This session in Harrisburg, the Chamber of Commerce for Greater Philadelphia (the Chamber) successfully advocated for a cut in the Corporate Net Income Tax rate, additional funding for schools, economic development funding for business attraction, and an increase in the R&D tax credit, among other issues. Notably, Select Greater Philadelphia will receive grants to market the region for business attraction. Learn more and view the full summary below.
The Chamber of Commerce for Greater Philadelphia FY23 Pennsylvania Budget Summary
The Pennsylvania General Assembly approved a General Appropriations Bill (Senate Bill 1100) that spends almost $43 billion in state funding and just under $2.5 billion in federal dollars while cutting the corporate income tax and shoring up the state Rainy Day Fund.
The state’s Corporate Net Income Tax (CNIT) is cut from 9.99% to 8.99%, with an additional 0.5% reduction each year until the tax rate reaches 4.99%. The cut is part of the Tax Code, House Bill 1342. The CNIT was last cut in 1995 when the state dropped the rate from 11.5%. Cutting the CNIT was a top legislative priority of the Chamber in Harrisburg this session.
The bill also changes the sources of sales for certain intangible properties to where the benefit is received (market-based) instead of where the income-producing activity is performed (cost of performance). Corporations with no physical presence and sales of $500,000 or more per year sourced to PA shall be deemed to have nexus in PA.
Other Tax Code Items (HB 1342)
The Film Production Tax Credit cap is increased from $70 million to $100 million at an estimated cost in state revenues of $2.9 million in FY 2022-23 and $10.3 million in FY2023-24. More of this tax credit can be used to attract concert tours to Pennsylvania.
The cap for the Research and Development Tax Credit is increased from $55 million to $60 million.
The cap for the Waterfront Development Tax Credit is increased from $1.5 million to $5 million under the bill.
The budget creates a new Airport Land Development Zone offering state tax credits for businesses locating and creating jobs there. Businesses in a zone would receive a tax credit of $2,100 for each new job created annually for a decade.
HB 1342 offers a state tax break to small businesses. It provides for a deferral on paying state personal income taxes known as a “like-kind” exchange when a property is exchanged for a similar property. This would allow a gain resulting from a qualifying like-kind exchange of property to be tax-deferred. It would cost an estimated $12.6 million in FY2022-23.
The new tax code also allows “pass-through” entities to deduct the value of manufacturing equipment from the state personal income tax. Estimated cost is $12.6 million in FY2022-23.
Senate Bill 1100 increases the basic education subsidy by $525 million to a total of $7 billion for school districts. It doubles funding to $225 million for a Level Up Initiative targeted to help the 100 poorest districts. The Chamber supports and advocates for annual increases in education funding.
The School District of Philadelphia (SDP) received:
$92.8 million increase in Basic Education Funding (BEF)
$83.9 million in Level Up funding
$12.6 million increase in Special Ed funding
The SDP usually receives between 20-25% of Basic Education Funding. They also get funding from the $95 million for school safety and $95 million for mental health.
The budget provides $405 million, a $125 million or 45% increase, for the state Educational Improvement Tax Credit, where businesses receive tax credits for donations in return for donations to schools. Other spending includes an additional $100 million for special education, $60 million more for Pre-K Counts, $19 million more for Head State Supplemental Assistance, and $6 million more for career and technical schools.
For higher education, SB 1100 provides $125 million in federal American Rescue Plan dollars to support the redesign effort by the Pennsylvania State System of Higher Education (PASSHE). In addition, the PASSHE receives a $75 million, or 15.7%, increase in support from the taxpayer-supported General Fund.
It also includes a rescinding of regulations on charter schools that the administration passed just a few months earlier, including accounting and audit standards and compliance with state ethics requirements, a more standardized process for opening new charters, and rules that the schools offer their teachers the same health benefits as district counterparts.
The budget increases Community College operating funding by 4.6%.
Other Budget Issues
Funding for economic development received additional support. The Chamber’s Select Greater Philadelphia will receive grants to market the region for business attraction. The Chamber worked with the Greater Pittsburgh Chamber of Commerce to secure the funding.
Long-term care providers, including nursing homes, assisted living facilities, personal care homes, and home and community-based services, are in line to receive a one-time $250 million allocation out of federal American Rescue Plan money to help with their ongoing costs related to COVID-19 and workforce shortages. The budget further supports nursing homes by including $294 million to provide for a $35 per day increase in the Medicaid reimbursement rates effective in January 2023.
The plan makes a significant investment in the environment by providing grants for water, sewer, and stormwater infrastructure projects; $100 million to support rehabilitation, repair, and development of state parks and forests; and sets aside money for a clean streams initiative.
The budget reduces the amount of Motor License Fund dollars used to support the state police to $500 million, freeing up $175 million annually for road and bridge projects.
The budget provides $45 million for counties to cover election administration costs.
In addition, it deposits $2.1 billion into the state’s Rainy Day Fund, bringing the balance to a never-seen-before amount of $5 billion.
Growing Greener III
The legislature approved $640 million in unspent federal COVID relief dollars for environmental programs falling under the Growing Greener III umbrella. It’s part of a FY2022-23 state budget bill, Senate Bill 1100, that was amended and approved by the House and sent to the Senate for concurrence.
The largest share of this sum – $320 million – would fund grants for water, sewer, and stormwater infrastructure projects through the Commonwealth Financing Authority’s (CFA) H20 and Small Water and Sewer programs.
For questions, please reach out to Liz Ferry, Vice President, State Legislative Affairs, The Chamber of Commerce for Greater Philadelphia at [email protected].