With the Pennsylvania General Assembly officially starting its new legislative session this January, now is a good time to take stock of the legislative proposals affecting municipalities that were approved by the Assembly and signed into law by Governor Wolf during the 2017-2018 session. In the last two years close to 250 bills were signed into law by the Governor; this article will examine 13 of them. Continue Reading A Look Back at the 2017-2018 Legislative Session
The Pennsylvania Public Official and Employee Ethics Act has been in effect since 1979 and must be carefully followed by state and local officials and employees. Mainly, the Act requires that public officials file annual statements disclosing their financial interests, but it also prohibits activities that have been deemed a violation of the public’s trust. The Act is enforced by the State Ethics Commission, which is comprised of seven politically appointed commissioners assisted by a staff of investigators and prosecutors. Repercussions for violating the Act include administrative penalties, civil fines/restitution, and sometimes criminal prosecution. Continue Reading Criminalizing Politics: Ethical Obligations of Pennsylvania’s Public Officials
The Third Circuit Court of Appeals, the appeals court that has jurisdiction over federal cases in Pennsylvania, New Jersey, Delaware and the U. S. Virgin Islands, recently held that a public employer violates the First Amendment of the United State Constitution when it retaliates against an employee based on the employee’s union membership. In reaching its conclusion, the Court distinguished between First Amendment “free speech” claims and First Amendment “association” claims.
Last week the Supreme Court issued its long-awaited opinion in Janus v. AFCSME. It held that requiring public sector employees to pay fair share fees to unions violates the First Amendment. A fair share fee (sometimes called an agency fee) is a fee that non-union members must pay to the union to cover the expenses incurred by the union while representing an employee in collective bargaining and related matters. Fair share fees were often required under state law, despite the employee opting not to join the union, because unions have a legal obligation to represent all employees within the bargaining unit, regardless of whether the employee is a member of the union. These laws became common after the Supreme Court issued its 1977 opinion Abood v. Detroit Board of Education, which held that fair share fees were constitutional and maintained labor peace by preventing “free riders.”
In recent years, there have been increasing challenges to the constitutionality of fair share fees and the validity of Abood. Back in 2014, we discussed the Supreme Court’s ruling in Harris v. Quinn. The Court in Harris began to question the validity of Abood and its supporting rationale. As we noted, the Court came close to overruling Abood but ultimately decided Harris on its specific facts. It held that collection of the fair share fees in the specific context (personal assistants in Illinois) violated the First Amendment. In 2016, another challenge of fair share fees made it to the Court, only for Justice Scalia to die after oral argument, leaving a 4-4 split decision.
With Justice Gorsuch now on the bench, as was foreshadowed in Harris, the Court ruled that fair share fees violate public sector employees’ right to free speech. As a basic premise, the Court recognized that the right to free speech includes the right to refrain from speaking at all. Thus, “[c]ompelling individuals to mouth support for views they find objectionable violates the cardinal constitutional command, and in most contexts, any such effort would be universally condemned.” Accordingly, forcing employees to pay fair share fees (i.e., compelling employees to speak when they may otherwise remain silent) violates the First Amendment. Finally, the Court overruled Abood, dissecting and dismantling its labor peace and free rider justifications.
The end result of the Court’s holding is clear: “States and public-sector unions may no longer extract agency fees from nonconsenting employees. . . . Neither an agency fee nor any other payment to the union may be deducted from a non-member’s wages, nor may any other attempt be made to collect such payment, unless the employee affirmatively consents to pay.” The Court recognized that the loss of these payments would cause unions to “experience unpleasant transition costs in the short term,” but it did think that such a challenge justified continued constitutional violations. Rather, it pointed out that such a disadvantage must be weighed against the considerable windfall that unions received in fair share fees in the 41 years after Abood.
Surely there will be questions that follow. Will unions continue to participate in public sector workforces? Is there a process for employees who now want to opt out of union membership? Do public sector employers now negotiate separately with non-union members? All of these questions may take time to resolve and consultation with legal counsel.
