The Florida Legislature Will Ramp-Up Efforts on Major Issues in the - - PDF document

Some of the information used to compile this report was provided with thanks by Associated Industries of Florida. 14864503.1

April 9, 2009

The Florida Legislature Will Ramp-Up Efforts

• n Major Issues in the Last Three Weeks

Florida’s Legislature

will return from a Holiday Break with an Aim to Adjourn

• n Friday, May 1, Sine Die.

This Issue of Capitol Report Summarizes the Status of the Higher Profile Policy Issues moving through the Legislature at this point in the Session.

Report Compiled by Rheb Harbison Carlton Fields Senior Government Consultant

The 2009 Florida Legislature has

passed the halfway mark of its 60-day Regu- lar Session, after getting off to a slow start due to a January Special Session and an unexpected change in House leadership. Both chambers are in holiday recess for three days this week, but on Monday mem- bers return to Tallahassee for the last three weeks, with an aim to adjourn on time Fri- day, May 1, sine die. This issue of Capitol Report summarizes the status of the higher profile policy issues mov- ing through the Legislature at this point in the session.

Budget

The House and Senate have each released their respective budget proposals against a continued declining state economy. This tees-up the appropriation negotiation proc- ess, which will culminate in budget confer- ences to resolve differences. The only bill the Legislature must pass under the state’s Constitution is a General Appro- priations Act. Given that Florida is a bal- anced-budget state, the Legislature can only budget expenses to the extent they have matching revenues -- and that’s going to be tough, real tough.

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In mid-March, the state’s economists further reduced the state’s estimated revenue by an-

• ther $3.4 billion ($1.1 billion for this year

and $2.3 billion for next year). The cumula- tive reduction since the current fiscal year start on July 1, 2008, has been about $6 billion, meaning the available revenue for the 2009-10 fiscal year budget is about $6 billion less than that appropriated for the cur- rent year budget by the 2008 Legislature. The estimated net reduction of available revenue after consideration of the Federal stimulus revenue is about $3.1 billion. However, the Federal assistance has to be considered non-recurring revenue, while the state’s budget difficulties concern a lack of recurring revenue. Use of non-recurring revenue to resolve recurring revenue issues essentially builds a “house of cards,” and simply punts the real pain of the economy to the next Legislature. The longer view of the state’s economic re- covery remains bleak. State economists ex- pect a bottom-out during the summer, fol- lowed by several months of leveling, leading to a slow-growth recovery well into the fourth quarter of 2010 and perhaps early 2011.

Corporate Taxation

Perhaps the biggest “worry” for business cli- ents involves the Senate’s apparent decision to advance a series of tax increases on the backs of the business community. One vehicle is a corporate tax bill recently released by the Senate Finance and Tax Committee and sponsored by its chairman,

• Sen. Thad Altman (R-Melbourne).

Altman contends his aim is to modernize Florida’s tax system -- when compared to

• ther states. His idea is to make corporate

income tax fairer for Florida home-grown companies by requiring multi-state compa- nies to more appropriately apportion their share of income taxes to Florida. The Altman tax proposal provides for:

• Classification of Partnerships -- Requires

taxpayer adherence to classification for federal purposes;

• Non-business Income (NBI) Redefined and

Limited -- NBI would be an amount that cannot constitutionally be included in “ap- portionable” income, without any refer- ence to the functional and transactional tests, which would be stricken;

The estimated net reduction of available revenue after consideration of the Federal stimulus revenue is about $3.1 billion.

• Add-back of two years for expenses re-

lated to a sold asset, apparently where the proceeds of sale were treated as NBI;

• Add-back of inter-company expenses, in-

cluding expenses relating to intangibles, interest, and broadly defined management

• fees. (The focus is on companies filing

separately; uses 50 percent ownership test for “inter-company”);

• Limits net operating loss (NOL) carryovers

from years ending prior to December 31, 2009, by requiring the add-back of intan- gible expense, interest expense, and man- agement fees;

• Requires a detail of all inter-company

transactions with each return, with no ex- ceptions for consolidated filers and a neg- ligence penalty for failure to do so;

• Eliminates mechanism for deconsolidation;
• Limits use of NOLs incurred by entities be-

fore becoming a member of consolidated

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return (SRLY rule), apparently to reverse the holding in the “Golden West” case;

• Eliminates the grandfather nexus consoli-

dation election that authorized continued filing by a group as it was comprised prior to September 1, 1982;

• Specifically provides that inter-company

sales are excluded from the sales factor for consolidated filers;

• Criteria for sourcing services, including

throwback of 50 percent to Florida if the taxpayer is not subject to income tax in the state where the service is received, and throw-out rule for “nowhere” sales;

• Revamps of apportionment for financial

institutions;

• Corporations filing nexus group returns

would file separately, or include in a con- solidated return all entities included in the federal consolidated return;

