THE HARRISBURG LETTER a Capitol Report on the Pennsylvania Legislature

September 2002 Bulletin 02-34 THE HARRISBURG LETTER A Capitol Report on the Pennsylvania Legislature

If you have questions or would The General Assembly returns to Harrisburg on Monday, September 23 for the like additional information on final act of the 2001–2002 legislature’s regular session, which expires at midnight, the material covered in this November 30. In the 12 session days scheduled before the election on November Bulletin, please contact one of 5, legislators will be mindful of the impact their actions may have on their the authors: elections. In the 11 days of session scheduled after election day and before the Franklin L. Kury term expires—the well-known “lame duck” session—the legislature will focus on (Harrisburg, PA) things that are not likely to be approved under a new governor, especially if it is 717.257.3045 Democrat Ed Rendell. While the current polling shows Rendell leading in the race [email protected] for the Governorship, the same cannot be said for the Senate and House Democrats. Michael P. Meehan There is no chance the Senate will be Democratic in the next session and an uphill (Philadelphia, PA) chance that the House will be. Thus, if Rendell wins, the Republican leadership in 215.851.8228 both Houses may want to do what they can while Republican Mark Schweiker is [email protected] Governor. Christopher Zettlemoyer (Harrisburg, PA) Starting on Tuesday, September 4, the legislature will also begin a special session 717.257.3048 for the purpose of dealing with local property tax reform. This session is limited [email protected] to action on “any and all legislation necessary to reduce the Local Real Property Tax…while recognizing the need to fund the delivery of those services which ensure the well-being and safety of the citizens.” The Special Session will run concurrently with the regular session and expire on November 30, also. To alleviate confusion between the two sessions, the legislative documents for the special session will be on green paper, while the ones for the regular session will be on white. In this politically charged state, there are a number of proposals of interest to the business community that could be acted on. First is real property tax reform. Every report we have seen on this issue describes it in terms of residential property and the tax burden carried by citizens of low, fixed income. The burden of real estate taxation upon non-residential property, i.e., business-owned property, is not discussed. This issue of The Harrisburg Letter will seek to give a brief, but broader analysis. Other issues we will look at include the Lobbying Disclosure Act, Uniform Trade Secrets, Privacy and Social Security, Health Care Decision-Making, Modernizing the Department of Banking Code, Payroll Deductions for Political Contributions and a novel proposal called “The Sunrise Act.” Finally, here is a test question: what law of interest to the business community passed in the 1999 session—three years ago—is still not in effect? What will make it effective? We provide the answers in this report.

LONDON NEW YORK WASHINGTON, D.C. PHILADELPHIA PITTSBURGH PRINCETON FALLS CHURCH NEWARK COVENTRY RICHMOND WILMINGTON This bulletin is presented for informational purposes and is not intended to constitute legal advice. HARRISBURG “Reed Smith” refers to Reed Smith LLP and related entities. LEESBURG © Reed Smith LLP 2002. All Rights Reserved. Formed in the Commonwealth of Pennsylvania. r e e d s m i t h . c o m Client Bulletin 02-34

This report was prepared by former Senator Franklin Kury, who leads Reed Smith’s Pennsylvania Government Relations Practice, in collaboration with Christopher Zettlemoyer of the firm’s Harrisburg office, and Michael Meehan of the Philadelphia office.

Business and Real Estate Tax Reform No legislative subject has produced more debate and less resolution than real estate tax reform. None is more legally intricate and difficult to understand. To get to the heart of the problem, take a few moments to read Art. VIII, Sec. 1 and Sec. 2(b) of the State Constitution. (Every Pennsylvania State Manual has it. If you don’t have a copy of the State Manual, you can find it and the State Constitution via the Internet. Go to www.dgs.state.pa.us/. At the Department of General Services home page, hit “PA Manual” and then “Constitution of Pennsylvania.”) Art. VIII, Sec. 1 is the well-known uniformity clause, which requires taxation to be the same on the same class of subjects. Sec. 2(b) contains the “homestead” amendment which allows local taxing authorities to exclude from taxation an amount based on the assessed value of homestead property. Spend a few minutes considering the constitutional language and you can see the legal obstacles confronting real estate tax reform. In 2000, local governments collected $7.108 billion in real estate taxes—$2.48 billion from business property owners and $4.708 billion from residential property owners. This revenue is derived from taxing both types of property uniformly. The question for the legislature in its special session is how to reduce or eliminate real estate taxes and replace the lost revenue with alternative revenue sources that will (a) receive the necessary votes to be enacted, and (b) then pass the test of constitutionality in the litigation which is virtually certain to follow. The choices for alternative revenue are limited. For revenue from business-owned property there are three choices: (1) raise the corporate net income tax, (2) expand local business privilege tax, and (3) increase non- business taxes. For residential there are four choices: (1) increase the state personal income tax, (2) increase a local earned income tax, (3) increase the state sales tax, and (4) increase a business tax. What mix of these alternatives can be agreed upon so they pass constitutional review? Reportedly 70 different proposals attempt to answer the question! We don’t pretend to know what will happen, but we do believe that the business portion of the problem must be recognized and dealt with and that the business property tax aspect of the “reform” deserves much more public discussion than it has been receiving. Considering the limited time remaining before the legislative term expires and the complexity of the constitutional issues, we will be surprised if the legislature is able to do what the special session was called to do. Christopher Zettlemoyer of the firm’s Harrisburg office (717.257.3048 or [email protected]) is knowledgeable on state taxation, including the sales and use tax. He is the former chair of the State Tax Section of the Pennsylvania Bar Association.

