Government Affairs Update


Economic Growth and Tax Relief Reconciliation Act of 2001

On Thursday, June 7, 2001, President George W. Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001 making a number of changes to the Internal Revenue Code. Congress approved this legislation on May 26, 2001. We are pleased to inform you that one of the provisions contained in this legislation expands the income tax exclusion for employer-provided educational assistance, commonly referred to as Section 127, to include graduate education. This provision retains the annual ceiling on benefits at $5,250, and becomes effective with respect to courses beginning after December 31, 2001. Prior to the inclusion of this provision in the recently passed bill, which was a key item on the University's agenda, Section 127 had applied to undergraduate level assistance only. The provision for graduate-level assistance had expired in 1996.

Other provisions benefiting students, families and colleges include:

  • Student Loan Interest Deduction: The Act raises the income eligibility to claim student loan interest deduction from $50,000 to $65,000 for single taxpayers and from $100,000 to $130,000 for married taxpayers. After 2002, the income eligibility will be adjusted annually for inflation. In addition, the Act repeals the current 60-month time limit during which student loan interest is deductible and makes voluntary payments of interest deductible. The changes are effective for interest paid on qualified education loans after December 31, 2001.
  • Qualified Tuition Plans: The new bill eliminates taxes on interest earned under state prepaid-tuition plans and allows private institutions to set up such plans with the same tax benefits, starting in 2004. The Act also allows one rollover per year among these different plans, so long as the account is maintained for the same beneficiary.
  • Education IRAs: The Act increases the annual limit on contributions to education IRAs from $500 to $2,000.
  • "Above the Line" Deduction for Qualified Higher Education Expenses: The Act permits taxpayers to take an "above the line" deduction for qualified higher education expenses, defined in the same manner as for purposes of the HOPE tax credit. The provision expires in 2005.


President Bush's Science Adviser and Other Appointments

On Monday, June 25, President Bush nominated physicist John Marburger, III, to be his Science Adviser. Dr. Marburger is currently director of the Brookhaven National Laboratory. He has previously served as president of Stony Brook University, State University of New York from 1980 to 1994, and dean of the College of Letters, Arts, and Sciences at the University of Southern California from 1976 to 1980. Dr. Marburger received his bachelor's degree from Princeton University and his Ph.D. from Stanford University. In his position, he will chair the President's Committee of Advisors on Science and Technology, and will oversee the White House Office of Science and Technology Policy.

Tom Scully was confirmed by the United States Senate and was sworn in as the Administrator of the Centers for Medicare & Medicaid Services (CMS) in May 2001. CMS, formerly named the Health Care Financing Administration (HCFA), is responsible for the management of Medicare, Medicaid, the State Children's Health Insurance Program and other national healthcare initiatives. Mr. Scully was a senior official in the former Bush White House and at the Office of Management and Budget, and worked on health issues in Congress and the private sector.

President Bush nominated Eugene W. Hickok, Jr., the former education secretary for Pennsylvania, to be the Undersecretary of Education. Dr. Hickok's nomination has not yet been voted on by the Senate, but he is expected to be confirmed without controversy.

President Bush nominated Janet Hale to be assistant secretary for management and budget at the Department of Health and Human Services. Ms. Hale is a former Executive Vice President at Penn.

Senate Organization

On Wednesday June 6, Democrats took control of the U.S. Senate after Senator James Jeffords (I-VT) left the Republican Party to become an Independent. This change will make the appropriations process more contentious, and will make it more difficult for President Bush to gain support for his budget priorities.

Until the Senate passes a committee organizing resolution, committee memberships have reverted back to their organization from before January 20, 2001. Committee and subcommittee chairmanships, however, have gone to Democrats.

The move will impact both of Pennsylvania's Republican Senators. Senator Rick Santorum will retain his position as Republican Conference Chair. Senator Arlen Specter will become Ranking Member of the Appropriations Subcommittee on Labor, Health and Human Services, and Education.


FY 2002 Commonwealth Appropriation

On June 12, the Pennsylvania House of Representatives gave final approval to House Bill 1201, Penn's Fiscal Year 2002 Commonwealth appropriation. The bill had been approved previously by the Senate on June 11. HB 1201 was then signed into law by the Governor on June 22 as Act 25A of 2001.

HB 1201 provides a total of $43,478,000 in funding for University programs, an increase of $2,600,000, or 6.4 percent, over the last fiscal year (see chart below). The funding is broken down as follows: $36,626,000 for the Veterinary School, $4,034,000 for the Medical School, $1,632,000 for Cardiovascular Studies, $938,000 for the Dental Clinics, and $248,000 for the University Museum. Penn's increase of 6.4 percent is substantially higher than the less than one percent increases provided to the public universities (Penn State, Pitt, and Temple), which indicates strong support for Penn's programs.

