be hard to establish a willful violation, employees need to prove only a violation of the FLSA (regardless of whether the violation was intentional) to get two years of damages plus their attorneys’ fees paid by the employer.

A bill introduced by Representative Kate Harper (R-Montgomery) would impose a new public meeting requirement on municipalities considering selling or leasing their water or sewer systems. The bill was recently approved in the House unanimously, and has been referred to the Senate Consumer Protection and Professional Licensure Committee.

House Bill 477 would require municipalities to hold at least one public meeting prior to entering into an agreement to sell or lease a municipal-owned or operated water or sewer system. The bill would also apply to systems operated by municipal authorities, if the transaction contemplated the dissolution of the authority by the municipality. The meeting would have to be advertised at least twice, on successive weeks, not more than 60 nor fewer than 7 days before the date of the meeting. If the system served customers outside of the municipality considering the sale or lease, public notice would also have to be provided in the municipalities where those customers resided.

Additionally, the potential purchaser or lessee of the system would be required to attend the meeting – presumably to present its plans for the system and to answer questions.

In the event the Senate acts favorably on the proposal, and the Governor signs it, the new public meeting requirement would go into effect in 60 days. Municipalities considering selling or leasing their water or sewer systems should keep a close eye on the status of House Bill 477 to ensure they comply with its requirements in the event it become law.

This post was originally featured on the McNees Labor and Employment Blog.

Employers often shy away from discharging employees for disciplinary reasons when those employees are receiving workers’ compensation benefits, such as in instances where the employee is working a modified duty assignment.  However, such employees can and should be held to the same standards as other employees, including compliance with applicable policies and procedures.  Additionally, so long as the discharge is found to be related to the disciplinary violation, any subsequent loss of earnings will be deemed to be unrelated to the work injury, thus rendering the discharged employee ineligible for reinstatement of workers’ compensation wage loss benefits.

In a recent unreported Commonwealth court case, (Waugh v. WCAB, No. 702 C.D. 2016), the Claimant was employed as a certified nursing assistant (CNA) at a medical center.  She had sustained an accepted work injury to her right arm, when a patient grabbed and twisted her arm in the course and scope of her employment.  She underwent two surgeries and eventually returned to work in a modified duty capacity.

While working modified duty, Claimant was reprimanded for acting outside the scope of her employment for administering medication to a patient.  Several months later, there was a similar incident, in which Claimant applied a tourniquet to a patient while assisting a phlebotomist, who was attempting to draw blood.  Employer’s policy in the event a phlebotomist cannot locate a vein, is to call a specialized IV team to insert the needle and draw blood.  Claimant was terminated for this second instance of acting outside the scope of her employment.  Despite her protests that she was “only trying to help,” the termination was held to be proper, as was the workers’ compensation determination denying reinstatement of benefits.

The Court reaffirmed the longstanding rule that a lack of “good faith” on the part of the claimant, is sufficient to deny reinstatement of workers’ compensation wage loss benefits.  This is so, even where unemployment benefits are awarded, on the basis that the employer had not established a case of willful misconduct under the Pennsylvania Unemployment Compensation Act.

The determination of good faith or bad faith is obviously “fact sensitive,” but in situations where the employer would discharge the employee absent a workers’ compensation backdrop, this factor alone should not discourage the employer from taking the appropriate disciplinary action, including discharge.

McNees attorneys Tim Horstmann, Ade Bakare and Kathy Pape recently provided an update on municipal storm water management to the membership of the Pennsylvania State Association of Boroughs. Their presentation addressed recent changes in Pennsylvania laws governing municipal storm water management in boroughs, permissible user fee structures, and additional funding streams that are available to municipalities to pay for necessary projects.

Interested in learning more? A copy of the Power Point presentation is available online.