Lobbying Disclosure is in Limbo The state Supreme Court, after considering the case for more than a year, on August 23 rendered the Lobbying Disclosure Act unconstitutional on the grounds that it infringed on the court’s exclusive jurisdiction to regulate the practice of law. The vote was three to three, with one abstention. This tie vote has the effect of letting stand the Commonwealth Court decision, which had originally declared the Act invalid. Under Section 1311(b) of the Act, if any provision is found invalid because it improperly regulates law practice, the entire Act falls. Attorney General Fisher has asked the Court to reconsider its decision, but unless the Court does and reverses itself, or unless the legislature enacts a new law, Pennsylvania will be without a statute regulating lobbying. Until the decision is reversed or a new law enacted, the registration and reporting requirements are

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nullified. (However, we caution against terminating compliance with the Act until it is certain that the Supreme Court will not reconsider.) We think that the legislature will not let this statutory vacuum continue for long and we will be surprised if, absent a Supreme Court reconsideration, it does not enact a new law this year. The approaching election militates strongly in that direction. However, as this Letter goes to the printer, the legislative leadership has not had time to consider what to do about it. Former Senator Franklin Kury and Michael Meehan have active lobbying practices and are knowledgeable about the Lobbying Disclosure Act and the Supreme Court opinions on it. They will be closely watching this issue as it evolves further.

Protection of Trade Secrets and Personal and Confidential Information Legislation in the form of S.B. 1403 is likely to be enacted to protect both trade secrets and personal and confidential information. Originally introduced by Senator Charles Dent as S.B. 1319, it was amended into S.B. 1403 on June 27. Senate Bill 1403 now defines “trade secrets,” “misappropriation” and “improper means,” and then provides for injunctive relief against misappropriation, as well as money damages, exemplary damages and attorney fees. Another second portion of S.B. 1403 adds the theft of “personal or confidential information” to the crimes code. No definition is provided for either term. Wrongful taking of personal or confidential information is made a felony of the second degree if done by force or violence, by maliciously entering a building, or by “willfully and maliciously” accessing any computer, computer network, or computer system, either electronically or in person. The computer provisions are completely new. (In early August, it was widely reported that the admissions office at Princeton University had gained unauthorized access to the computer records of Yale’s admissions office. If Yale or Princeton were in Pennsylvania, the Princeton personnel who accessed Yale’s computers would be subject to S.B. 1403’s provisions.) The bill also makes it a felony of the third degree to wrongfully obtain personal or confidential information by unlawful possession of such information, or, having lawfully obtained access, converting it to the wrongdoer’s use. Senate Bill 1403 passed the Senate 50-0 on June 28 and is now in the House Committee on Commerce and Economic Development. We believe it will be on the Governor’s desk by Thanksgiving Day.

Privacy and Identity-Theft Will Involve Social Security Numbers Senator Jake Corman has made fighting identify-theft his top priority and to that end has developed 13 proposals to protect individual rights in the world of high technology. The most important of these bills is S.B. 1407, which would create a new law on the privacy of Social Security numbers. The bill prohibits “any person or entity,” as well any government agency, from publishing or making public an individual’s Social Security number. This applies to corporations and other businesses as well as state and local governments. The bill also prohibits businesses and governments from using a Social Security number to gain access to products or services. Moreover, a Social Security number may not be used to access an Internet website unless a unique password is included. Finally, the bill prohibits printing a Social Security number on materials mailed to persons unless otherwise required by law. There are no penalty provisions in this bill and it would be a free-standing act, that is, not part of an existing statute. Senate Bill 1407 is in the Senate Committee on Intergovernmental Affairs and is certain to receive consideration. Although this bill has not received a great deal of press coverage, we believe it has the potential to have a significant impact on a number of businesses such as insurance and banking.