In addition to the University's direct appropriation, Penn will receive other funding through the Commonwealth's General Appropriation (GA) bill (SB1), which was approved on June 22. The University's Cancer Center will receive $600,000 through a Health Department line item. In addition, two equipment programs which will benefit Penn were included in the GA bill at last year's levels--$6 million for higher education equipment (last year Penn received approximately $290,000 under this program) and $1 million for engineering equipment (Penn's share last year--$63,000). Finally, the budget included $8 million for the higher education graduation incentive program, up from $6 million in last year's budget. This program provides grants for those institutions graduating at least 40 percent of their undergraduates within four years.

University of Pennsylvania Commonwealth of Pennsylvania: History of Non-Preferred Appropriation

(In Thousands of Dollars)

- FY 1999 FY 2000 FY 2001 FY 2002 FY 2002 FY 2002 FY 2002
- - - - - % INC. HB 1201 -
Instruction $0 $0 $ - $ - - $ - $ -
Medical Instruction 4,034 4,034 4,034 4,034 0 4,034 0
Dental Clinics 938 938 938 938 0 938 0
Cardiovascular Studies 1322 6321 882 632 -28.3 1,632 85
Veterinary Activities 31,489 32,276 34,783 35,826 3 36,626 5.3
University Museum 1992 2192 2413 2413 0 2483 2.9
Total University $36,762 $38,099 $40,878 $41,671 1.9 $43,478 6.4

1 Includes $132,000 appropriated through separate non-preferred appropriation.

2 Appropriated through separate non-preferred appropriation.

3 Appropriated through PA Historic and Museum Commission (not part of submission to PDE).


Tobacco Settlement

On June 21 the Pennsylvania Senate and House gave final approval to House Bill 2, legislation providing for expenditures of the Tobacco Settlement funds. The Governor signed this legislation into law on June 26. Following are the highlights of the Tobacco Settlement legislation.

  • HB 2 provides the following allocation of tobacco settlement dollars:

19% research (with 1% provided to NCI recipients--see below)
30% insurance for uninsured adults
13% home-based and community care
10% uncompensated care for hospitals
12% smoking prevention and cessation
8% expansion of prescription drugs benefits for the elderly
8% endowment

  • The final package also includes a number of one-time initiatives to be funded from a portion of settlement payments already received, including $100 million to create three Life Sciences Greenhouses and $60 million in venture capital funds to support health-related start-ups. In addition, $69 million was transferred to the General Fund to support various health-related programs, including a $3 million grant to the University to help establish the Penn Heart Failure Center.
  • In the area of research, HB 2 provides for 19% to be allocated to research on an annual basis. One percent of the research allocation will be distributed to all National Cancer Institute (NCI) recipients, except the capped institutions (Penn, Pitt and Penn State), based on their pro rata share of the state's NCI total. The remaining 18% will be allocated based on a 70/30 split--70% going directly to institutions based on their share of the state's total NIH funding and 30% going to the Department of Health. Under the institutional formula Penn will get 20% of the institutional dollars, Pitt 20% (Pitt and Penn were capped at 20%, pursuant to agreement by legislative leadership), Penn State 17%, with the remaining dollars being distributed to other institutions on an NIH formula. The allocation amount and process for this component of the plan differs from the Governor's original proposal of 10% for research allocated by the Department of Health to individual research projects.
  • Under the legislation "research" is defined as "biomedical, clinical, and health services research which may include infrastructure."
  • It is estimated that $345 million will be the total available pool of tobacco settlement monies available in FY 2002. In future years the estimate of dollars available will range from $345 to $425 million annually, depending on tobacco sales. Based on the FY 2002 estimate, Penn will receive approximately $8.7 million next year in research support under the approved institutional formula. The amount could rise to as much as $10.7 million annually if the total pool reaches $425 million.
  • In addition to the institutional research funding, the Department of Health will distribute 30% of the research pool on an individual project basis. The University has worked closely with the Department of Health to suggest research priorities consistent with Penn's strengths.
  • The language in the research section of HB 2 was amended to expand the definition of "infrastructure" and allow the use of research funds for building construction or renovations. HB 2 states that research grant recipients may not expend more than 50% of its grant for building construction or renovations.
  • Based on the funding formula provided for uncompensated care in the final language, the University of Pennsylvania Health System should receive approximately $3-4 million annually from this pool. In addition, HB 2 provides another $15 million in one-time dollars for uncompensated care, which likely will result in an additional $1.5 million (approximately) for FY 2002.
  • The bill includes language establishing the Regional Biotechnology Research Centers, also know as Life Sciences Greenhouses. The bill sets up requirements for establishing a Board of Directors, the functions of the centers, and a process for application and subsequent agreement with the Commonwealth creating the centers.

--Carol R. Scheman, Vice President for Government, Community and Public Affairs


Almanac, Vol. 48, No. 1, July 17, 2001