• Enhanced and broad rulemaking authority

to the Florida Dept. of Revenue, including the authority for rules “interpreting each definition used in this chapter”; and

• Clarification that 2002 legislation requir-

ing interest on amounts paid per RAR ad- justments was intended to apply retroac- tively. The House has released its proposed annual corporate “piggyback” bill with an aim to update the Florida Income Tax Code to re- flect changes Congress made to the United States IRS Code effective January 1, 2009. However, the bill contains provisions that have the effect of not adopting three changes that reduce corporate income tax receipts in FY 09-10 and FY 10-11. The House bill accomplishes this by extend- ing the provisions dealing with bonus depre- ciation in the above Senate bill for another year, meaning corporations will not be able to take advantage of federal bonus deprecia- tion provisions. In addition, the bill requires taxpayers -- tak- ing advantage of the federal provisions al- lowing for deferral of cancellation of indebt- edness income -- to add the deferred income for Florida tax purposes and then subtract the amounts added to federal taxable in- come in later years.

Workers’ Compensation Insurance

The House of Representatives has already passed legislation that attempts to correct an October 2008 Florida Supreme Court deci- sion that removed a cap on attorneys’ fees in workers’ compensation cases.

The Workers’ Compensation Court fix is a priority of Speaker Larry Cretul (left). Senate President Jeff Atwater will likely struggle to find the votes needed for passage.

The business community fears the Supreme Court’s ruling in Murray v. Mariners Health will substantially increase the cost of premi- ums by reintroducing hourly attorney fees and encourage more attorney involvement in workers’ compensation cases. The House bill, sponsored by Rep. Anitere Flores (R-Miami), would restore the workers’ compensation system to that passed by the Legislature in a 2003 Special Session. The legislation is a priority of House Speaker Larry Cretul (R-Ocala). The Senate bill, sponsored by Sen. Garrett Richter (R-Naples), is struggling its way

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through the Senate committee process, and continues to be the target of amendments advanced by the plaintiff bar. Whether Senate President Jeff Atwater (R- North Palm Beach) can muster the votes to pass a clean fix to the Court case in the Senate is yet to be seen.

Surplus Lines Insurance

Legislation that seeks to reverse another Flor- ida Supreme Court ruling subjecting surplus lines insurance carriers to the state’s regula- tory power is moving well in the House of Representatives, but is again struggling in the Florida Senate. The practical impact of the Court’s June 2008 decision in Essex Insurance Company

• v. Zota is the elimination of surplus lines in-

surance as an option in Florida for hard to place or unique commercial risks, as well as high value or unique residential properties. Surplus lines insurance is coverage provided by an insurer that is not licensed in Florida, but is allowed to do business in the state be- cause the particular coverage offered is not available from Florida-licensed or “admitted”

• carriers. Because of the unique risk gener-

ally written by surplus lines insurance carri- ers, states do not subject the insurers to rate, policy form, and other reviews by regulators. Hence, the Florida Supreme Court decision calls into question the future viability of the industry in Florida. Fifteen percent of Florida businesses rely on surplus lines insurance for their property and casualty insurance. The Florida Office of Insurance Regulation asserts the legislation is essential to provide stability within the sur- plus lines and property markets.

Property Insurance

The House and Senate recently rolled out their respective property insurance “pack- ages,” both of which seek to reduce the state’s liability for losses incurred due to hur- ricane storm damage. Both chambers are attempting to provide a “glide path” to move state-run Citizens Property Insurance Corpo- ration’s rates closer to actuarial soundness through premium increases. The House and Senate are also interested in reducing the liability placed on the state’s catastrophic reinsurance fund brought about by the severe market decline. All property insurance companies authorized to conduct business in Florida are required to purchase reinsurance from the state’s “CAT” Fund, and legislators worry the Fund is not in a position to pay claims after a catastrophic event. The CAT Fund team continues to struggle with a plan to finance the $17 billion man- datory layer of the Fund that is currently suf- fering from a $7 to $10 billion shortfall in its ability to pay reinsurance claims.

Education and Workforce

The primary issues relating to education and workforce are bills that raise high school graduation standards. The legislation, being advanced by Rep. Erik Fresen (R-Miami) and

• Sen. Thad Altman (R-Melbourne), is a priority

issue for the business community. It intends to ensure students are better prepared to en- ter post-secondary institutions without reme-

• diation. The bills raise the bar on math and

science requirements for high school gradua- tion, and require 10th grade students to achieve a grade-level score on the FCAT.

Health Care

A controversial bill that would require health plans to pay out-of-network physicians di- rectly for services provided to its subscribers is among the highest profile health plan bills moving through the legislative process. The legislation, being advanced by Sen. Don Gaetz (R-Fort Walton Beach) and Rep.

