UPDATE. Pennsylvania Affairs of State. Legislative Alert. Kirkpatrick & Lockhart LLP TOP LEGISLATIVE ISSUES

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1 UPDATE Pennsylvania Affairs of State A PUBLICATION OF KIRKPATRICK & LOCKHART LLP S GOVERNMENT AFFAIRS PRACTICE OCTOBER 11, 2002 Legislative Alert NOTE FROM THE EDITOR The Legislative Session is coming to a close, but not without some intense legislative action on the eve of the November 5 th election and, we expect, the legislative equivalent of a free-for-all during the postelection Sine Die Session (which ends on November 30 th ). While the House is scheduled to return to voting session during the week of October 21 st, not much is expected to occur that week. Both the House and Senate will return again to voting session on November 12 th, which will kick off the Sine Die Session. The proposals to be considered between November 12 th and November 30 th could have a significant impact on business, industry, non-profit organizations, local governments and consumers. September s Legislative Alert, published by K&L s Government Affairs Practice, highlighted a broad range of issues likely to be considered prior to November 30 th. This Alert updates many of the issues contained in September s report and highlights a number of new issues that should be reviewed carefully. Please do not hesitate to contact Peter A. Gleason at (717) or pgleason@kl.com with any questions on the matters highlighted below or other government affairs related questions you may have. TOP LEGISLATIVE ISSUES CURRENT FY REVENUE SHORTFALL 1991 REVISITED? Commonwealth revenue collections for the month of September were 5.3% less than anticipated or $101.1 million short of the projections contained in the FY Budget. If this trend continues, as many expect it will, combined with a number of increasing and very real demands on the Commonwealth budget, the General Assembly and the next Governor may be forced to look closely (again) at the CSFT phase-out, along with other equally (if not more) painful revenue raising devices to balance the budget. A brief look at some of the following competing budget priorities is sufficient to demonstrate the extent of the challenge for next year s budget: Pending PACE bankruptcy Demands to expand PACE Pressure to increase funding for schools Proposals to replace local property tax revenues with a state revenue source Anticipated Medicaid cost increases in the hundreds of millions Attempts to provide short-term relief for health care providers affected by high medical malpractice premiums Think back to 1990 and There are remarkable, if not scary, similarities. In 1990, like 2002, the Governor and General Assembly escaped raising taxes by enacting largely painless revenue raising

2 measures, without any real effort at cutting costs. In 1991, and possibly like 2003, the General Assembly and the Governor, in order to close a gap less than $1 billion, raised taxes by nearly $3 billion. The potential scenario grows even more ominous if different political parties control the Executive and Legislative Branches. The business community, especially manufacturers, in Pennsylvania should start planning a strategy to respond effectively to the very real possibility of a major tax increase in Additionally, parties interested in the continued allocation of existing funds, including the Tobacco Settlement Fund, should be prepared to defend the current allocations. The Governor s Budget Office is preparing the outline for next year s budget in an effort to allow for an efficient transition to the next Governor. Immediately following the Election on November 5 th, the next Governor and his team will begin preparing budget priorities. It is important to ensure that the transition team, the House and Senate Leaders, and other key players be educated on the deleterious effects of increased taxes and reallocation of key funds in such a fragile economy. CAPITAL BUDGET/REDEVELOPMENT ASSISTANCE SB 1213 (Thompson), the Capital Budget Itemization Act, and SB 832 (Jubelirer), the increase in the Redevelopment Assistance cap by $250 million, are on the way to the Governor s desk and are likely to be signed by the Governor, with a few possible line item vetoes on the authorization bill. Access the following link to read SB 832 and SB 1213: SB0832P2296.HTM SB1213P2292.HTM There will be a lot of pressure on the Governor to release nearly all of the Redevelopment Assistance money under the cap. This will not be an easy task and the Governor s Office is not likely make a Redevelopment Assistance commitment unless a match is in place and the