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Note: The Pennsylvania Department of State, under its own initiative, has acted to remove Social Security numbers from Uniform Commercial Code (UCC) finance filings by creditors in the Corporation Bureau. Since the UCC, as revised by the new Article 9, requires that the UCC filings be made available to the public as filed, there is a question as to the Department’s legal authority to do this, even though Social Security numbers are not required in the filing. Enactment of S.B. 1407 would provide that authority.

Health Care Decision-Making Legislation An under-appreciated bill affecting the health care industry is S.B. 1265, sponsored by Senator Stewart Greenleaf. Now in the Senate Health and Public Welfare Committee, this bill creates a new Chapter 54, Health Care, in Title 20 of the Consolidated Statutes. There are three subchapters: (A) General provisions, including definitions, compliance, death-not-suicide, life insurance, and liability; (B) Declarations, also known as the Advance Directives for Health Care Act; and (C) Health Care Powers of Attorney. Much of this is existing law which is being transferred to the new Chapter to make it easier to find. (This has caused some confusion. Some groups have seen the language on health care directives in cases of pregnancy and do not realize that is the current law.) The main new law is Subchapter (C), establishing health care powers of attorney. There are no provisions for health care representatives. This bill has been introduced in prior sessions. The main reason for its failure of enactment is that the subject it deals with—health care decision-making at the end of life—is not one that generates voter—or legislator—interest. However, the Public Health and Welfare Committee has indicated that this bill will be considered early in the autumn session and there is sufficient time before November 30 for it to be acted upon by both houses. Franklin Kury of the firm’s Harrisburg Office has been following this legislation. Robert Hoffman of the firm’s Harrisburg Office (717.257.3042 or [email protected]) and Karl Thallner of the firm’s Philadelphia office (215.851.8171 or [email protected]) are knowledgeable on the law of health care decision-making.

Modernizing the Department of Banking Code is Likely The House is likely to pass and send to the Governor S.B.1258, omnibus amendments to the Department of Banking Code sponsored by Senator Ed Holl, Chairman of the Senate Banking and Insurance Committee. Seventy-eight pages in length, this bill was initiated by the Department of Banking and seeks to give it the authority to more effectively regulate the financial service industry in the light of recent changes, such as the Gramm-Leach-Bliley Act, federal privacy legislation. Among the numerous changes proposed are the following: ? Increasing the Department’s authority in enforcement, injunctive relief, and regulatory promulgation, including policy statements and interpretive letters; ? Allowing the Department to receive criminal history information from law enforcement agencies for use in evaluating license applications; ? Implementing the Gramm-Leach-Bliley Act by allowing banks to share examination and regulatory information with the regulators of securities and insurance for enforcement purposes; ? Clarifying that the Department’s receivership authority is applicable to non-depository trust companies and trust departments of commercial banks. Passed 50-0 by the Senate on June 26, S.B. 1258 (P.N. 2053) is now in the House Committee on Commerce and Economic Development. Considering that this is Senator Holl’s last session as a Senator and the Department’s support for the bill, we will be surprised if the bill is not on the Governor’s desk before the Session expires. Leonard Bernstein of the firm’s Philadelphia office Chairs the firm’s Financial Services Group and is knowledgeable on banking legislation. He can be reached at 215.851.8143 or [email protected].

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Regulation of Payroll Deductions for Political Purposes is Possible Few issues highlight the differences between business and labor and the two major political parties as does the question of payroll deductions for political purposes. Under current law this is done to implement collective bargaining agreements which call for it. H.B. 2099, offered by Representative Curt Schroder and 39 Republican co-sponsors (there are no Democrats on it.), would change this. Entitled “The Voluntary Payroll Deduction for Political Contributions Act,” the bill would require that employers may only deduct payroll funds for political contributions when there is a written authorization signed by the employee. The bill applies to both unions and management, and violation can result in a fine of up to $5000. At a hearing held August 22, the bill was opposed by the Pennsylvania AFL-CIO and Pennsylvania State Education Association (PSEA), while it was supported by the Pennsylvania Manufacturer’s Association, Pennsylvanians for Right to Work, and the Commonwealth Foundation. There are no plans to bring the bill out of Committee in the fall session, but the Committee Chair, Representative Robert Flick, is known to like the bill. He is a co-sponsor. This is the kind of bill that a Republican Governor is much more likely to sign than a Democratic Governor. If Rendell wins on November 5, we expect a strong push to have this bill on Governor Schweiker’s desk before the November 30 deadline.