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Marcelo Llorente (R-Miami), has drawn the

• pposition of vocal consumer networks that

assert the bill would substantially raise the cost of health insurance on the backs of em- ployers and their employees. The effect of the bill is said to thwart a health plan’s essential cost-containment tool of con- tracting with physicians to become part of a referral network in exchange for case vol-

• ume. The bill was substantially amended in

the Senate due to concerns about the high fiscal impact on the State Employee Group Health Plan, thus putting into question its vi- ability for passage.

The CAT Fund team continues to struggle with a plan to finance the $17 billion mandatory layer of the Fund that is currently suffering from a $7 to $10 billion shortfall in its ability to pay reinsurance claims.

Other bills filed early in the session on a va- riety of issues, including the usual plethora of bills mandating the coverage of a variety of health conditions, have been corralled due to the cost impacts on premiums. However, one issue still moving relates to Autism Spectrum Disorder screenings. This legislation would require a physician to refer a minor to an appropriate specialist for screening for Autism Spectrum Disorder un- der certain circumstances and make those referrals subject to insurance reimbursement. Policy issues relating to Autism continue to be hotly debated because of the significant rise in children diagnosed versus the high cost of treatment, and the need for early in- tervention.

Energy and Environment

The Senate has released legislation relating to renewable energy that creates the Florida Clean Renewable Energy Policy. The bill creates a Clean Portfolio Standard, retaining the Governor’s goal that 20 percent of power derived from clean energy will be achieved by 2020. The Senate bill would allow up to 25 percent of the goal to be nu- clear. The bill allows exemptions if there is an insuf- ficient supply of clean energy or clean en- ergy credits, or the total costs for clean en- ergy production or credits exceeds two per- cent of the utility's total annual revenue. The bill also:

• Encourages utilities to pursue joint owner-

ship of nuclear power plants and allows for utilities to purchase clean energy from

• ut of state;
• Creates the Natural Gas Act, and creates

a carbon reduction fee relating to natural gas use; and

• Adds a one cent fuel tax with one-half

placed in the newly created Renewable Energy Trust Fund and the other half placed in the state’s General Revenue Fund. The House has yet to take up a comparable measure.

Growth Management and Permitting

The issue of growth management is some- what topsy-turvy at this point in the Legisla- tive Session. Essentially, the Legislature would like to loosen some of the restrictions placed on development during better eco- nomic times and “jump-start” infrastructure construction and development. As usual with this issue, how to achieve that goal is diffi- cult, political, and controversial. The Senate passed one major growth man- agement bill over to the House of Represen-

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tatives last week. The bill exempts projects from transportation concurrency and Devel-

• pments of Regional Impact (DRI) review
• nly in urban areas. The Senate bill is seen

as “less than expected” by many in the de- velopment community, although it is sup- ported by that sector. This is because some

• f the largest projects are not located in ur-

ban areas. The Senate asserts that if its bill is amended, the current support of the Flor- ida Dept. of Community Affairs may be lost, thus prompting a veto from the Governor. The issue is now in the hands of the Florida House of Representatives, a chamber with its

• wn ideas relating to growth management

policy, with positions yet to be fully real- ized.1 In view of the economy and the slow-down

• f development within the state, the House

and Senate are both currently working on legislation to extend the time period of per- mits issued by local governments and state agencies for certain projects. The extension period remains in flux.

Transportation

A bill being advanced by Sen. Andy Gar- diner (R-Apopka) that would authorize local government to use public-private partnerships for the operation and construction of existing

• r new roads is moving through the process.

The legislation declares that aggregate mate- rials are critical to the state – important be- cause transportation infrastructure projects require sizable amounts of aggregate mate- rials, and importing those materials are cost- drivers. The House bill is being sponsored by fresh- man Rep. Lake Ray (R-Jacksonville).

1 Carlton Fields is preparing an expanded report

• n the growth management issue, which will be

released in the next few days.

An increase in various fees is being consid- ered by both the House and Senate as a revenue option for transportation funding. The current House budget relies on over $800 million dollars in new fees such as a doubling of all vehicle registration fees, charging for driver history records, increas- ing vehicle title fees, and increasing initial registration fees. The Senate approach to new transportation fees is more limited, thus setting the stage for this issue to be negotiated with the House in the last three weeks of the 2009 session. The Senate position is to increase only title fees, vehicle registrations, and driver’s li- cense fees.■

Rheb Harbison is a Senior Government Consultant in the Carlton Fields Tallahassee Office. He is principally responsible for advocating on behalf of the Firm’s clients before the legislative and executive branches, asserting positions

• n a variety of state business

issues. Rheb has 28 years of progressive senior level experience in lobbying, public affairs, communications, media relations, and marketing in both the public and private sectors. He counsels clients on political action strategy and is also responsible for fund-raising and the activities of the Firm’s political action committee, which supports the election of local and state candidates for public office. Rheb can be reached at rharbison@carltonfields.com or 850.224.1585.