The 2018-19 fiscal year has begun and for the first time in more than three years, the Commonwealth is starting the new fiscal year with an enacted budget in place. With state revenues on an upswing and a General Election right around the corner, legislative leaders and the governor were very clear that this year’s budget process would be different than previous years in the Wolf era – and it was. Working together, the four legislative caucuses and administration were able to come to an agreement on a $32.7 billion spending plan that increased spending by 2 percent but doesn’t include any tax increases. In a break from years past, the budget was signed into law by the governor a full week prior to the June 30 constitutional deadline. That spirit of cooperation didn’t end with budget negotiations. The first half of June also saw a flurry of legislative activity as the General Assembly worked to get several bills to the governor’s desk prior to the summer session break – including S.B.1056 – bonus depreciation legislation.
This legislation addressed a serious competitiveness issue for Pennsylvania employers that resulted from a state Department of Revenue policy change. Last December, days after the federal Tax Cuts & Jobs Act was passed, the Department of Revenue issued a ruling that significantly changed employers’ tax filing on capital investments – primarily for the purchase of new equipment to expand or improve production at their facilities – to reflect those purchases when filing their income taxes. The ruling reversed a policy enacted under the Corbett administration that allowed for 100 percent bonus depreciation; and also stripped away the depreciation benefits enumerated under the recently enacted federal tax reform package.
At a time when the Commonwealth’s economy is starting to pick up – thanks in large part to federal tax reform – this policy change sent the wrong message to job creators. Shortly after the department implemented this change, we started hearing from our members that they would likely never experience tax relief under the ruling as they would be far more likely to try to repair an expensive piece of equipment before attempting to discard or sell it. Additionally, the change gave Pennsylvania the unfortunate distinction of being the only state in the nation to disallow any form of accelerated depreciation. This put the Commonwealth at a serious competitive disadvantage.
Over the past several months, the PA Chamber – with the help of our local chamber partners – led the charge in advocating for legislation to reverse this harmful rule. The state’s elected officials realized the negative impact this rule would have on Pennsylvania’s economic climate and worked to create a legislative fix. Senate Bill 1056 passed both chambers with large bipartisan support and was sent to the governor’s desk in the waning session days of June. Last month the governor signed the bill into law as Act 72 of 2018.
Following passage of S.B. 1056, we applauded the General Assembly for working quickly to address this issue. This legislation will help to put Pennsylvania on a more level playing field with other states and improve Pennsylvania’s overall competitiveness. We look forward to working with elected officials for the remainder of this Legislative session and the upcoming 2019-20 session on pro-growth policies that will continue to improve the Commonwealth’s economic climate.