LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
May 7, 1997
TO: Honorable Kenneth Armbrister, Chair IN RE: House Bill No. 4, Committee Report 2nd House, Substituted
Committee on Tax Reform & Public School Finance By: Craddick
Senate
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on HB4 ( Relating
to funding public elementary and secondary schools and providing
property tax relief and equity and to the imposition, administration,
enforcement, and collection of, and allocation of the revenue
from, various state and local taxes; providing penalties; making
an appropriation.) this office has detemined the following:
Biennial Net Impact to General Revenue Funds by HB4-Committee Report 2nd House, Substituted
Implementing the provisions of the bill would result in a net
negative impact of $(1,381,772,395) to General Revenue Related
Funds through the biennium ending August 31, 1999.
It is
anticipated that $1 billion of available revenue from the 1998-99
biennium will be appropriated by the Legislature for property
tax relief. In addition, appropriations in the Senate CSHB
1, $200 million for facilities and $260 million from revised
Foundation School Program estimates, have been identified for
funding new facilities and property tax relief.
The bill would make no appropriation but could provide the legal
basis for an appropriation of funds to implement the provisions
of the bill.
Fiscal Analysis
SCHOOL FINANCE
The bill would increase the guaranteed yield
level from $21 per pupil per penny to $29.60. The equalized
wealth level (recapture) would be increased from $280,000 per
weighted pupil to $330,000. A new guaranteed yield for school
facilities would be established with a yield of $33 per unweighted
pupil for any new debt. Recapture would be eliminated for debt
service tax rates.
The bill would re-establish a new, lower
property tax rate for rollback purposes. In addition, portability
would be provided for the age 65-and-over tax freeze.
The
percent of equalized revenue in the system would increase from
96.8 percent, under current law, to 99.1 percent. The increase
in guaranteed yield in tier two would result in equalizing existing
debt. The percent of students in the system would increase
from 87.5 percent to 94.7 percent.
PROPERTY TAX RESPONSE
If
half of the school districts increase tax rates beginning in
the year 2000, the increase would be as follows:
5 cent
increase = $200 million
2.5 cent increase = $100 million
0
cent increase = no cost
PROPERTY TAXES
The average total
state-wide school district tax rate would drop from $1.47 to
$1.30 per $100 of taxable valuation. The seventeen cent average
reduction is split, with an average sixteen cent reduction in
the Maintenance and Operation rate and an average one cent reduction
in debt service rates. The debt service reduction is primarily
caused by the elimination of recapture on debt service taxes
for wealthy districts.
FRANCHISE TAX BASE EXPANSION
The
franchise tax would be extended to non-corporate business entities
(other than sole proprietors) and would be levied against general
partnerships, limited partnerships, business trusts and professional
associations, with certain exclusions from income.
The deduction
for solar energy devices would be repealed.
The special deduction
for food and medicine receipts from non-Texas corporations would
be repealed.
The apportionment method for telephone companies
would be revised to include the Texas portion of multi-state
transactions.
The FAS (Financial Accounting Standards Rule)
96 tax credit would be repealed. This tax credit is allowed
for certain corporations that use particular types of accounting
systems.
Receipts from trademarks, licenses, and franchises
would be treated the same as those from patents, copyrights,
and royalties (i.e., they would be sourced to Texas based on
use in Texas).
SALES TAX BASE EXPANSION
The sales tax exemption
for certain amusement services that are not currently taxed,
other than those put on by public schools, would be abolished.
INCREASE TOBACCO PRODUCT EXCISE TAX
The cigarette tax would
be increased by 20 cents per package, and the tax on other tobacco
products (except cigars) would increase by 50 percent.
INCREASE
ALCOHOLIC BEVERAGE EXCISE TAX
Alcoholic beverage excise taxes
would increase by 10 percent, and the refund for alcoholic beverages
exported by airlines and passenger trains holding alcoholic
beverage permits would be repealed.
OTHER AMENDMENTS TO THE
TAX CODE
The Interstate Motor Carrier Tax, scheduled to be
repealed as of September 1, 1997, would be restored as it currently
exists in Section 157 of the Tax Code.
A $200 increase to
professional fees paid by interior designers would be applied
to fees paid for applications for registrations, renewals and
reciprocal registrations.
An annual occupation tax would
be applied to certain service coin-operated machines and cash
dispensing machines. The service coin-operated machines would
be charged $60 annually per machine. Cash dispensing machines
(known as ATMs) would be charged $100 annually per machine.
LOTTERY
SURCHARGE
The State Lottery Act would be amended to increase
the state share of lottery proceeds by reducing the percentage
of gross lottery revenue that could be paid in prizes.