project can be under contract before the next Administration takes over in mid-january. Governor Ridge, when he became Governor, froze all of the Redevelopment Assistance projects that were part of the former Casey Administration fire sale in the weeks before Governor Ridge s inauguration. While the projects ultimately were released, there is no guarantee the next Governor will honor this Governor s commitments. This is one of the reasons why Governor Schweiker is likely to apply the under contract criteria for this round of Redevelopment Assistance releases. VENUE REFORM FOR MEDICAL MALPRACTICE LIABILITY CASES MORE TORT REFORM? The General Assembly took another major step in addressing the medical malpractice crisis facing health care providers in PA by enacting a venue restriction on medical malpractice claims. The relevant provisions of SB 138 would require that medical malpractice claims be brought against health care providers only in the county in which the cause of action arose. This is a major victory for health care providers, who raised this as one of their top priorities both during and following the original medical malpractice reform. Their remaining priorities include: caps on non-economic damages; and, short-term financial assistance with skyrocketing medical malpractice insurance premiums. You may access SB 138 by the following link: SB0138P2283.HTM While this reform effort does little to aid the efforts of the broader class of defendants especially manufacturers in Pennsylvania that suffer from similar venue shopping abuses outside of the medical malpractice area, it provides a valuable argument (albeit on the intellectual side) into the mix i.e., what is appropriate for one industry s potential defendants should be appropriate for other industries as well. There is still a possibility that, after the November 5 th election, the General Assembly will take up additional tort reform proposals. It remains to be seen whether and to what extent the business community, in general, as opposed to just health care providers, may benefit from this effort. 2 PENNSYLVANIA AFFAIRS OF STATE

3 There remain many large manufacturers who participated in the joint & several liability reform effort still chafing at the General Assembly s last minute move to limit the application of that reform to injuries arising after the effective date of the act, instead of applying the reform to all claims filed after the Act s effective date. This is to be distinguished from the General Assembly s treatment of the venue reform measure for health care providers, which extended the venue change language to all claims not yet filed. Perhaps proponents of the broader joint and several reform application may benefit from the precedent set in this venus enactment. GROSS RECEIPTS TAX (GRT) SURCHARGE NEGOTIATIONS As last month s K&L Legislative Alert predicted, the Governor s Office and the Public Utility Commission are convening discussions on alternatives to Act 89 of 2002 s GRT surcharge for PURTA-related litigation losses. The Administration will consider only revenue neutral alternatives (i.e., at a minimum, the PURTA litigation losses must be offset dollar-fordollar by another revenue source). For the most part, industry efforts to date revolve around 2 options: (1) enact a consumer-based energy consumption tax; and, (2) allow GRT rate payers to pass the surcharge on to consumers. There are not many opportunities to accomplish this matter inasmuch as it will require either a Tax Reform Code legislative vehicle (which, almost without exception, are not considered outside of the Budget process) or, possibly, an Administrative Code legislative vehicle (also few and far between). However, the alternative, waiting till late Spring or early Summer for the annual Tax Reform Code vehicle may not be an inviting prospect in light of the anticipated poor revenue picture. RELIGIOUS FREEDOM PROTECTION ACT SB 1421 (Jubelirer) is on Third Consideration in the Senate (i.e., it is fairly well advanced in the process), the Senate Pro Tem/Lieutenant Governor is the sponsor and a strong proponent of the bill and the religious community lists this as their number one priority. Essentially, SB 1421 declares, with few exceptions, that no state and local government may substantially burden a person s exercise of religion, including any burden that results from a rule of general applicability. This is likely to be of interest not only to government bodies, but also to private entities that may find themselves in competition with religious entities. You may read the bill by hitting the following link: