LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session March 7, 1995 TO: Honorable Tom Craddick, Chair IN RE: Committee Substitute Committee on Ways & Means for House House of Representatives Bill No. 900 Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on House Bill No. 900 (relating to a franchise tax and property tax credit for certain corporations for payment of certain tuition) this office has determined the following: The bill would establish a franchise tax credit for corporations that fund private school scholarships, or pay tuition for out-of- district public schools, for disadvantaged children. A local school district governing board would be authorized to provide a credit against property taxes. In addition, the bill would require the commissioner of education to reduce the average daily attendance of a school district for the year preceding the first year a student attends private school under a scholarship funded by a corporation. The amount of the credits is limited to the lesser of the cost of the tuition or 50 percent of the state aid per student under the Foundation School Program. The bill would be effective 90 days after passage. If approved by local school boards for the 1995-96 fiscal year, the property tax credit would be effective for payments due December 31, 1995. The franchise tax credit would be effective for tax reports originally due on or after January 1, 1996. The credit is limited to the amount of tuition or 50 percent of the state aid per student whichever is less. In 1994-95, the average state aid per student is approximately $2,250, which would cap the credit amount at approximately $1,125 per student. In terms of out-of-district credits, the local district traditionally pays the amount of the out-of-district tuition. The funding of out-of-district tuition through franchise tax credits represents a new cost to the state. Reducing a district's ADA in the year prior to first year of attendance under the scholarship would cause the district to lose the full cost of the tier 1 regular program allotment, technology allotment and teacher compensation allotment, plus one weighted ADA in the second tier. On average for the 1994-95 school year, the combined loss of these local district programs would be $3,400 for each student receiving a scholarship. For 85 percent of the students the entire $3,400 would be a loss in state aid. The loss in state aid for the remainder would be approximately $2,500 per student. The number of eligible students enrolled in public schools is projected to be 1.8 million in 1996. In addition, there are an estimated 5,500 students entering private schools who would be eligible for the scholarship. For every 1,000 students transferring from public schools to an out-of-district public school, the state could lose up to $1.125 million in franchise tax credits. For every 1,000 students transferring from public schools to private schools, the net savings to the state could be up to $2.250 million in reduced state aid to local school districts. For every 1,000 first year students claiming a scholarship for a private school who would have gone to private school anyway, the state could lose up to $1.125 million in franchise tax credits. In addition, there would be a loss to local school districts of up to $3.4 million. If the bill is effective for the 1994-95 school year, students that receive a scholarship in 1995-96 would result in reductions to 1994-95 entitlements for local districts. This would affect the settle-up process for the 1994-95 school year which takes place in 1995-96. Assuming one percent of the eligible student population takes advantage of the program, the loss in franchise tax revenue would be $42.6 million for the 1996-97 biennium. The Comptroller indicates that the loss in franchise tax revenue could be greater if each student participating is allowed to receive more that one scholarship. Source: Comptroller of Public Accounts, Central Education Agency LBB Staff: JK, DD, DH, RS, DF