LEG REG REVIEW Special Budget Issue
2018, 6th Issue *** February 12, 2018

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. 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 at xenobun@aol.com. Please email jtrout2792@aol.com supplying both your name and e-mail address if you wish to be removed from or added to this list. Whether you need help meeting your CE or have a particular problem/question, please go to our web site to explore how PHILLIPS ASSOCIATES may be of service to you, your employees, and your clients. www.vphillipsassoc.com

SPEAKER TURZAI SUSPENDS GOVERNOR EFFORT
Shortly before the PA Republican State Committee formally endorsed Senator Scott Wagner (R-York), Speaker of the House Mike Turzai (R-Allegheny) suspended his candidacy for Governor. This means that he will continue as a candidate for re-election to the PA House of Representatives. Assuming Republicans maintain a majority in the November election, he would seek another term as Speaker. The decision leaves two other candidates vying with Wagner for the GOP nomination, Paul Mango and Laura Ellsworth, both from western PA.

DEMOCRATIC ENDORSEMENTS
The PA Democratic Party also met and endorsed Governor Tom Wolf and Senator Bob Casey, Jr. for re-election. There was no endorsement for the Lt. Governor contest where incumbent Lt. Governor Mike Stack is fighting for his political life against several opponents including Rep. Madeleine Dean (D-Montgomery).

AND NOW THE BUDGET GAUNTLET BEGINS!
On February 6, Governor Tom Wolf presented his proposed State Budget for the Fiscal Year 2018-19 to the General Assembly. He projects the spending to be $32.9 billion, an increase of $989.8 million (3.1% increase). Following are several of the changes the Governor is seeking:

Marcellus Severance Tax: 248.7 million (NEW TAX)
No increase in rate of Sales Tax or Personal Income Tax (PIT)
Increase in minimum wage to $12 per hour with a target of reducing entitlement costs (Medicaid, etc.) by $101 million per year
Merging the Department of Health into the Dept. of Human Services
Assessing a $25 per person to fund State Police for those communities with no local law enforcement – That would impact 67% of all PA municipalities.
Additional $225 million for education with $100 million increase for basic education and $15 million increase for State System of Higher Education, $25 million increase in STEM (Science, Technology, Engineering, Mathematics) and computer science education
$25 million more in child care
More spending ($33 million) on various programs directed at combating the opioid crisis
$74 million more for services for individuals with autism or intellectual disabilities
$2.5 million to combat Lyme Disease
Roads and bridges infrastructure includes $50 additional million for maintenance of low traffic roads and $40 million in new money for Rural Commercial Routes
Department of Environmental Protection (DEP) gets $2.5 million additional to fund inspections
Agriculture will receive $1.597 million to combat the Spotted Lantern Fly, a pest particularly threatening PA’s wine and fruit industry

Relating to insurance:

The Insurance Department is not on the chopping block since its revenue stream is largely separated from the General Fund with Department revenues coming from licensing fees ($48.1 million). This is split into two parts with about ½ going into the General Fund and the other $28.886 going to fund the Insurance Department’s general government operations budget. This is an increase to the Insurance Department of $1.77 million above the current fiscal year. Since this is a dedicated fund, there is still some danger that the Governor will take part of it to help balance this year’s State Budget. The General Assembly gave the Governor authority to take up to $300 million from a slew of dedicated funds of which the Insurance and Regulatory Oversight Fund is one.
Staffing: Insurance Department currently has 227 employees and 14 vacancies. In this proposed budget, it can have 248 employees.

The Insurance Premium Tax is projected to bring in $344.3 million in FY 2018-19 with the following breakdown:

Domestic Casualty$68.2 million FY 2018-19, a decrease of $2.4 million
Domestic Fire$16.9 million, a decrease of $600,000
Domestic Life$13 million, a decrease of $36.7 million
Excess Insurance Brokers$30.8 million, a decrease of $1.1 million
Foreign Excess$2.6 million, a decrease of $100,000
Foreign Life$206.6 million, a decrease of $7.2 million
Title Insurance$8.3 million, a decrease of $300,000

Other Insurance Revenue

CAT Fund (moving violation ticket surcharge) $30.4 million, an increase of $1.9 million
Insurance Producer Licenses$48.1 million, an increase of $671,000
Company Exam Fees$3.8 million, a decrease of $98,000
Company Market Conduct Exams$700,000, an increase of $309,000 from the present

Exempt from the Insurance Premium Tax are:
Mutual Benefit Associations ($20 million est. tax); Nonprofit Hospital & Medical Care Service Organizations ($82.8 million est. tax); Extraordinary Medical Benefit (auto premiums collected by insurers for optional benefits from $100,000 to $1.1 million -- $200,000 estimated for FY 2018-19); Life & Health Insurance Guaranty Association Credit – This is a tax credit for life and health companies that are paying assessments into the Guaranty Fund to pay for claims of insolvent carriers ($42.7 million for FY 2018-19). According to the Budget Office, 410 life, accident, health and annuities companies are receiving this credit. A similar Premium Tax credit goes to P/C companies for the Property & Casualty Insurance Guaranty Association ($700,000 in FY 2018-19). And in case you are starved for trivia, there is an obscure Innovate in PA Tax Credit which goes to insurers investing in early stage capital investment for Ben Franklin Technology Partners, the Venture Investment Program and the Life Sciences Greenhouses ($20 million in FY 2018-19).

OTHER INSURANCE DEPARTMENT FUNDS for FY 2018-19
Underground Storage Tank Indemnification Fund $58.759 million
Medical Care Availability & Reduction of Error Fund $197.16 million

MONEY COMING IN by percent: PIT 41.3%; Sales Tax and “Sin” Taxes 36.5%; Business 15.4%

MONEY BEING SPENT in General Fund and Special Funds: Education 37.3%; Health & Human Services 36.5%; Corrections/State Police 12.4%; Transportation 5.6%; Servicing the state debt 3.0%

TOTAL BUDGET: State Share $32.9 billion + Federal Share $29.6 billion = $84.649 billion