In an eagerly-awaited decision, the United States Supreme Court struck down today the “physical presence” standard in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Quill had long hamstrung states’ efforts to collect sales and use taxes on purchases by in-state residents of products sold by internet-only retailers. With Quill now history, states are free to impose sales and use tax collection responsibilities on out-of-state retailers who sell predominantly through the internet.
The decision is a major victory for state and local governments, who have argued for years that the growth of the internet marketplace since Quill was decided has cost them billions of dollars in unpaid sales and uses taxes.
On December 4, 2017, the Supreme Court of the United States heard oral arguments in Christie v. National Collegiate Athletic Association, No. 16-476, regarding the constitutionality of the Professional and Amateur Sports Protection Act (“PASPA”), a federal law that prohibits states from authorizing and regulating sports wagering. The case could have significant implications for legal and regulated gambling across the country, including Pennsylvania, where the General Assembly recently passed legislation that would authorize sports wagering in the Commonwealth if PASPA is found to be unconstitutional or is repealed by Congress. Continue Reading Sports Wagering in Pennsylvania Could Soon Become a Reality
As we prepare to say goodbye to 2017 and welcome a new year, we thought we’d take a moment and revisit some of our favorite stories from the last twelve months that we’ve followed on the McNees Public Sector Blog.
- A kinder, gentler Internal Revenue Service? Perhaps in response to the Trump Administration’s “less is more” approach to regulation, 2017 saw several announcements from the IRS that were favorably received by the municipal bond industry. In January the IRS published new guidance on management contracts involving bond-financed facilities, which reintroduced old concepts following a less-than-favorable response to a prior announcement. In June, new IRS regulations on the determination of issue price went into effect, and despite some initial headaches, the new regulations appear to be working well and have been incorporated by underwriters and bond counsel. In October, the IRS published new proposed regulations interpreting the public hearing requirement for private activity bonds, which as promised featured a long-hoped-for “remedial action” option. And finally, an early Christmas present for bond lawyers everywhere: in October the IRS announced that it was withdrawing its much-despised “political subdivision” proposed regulations.
- While the IRS appeared to get President Trump’s “less regulation” message, the SEC and MSRB continued their aggressive enforcement efforts. In March the SEC voted to formally propose amendments to Rule 15c2-12 to beef up required disclosures by municipalities in connection with bank loans. And in August, the MSRB issued a warning to municipal issuers to avoid involvement in the selection of underwriter’s counsel. All indications are that the SEC and MSRB will continue to aggressively police the municipal bond industry in 2018.
- The Pennsylvania budget situation continued to be a mess. Governor Wolf’s budget proposal featured a variety of tax increases, which were soundly rejected by the Republican-led legislature. A spending plan was quickly agreed to, but without the revenue needed to pay for it. The final spending plan again avoids broad-based tax increases (at the relief of many) in favor of one-time revenues from a securitization of Tobacco Settlement Funds, among other things.
- For local governments, high fixed costs and declining revenues continued to be a problem in 2017. Generating revenue through asset monetization remained an option for struggling municipalities faced with severe blight and new government mandates, including stormwater management.
- And finally, Tax Reform! The end of 2017 saw the passage of the Tax Cuts and Jobs Act, the first successful attempt at comprehensive tax reform since the passage of the 1986 Code. A number of versions of the bill were introduced, some of which would have been devastating on the municipal bond industry. We wrote about the impact of the final legislation on the municipal bond industry here.
To all our readers – thanks for visiting! And may you all have a happy and prosperous new year!
– Tim Horstmann
After several months of negotiation, and amid a larger debate on gaming expansion, the Pennsylvania General Assembly passed Act 42 of 2017, a sweeping gambling reform bill. For municipalities in Pennsylvania, Act 42 has two notable provisions, one of limited impact on municipalities hosting casinos and the other of potentially much greater impact. Continue Reading Pennsylvania Expands Casino Gambling—What Is the Impact on Municipalities?
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. Continue Reading PA General Assembly Attempts Fix to Local Gaming Funding in Casino Reform Bill
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.