SB1421P2259.HTM KEYSTONE OPPORTUNITY ZONES (KOZ) AND KEYSTONE OPPORTUNITY EXPANSION ZONES (KOEZ) The Senate Finance Committee reported SB 1478 (D. White) as committed. The bill would open the KOZ Act and allow local governments to agree to add an additional 1500 acres per KOEZ. It would also extend the life of the program to 2028 and grant individual businesses 15 years of tax-free treatment from the date they move into the KOZ. The bill can be read at the following link: SB1458P2056.HTM HERSHEY TRUST FALLOUT RESTRICTIONS ON TRUST INVESTMENT AND MANAGEMENT DECISIONS The Senate adopted HB 2060 (Lewis) with an amendment that restricts charitable trusts with respect to asset management where the trust has a controlling interest. The bill would appear to affect any charitable trust that holds a controlling interest in a publicly traded corporation. The bill, as amended, can be found by clicking the following link: HB2060P4466.HTM LOCAL PROPERTY TAX REFORM To suggest that this effort is getting off to a slow start would be an understatement in the extreme. Nevertheless, just before breaking on Wednesday until October 21 st (or, possibly, November 12 th ), the Senate Rules Committee amended and reported SB 374 (Wenger), a Public School Code vehicle, to include an act entitled The Taxpayer Choice Act. The proposed legislation new Article within the OCTOBER 11, 2002

4 School Code entitled Taxation by School Districts. The article is very similar to Act 50, with one major exception it requires a local referendum allowing the voters of each school district to choose whether to replace local school property taxes with a local earned income tax. The bill will appear on the Senate Calendar for consideration after the November 5 th election. SB 374 may be read via the following link: SB0374P2305.HTM POLITICAL NOTES GOVERNOR S RACE The latest polls show Ed Rendell with an apparent sizable lead among likely voters. The Fisher campaign believes voters simply haven t focused yet on the Governor s race and that the gap will close in the weeks ahead, and have pointed out that Governor Ridge was behind by similar margins at this time during his race against Mark Singel. STATE HOUSE Republicans maintain a 7-vote majority in the House (105-98) and are well positioned to maintain (if not expand) upon their majority as a result of redistricting. The wild card remains in the Southeast where folks are debating the merits of Rendell effect (i.e., coat tails). To overcome the margin, combined with the clear Republican advantage in the 3 newly created seats in Lancaster, York and Bucks which, essentially, could put the House R s margin around 108 to 95 the Democrats will have to pull off a host of stunning (if not unprecedented) upsets on November 5 th. That said there are enough open or otherwise competitive races in the SE that should keep both campaign committees working overtime between now and November 5 th. The following House seats are worth watching: 15 th (Beaver, Colafella retiring): Biancucci (D) v. Camp (R). Admittedly, this is a long shot for the R s, but Camp has very good name recognition and is running a solid race in this otherwise solid Democratic district. 123 rd (Schuylkill, Lucyk retiring): Goodman (D) v. Holman (R). Holman ran a solid, yet unsuccessful campaign against Lucyk 2 years ago. He is a strong candidate, with deep community ties. While this is a D voter registration district, Holman stands a good chance of winning. 134 th (Lehigh, Baker retiring): Raynock (D) v. Reichley (R). While the democrats have a slight voter registration edge, this district has been Republican held for years. Certainly, this is a target, but the GOP should hold this one. 148 th (Montgomery, Cohen retiring): Kaskey (D) v. Murphy-Weber (R). While Republicans have a voter registration edge here, Lower Merion and Montgomery County have been trending towards Democrat and, combined with the Rendell effect, this one will be closely watched. Republicans should hold. 178 th (Bucks, Reinard retiring): Cherkin (D) v. Petri (R). While the Republicans hold a modest voter registration edge, this, too, is one of those suburban Philly areas where the combination of Rendell and a strong D candidate make this race competitive. This one will be tight. STATE SENATE Republicans also maintain an 8-vote majority in the Senate (29-21) with a recent victory in the October 1 st Delaware County Special Election to fill the vacancy created by Senator Bell s death. As it stands now, the Republicans will have to defend most of the SE seats they occupy on Election Day and, thus, the Rendell effect is a concern. Most attention has been on 3 SE races: 6 th (Bucks, Tomlinson incumbent): Kostmeyer (D) v. Tomlinson (R). This was a race to watch. However, recent polls have the Republican Tomlinson way ahead of the Democrat, former Congressman Kostmeyer. 24 th (Montgomery, Holl retiring): Maza (D) v. Wonderling (R). This is the best shot the Democrats have of picking up a seat in the 4 PENNSYLVANIA AFFAIRS OF STATE