A Proposed “Sunrise Act” Offers a Novel Approach Everyone is familiar with the concept of “Sunset” legislation, under which a new program is given a fixed date on which it terminates unless extended. That has been tried in Pennsylvania and found ineffective. The legislature always extends the program. Representative Phyllis Mundy has offered a reverse way of dealing with government regulation. Called the “Sunrise Act,” H.B. 378 would preclude the legislature from voting on legislation which proposes “the regulation of any unregulated professional or occupation group or which proposes to expand the scope of practice of a regulated professional or occupational group” until the Legislative Budget and Finance Committee has prepared a “sunrise evaluation report” analyzing the proposal on 24 criteria. In addition, no vote in either chamber can be taken until after at least one public hearing on the proposal has been held. The Committee holding the hearing must then submit a report to both houses setting forth its findings on the justification and public interest. Only then could the legislature vote on the proposal. H.B. 378 was released from Committee on March 13, 2001 and been laid on the table seven times and removed from the table six times. It is now on the House table. Because of the many implications this bill has for the legislative process, we will be surprised if it gets to the Senate, let alone the Governor. But it is a concept that needs attention and analysis.

The Test Question Answered: Act 45 of the 1999 Session, the Uniform Construction Code Act Act 45 of the 1999 legislature mandates a uniform construction code for all of Pennsylvania’s municipalities, to replace the myriad patchwork of construction regulation that now exists. But Act 45 delayed the effective date of the act to a date uncertain, the date when implementing regulations have been adopted. That date is now soon to be established. The Department of Labor and Industry has announced a proposed rulemaking to implement Act 45. This proposed rulemaking adopts the International Building Code standards as the uniform construction code for Pennsylvania. Elevators are given separate regulation. These regulations are open for public comment until September 24 and will be the subject of public hearings in Monroeville, near Pittsburgh (September 9), Plymouth meeting (September 11) and Granville, near Harrisburg (September 13). After the public comment period is closed, the Department will respond to each comment received and decide if amendments are appropriate. The proposed regulations will then be published as final in the Pennsylvania Bulletin. That is now expected to happen late this year or early 2003. On whatever date that happens, Act 45 will be fully effective and Pennsylvania will have a long-overdue uniform construction code.

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Influencing The Legislative And Regulatory Process If you would like further information on the legislation or regulations discussed in this letter, or others not mentioned, or would like professional assistance in acting on any of them, we would be pleased to talk with you. Reed Smith’s Harrisburg office is located two blocks from the State Capitol. Our state Government Relations Group stays in touch with the leadership of both houses, the Governor’s Office, and the administrative agencies. The contact information for the group is listed on the front page of this bulletin.

Government Relations Personnel In Washington, D.C.; Wilmington, Delaware; Richmond, Virginia; and Princeton, New Jersey In Washington, our federal government relations practice is led by Phillips S. Peter. Phil was General Electric’s Vice-President for Corporate Government Relations in Washington for 18 years. He can be reached at 202.414.9258 or [email protected]. The firm’s Virginia government relations practice is led by William G. Thomas, a former Democratic State Chairman. Questions on Virginia matters can be addressed to him at 703.641.4238 or [email protected], or to Walter A. Marston, Jr. at 804.344.3420 or [email protected]; Steven W. Pearson 804.344.3426 or [email protected]; Lane Kneedler at 804.344.3404 or [email protected]; or Patrick Lacy at 804.344.3437 or [email protected];. For Delaware matters, questions can be addressed to David S. Swayze, former executive assistant to Governor duPont, or Christine P. Schiltz, in our Wilmington office. David can be reached at 302.778.7530 or [email protected] and Christine can be contacted at 302.778.7516 or [email protected]. In New Jersey, questions can be addressed to Steven J. Picco, formerly an assistant Commissioner to the N.J. Departments of Energy and Environmental Protection, or Geoffrey M. Connor, former Secretary of Banking, or M. Paige Berry. Steve can be reached at 609.514.5970 or [email protected]; Jeff can be reached at 609.520.6002 or [email protected]; and Paige at 609.514.5966 or [email protected]. For Pennsylvania, former Senator Franklin L. Kury can be reached at 717.257.3045 or [email protected]; Christopher Zettlemoyer at 717.257.3048 or [email protected]; and Michael P. Meehan at 215.851.8228 or [email protected]. * * * * * * * Reed Smith, a leading global law firm with more than 700 lawyers located in 11 U.S. and two U.K. cities, represents Fortune 100 as well as mid-market and emerging companies. Clients include technology companies and entrepreneurs, financial services firms, health care providers and insurers, communications companies, manufacturers, universities, non-profit organizations, real estate developers, and municipalities throughout the United States and in 40 countries. For more information, please visit reedsmith.com. If you would like to receive future client bulletins via e-mail, please sign up on our Web site at http://www.reedsmith.com/admin/contact.asp.

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