ADMINISTRATIVE
COST
The bill would expand the franchise tax base by approximately
200,000 additional filers. All major activities of the Comptroller s
Office would be affected by the increased workload.
The bill
would increase the work load and case load of the Office of
the Attorney General's Taxation Division, primarily due to a
substantial extension of the franchise tax to all business entities.
The
increase in workload generated by the increase in filings and
transactions by new taxable entities will require additional
staffing for the Information Services Division and the Corporations
Section of the Secretary of State.
GENERAL
Some provisions
of the bill, are contingent on the adoption of a constitutional
amendment proposed by House Joint Resolution 4, Seventy-fifth
Legislature, Regular Session, 1997. The proposed constitutional
amendment will be submitted to the voters at an election to
be held August 9, 1997.
Methodolgy
SCHOOL FINANCE
To estimate these effects a Legislative Budget
Board school finance model was run.
The estimates in this
note for school finance are based on district property values
presented by the Comptroller of Public Accounts from the Preliminary
January 1996 study (local values) and revised Legislative Budget
Board projections of student enrollment growth of 2.2 percent
per year statewide.
The estimates do not include the impact
of the provision in HJR 4 that prohibits the state from spending
less for public education in one biennium than the previous
biennium, adjusted for inflation which has not been defined
in CSHB 4.
ALL OTHER REVENUE ESTIMATES
The estimates in
this note for all other revenues are based on projections provided
by the Comptroller of Public Accounts.
The probable fiscal implications of implementing the provisions
of the bill during each of the first five years following passage
is estimated as follows:
Five Year Impact:
Fiscal Year Probable Probable Revenue Probable Revenue Probable Revenue
Savings/(Cost) Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from
from Foundation General Revenue General Revenue General Revenue
School Fund Fund - Expansion Fund - Expansion Fund - Increase
of State of State Sales in Tobacco
Franchise Tax Base Tax Base Excise Tax
0193 0001 0001 0001
1998 ($1,097,700,000) $140,370,000 $2,492,000 $191,570,000
1998 (1,409,900,000) 172,101,000 3,163,000 214,384,000
2000 (1,328,100,000) 181,842,000 3,351,000 190,644,000
2001 (1,575,200,000) 193,689,000 3,544,000 203,466,000
2002 (1,459,400,000) 212,383,000 3,744,000 179,510,000
Fiscal Year Probable Revenue Probable Revenue Probable Revenue Probable Revenue
Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from
General Revenue General Revenue General Revenue Foundation School
Fund - Increase Fund - Other Tax Fund - Lottery
in Alcoholic Increases
Beverage Excise
Tax
0001 0001 0001 0193
1998 $13,024,000 $35,513,000 ($1,294,738,000) $1,430,639,000
1999 14,270,000 41,563,000 (1,390,417,000) 1,565,570,000
2000 14,324,000 42,249,000 (1,457,486,000) 1,641,135,000
2001 14,383,000 43,127,000 (1,511,429,000) 1,702,034,000
2002 14,458,000 44,107,000 (1,547,023,000) 1,742,071,000
Fiscal Year Probable Revenue Probable Revenue Probable Probable Change in Number
Gain/(Loss) to Gain/(Loss) to Savings/(Cost) Savings/(Cost) of State
Local School Counties/ Comptroller Office of Employees from
Districts Cities/ MTAs Administrative Attorney General FY 1997
Cost - General and Secretary of
Revenue Fund State
Administrative
Cost - General
Revenue Fund
LCL-SCHOOL LCL-COUNTY 0001 0001
1998 ($1,176,000,000) $580,000 ($8,016,553) ($937,179) 75.0
1999 (1,204,000,000) 820,000 (3,913,700) (808,963) 75.0
2000 (1,251,000,000) 868,000 (3,177,386) (808,963) 70.0
2001 (1,271,000,000) 919,000 (3,180,715) (808,963) 70.0
2002 (1,303,000,000) 970,000 (3,206,786) (808,963) 70.0
Net Impact on General Revenue Related Funds:
The probable fiscal implication to General Revenue related funds
during each of the first five years is estimated as follows:
Fiscal Year Probable Net Postive/(Negative)
General Revenue Related Funds
Funds
1998 ($587,783,732)
1999 (793,988,663)
2000 (716,027,349)
2001 (930,375,678)
2002 (814,165,749)
Similar annual fiscal implications would continue as long as
the provisions of the bill are in effect.
Source: Agencies: 307 Secretary of State
302 Office of the Attorney General
304 Comptroller of Public Accounts
701 Texas Education Agency - Administration
LBB Staff: JK ,RR ,BR ,DD