5 Senate. The polls are tight, but there is some dissension within Montgomery County Republicans (e.g., former Reagan Sec. of Transportation and candidate for PA Governor, Drew Lewis, endorsed the Democrat Maza). Also, the Lower Merion area is one of the few areas of the SE where Republicans believe Rendell coattails may appear. 44 th (Chester, Gerlach retiring): Jacobs (D) v. Rafferty (R). The Republicans should hold onto this seat, but the numbers are still pretty close in this otherwise solid Republican seat with a wide Republican voter registration edge. CONGRESSIONAL RACES: Republicans currently hold a 1-vote margin in PA s Congressional delegation (11-10). The 2000 Census required the General Assembly to draw a map based upon 19 Congressional districts. The Republicans have 10 safe seats, the Democrats 5 and 4 remain competitive (albeit some more than others), including: 6 th District (Jim Gerlach v. Dan Wofford); 13 th District (Joe Hoeffel v. Melissa Brown); 15 th District (Jim Toomey v. Ed O Brien); and 17 th (George Gekas v. Tim Holden). PETER A. GLEASON pgleason@kl.com OCTOBER 11, 2002

6 Services Provided by K&L s Government Affairs Practice LEGISLATIVE AND REGULATORY MONITORING: Review all bill introductions, legislative amendments and proposed regulations. Monitor the procedural and substantive evolution of specific bills, amendments and regulations, including committee activity, consideration of the legislative and Independent Regulatory Review Commission calendar. Analyze relevant media and political developments affecting client legislative and regulatory interests, including Governor s Office and agency positions and activity. Assess the significance of proposed legislation or regulations and advise, where necessary, on an appropriate course of action in response. Prepare a customized weekly report, highlighting the relevant legislative and regulatory issues of interest. LEGISLATIVE AND REGULATORY ADVOCACY: Develop and implement a comprehensive legislative and/or regulatory strategy to ensure the most effective advocacy on a particular matter; Identify and provide access to the players in the legislative and regulatory process, including the legislative leaders, committee chairpersons, key House and Senate staff, the Governor s Office, and administrative agency decision makers. Assist in the development of grass roots campaigns and coalition formation among similarly situated groups and organizations to create the necessary momentum in support of or against a particular matter. Research and draft legislation, regulations and testimony before legislative and administrative bodies. COMMONWEALTH PROCUREMENT: Monitor and identify procurement opportunities throughout state government. Communicate client capabilities to relevant agencies and advocate for the establishment of public-private partnerships between state agencies and our clients. Prepare procurement proposals and responses to state government requests for proposal (RFP s), and negotiate contract terms. GENERAL FUND AND CAPITOL BUDGET APPROPRIATIONS: Advocate for increased or new General Fund appropriations for specific projects and programs. Advise clients on the Capitol Budget/ Redevelopment Assistance Program and develop a strategy to obtain specific Redevelopment Assistance authorizations and appropriations. ADMINISTRATIVE AGENCY ADVOCACY/GRANTS AND LOANS: Represent clients before state government agencies on a wide range of administrative decisions, including licensing, permitting, and enforcement actions. Assist clients in identifying and qualifying for existing state grant and low-interest loan programs. POLITICAL AND CAMPAIGN FINANCE ADVICE: Advise clients on the developing political landscape in Pennsylvania, including regular updates on targeted federal, state and local races and other campaign related information. Advise clients on the political and legal implications of Political Action Committee (PAC) or other political contributions. Challenge us. BOSTON DALLAS HARRISBURG LOS ANGELES MIAMI NEWARK NEW YORK PITTSBURGH SAN FRANCISCO WASHINGTON... This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. 6 PENNSYLVANIA AFFAIRS OF STATE 2002 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.