SPECIAL BUDGET ISSUE
THE STATE BUDGET
Overall, the proposed State Budget for the fiscal year beginning July 1, 2017, sees General Fund spending at $32.3 billion. To put in perspective, the General Fund is only one part of the state’s total operating budget which is $81 billion. In addition to the General Fund, Federal funds account for an additional $28.7 billion, lottery $1.8 billion, Motor License Fund $2.9 billion, and fees, etc. $3.7 billion. Following are general questions as a quick reference.
Where does General Fund money come from?
- Personal Income Tax 40.1%
- Sales Tax 31.8%
- Corporate Net Income Tax 8.4%
- “Gross Receipts” Tax 3.8%
- Cigarette Tax 3.7%
- Non-tax Revenue & Other Taxes 10.0%
Where does the money go?
- Medical Assistance (Medicaid) & Long-Term Care 22.8%
- Other Health & Human Services 17.1%
- Pre-K through 12 Education 36.7%
- Higher Education 5.0%
- Criminal Justice (incl. Corrections) 7.8%
- Interest paid on state debt (loan servicing) 3.0%
- Everything else 6%
What new taxes will there be?
Given the state’s dismal fiscal situation, the big news generally – no broad-based increase in PA Personal Income Tax or Sales Tax – was greeted with relief.
The Governor seeks a Marcellus Shale extraction tax, Sales Tax expansion to specialty software, computer services, prepared food sold to airlines, aircraft maintenance and repair, and some business storage as well as an extension of the premium tax paid by insurance companies. Closing the so-called Delaware Loophole – also known as combined reporting — would bring in monies now “sheltered” in Delaware. The Wolf Administration believes that significant savings will come from combining four social service departments into one Department of Health & Human Services as well as from combining the Board of Parole and the Corrections Department. In addition, changes with liquor sales and expanded gambling are supposed to bring in $137 million and $150 million respectively. A complicated lease arrangement for the Farm Show Complex is expected to bring in additional revenues over the next ten years.
INSURANCE BUDGET ISSUES
The PA Insurance Department General Operating Budget increased from $24.850 million to $27.291 million. Readers should note that the Department budget is not affected by the legislative appropriations process as it was cut out of the General Fund put into a dedicated fund, the Insurance Regulation and Oversight Fund. This was done to insulate it from the Budget process and avoid the type of turmoil that exists when the Budget is not passed on time. In FY 2017-18, $32.255 million is to be generated from insurance licensing fees – the source of this Fund.
Although an internal breakdown by Department function is not available, a slice of the increase is focused on consumer education and outreach with an increase in “consumer interactions” from the current 198,975 per year to 218,875. This is an indication of Insurance Commissioner Teresa Miller’s promotion of this outreach and her bringing back the position of Consumer Liaison which is held by David Buono (email@example.com)
INSURANCE PREMIUM TAXES
PA‘s two-percent Premium Tax (not to be confused with the Affordable Care Act’s Health Insurance Tax, or HIT) are broken down by type of insurance. Domestic casualty insurance is expected to bring in $86.9 million while domestic life is supposed to generate $73.1 million. Foreign (out-of-state carrier) life insurance is projected at $223.7 million while foreign casualty is estimated to be $10.3 million. Surplus Lines brokers pay a premium tax on E&S premiums at three percent, or $33.5 million.
Insurance Premium Tax revenues are projected to increase from the current $460.2 million to $569.5 million, generated from types of insurance not currently taxed, a list for which is not available. This proposal from the Governor did NOT include an increase in the rate of the Premium Tax, something vigorously opposed and defeated by the insurance industry. Interestingly, the proposed Budget lists Nonprofit Hospital & Medical Care Service Organizations (think the Blues) as having $90.5 million that would come to the state if the Premium Tax included them. They are currently exempt.
There are other budget issues that affect insurance.
- Continued repayment of a loan to the Underground Storage Tank and Indemnification Fund (USTIF) = $7 million for FY 2017-18.
- In the current Budget, there is $805,000 of revenue under the heading “Insurance Market Reform” –think Affordable Care Act. It does not appear in the FY 2017-18 Budget. There is an increase in Federal funding for insurance from the current $4.555 million to $8.750 million, details of which were not available.
- Insurance Fraud Prevention Authority (IFPA) has an increase in funding from $14.6 million to 15.627 million. NOTE: Funded by company assessments, not taxpayer dollars.
- Mine Subsidence Insurance (in the Department of Environmental Protection budget anticipates $8.968 million in premiums and $5.705 in claims. NOTE: Insurance producers can sell this product per a 2002 law and receive a one-time commission (DEP’s website does not include a link to insurance agents however, https://www.dep.state.pa.us/MSIHomeowners/ )
- As the Workers’ Compensation insurer of last resort, State Workers Insurance Fund (SWIF) continues to spend more in claims than it receives — projected at 273.065 in and $287.021 million out. It is unclear as to whether Governor Wolf’s decision to have SWIF investments managed by the State Treasurer instead of Wall Street managers will increase investment revenue.
- The Governor proposed creation of a state consumer resource, All Payer Claims Database, to provide a tool to better see health care and prescription care pricing. To be run by the PA Health Care Cost Containment Council (PHC4), the All Payer Claims Database will increase PHC4’s budget from $2.7 million to $4.7 million.
- Job slots in the Insurance Department declines from 249 now to 244 positions.
LEG REG Review SUBSCRIPTION UPDATE. Please don’t be left off the list. LEG REG Review has always been available on a paid subscription basis, but there are many who receive LEG REG Review free of charge. Since preparing each issue takes four to five hours, PHILLIPS ASSOCIATES is asking readers (except for members of lobbying clients PAHU, & CIAAP) to remit $100 for the subscription to help cover the overhead.
LEG REG REVIEW is a periodic newsletter produced by PHILLIPS ASSOCIATES, a professional lobbying and consultant firm located near the State Capitol. It contains news on Pennsylvania legislation and regulations impacting the Insurance and Business Communities. It is a free member benefit for those who are members of the Pennsylvania Association of Health Underwriters (PAHU). Subscriptions are $100 per year and further information may be obtained by contacting PHILLIPS ASSOCIATES at 717/728-1217 FAX 717/232-7005 or e-mail to firstname.lastname@example.org. Please email email@example.com supplying both your name and e-mail address if you wish to be removed from or added to this list. Whether it means meeting your CE need or helping with a particular problem/question, please visit our web site to explore how PHILLIPS ASSOCIATES may be of service to you, your employees and your clients. www.vphillipsassoc.com