LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session May 13, 1997 TO: Honorable Kenneth Armbrister, Chair IN RE: House Bill No. 92, As Engrossed Committee on State Affairs By: Brimer/et al. Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on HB92 ( Relating to the financing of sports and community venues and related infrastructure; authorizing the imposition of certain local taxes and the issuance of local bonds; providing penalties.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by HB92-As Engrossed The probable net fiscal impact to General Revenue Related funds is zero. The Comptroller must determine that implementation of the bill's provisions will not have a significant negative fiscal impact. The bill would amend the Local Government Code by adding two additional chapters: sports and community venues, and sports and community venue districts. The new chapters would authorize cities or counties (or a combination) to build venues, levy certain taxes, and issue bonds to finance the stadiums. A venue would be defined as an arena, coliseum, stadium, or other type of facility or area that was used, or planned for use for one or more professional or amateur sports events, community events, or other sports events, including rodeos, livestock shows, agricultural expositions, promotional events, and other civic or charitable events, and for which a fee for admission was charged or planned to be charged. Also included in the definition of "venue" would be convention centers, auditoriums, theaters, museums, aquariums, certain tourist development areas, or any other economic development projects authorized by other law. A venue project would be defined as a venue and the related infrastructure that was planned, acquired, established, developed, constructed, or renovated under the provisions of the bill. Related infrastructure would include any store, restaurant, on-site hotel, parking or transportation facility, road, street, water or sewer, or other improvement-either on-site or off-site-that would relate to and enhance the use, value, or appeal of a venue, and any other expenditure that was reasonably necessary to construct, improve, renovate, or expand a venue. A municipality or county could use the provisions of this bill for a venue project originated under other law, including Section 4B, Development Corporation Act of 1979 or Subchapter E, Chapter 451 of the Transportation Code. The Sports and Community Venue chapter of the Local Government Code would apply to a municipality with a population of more than 1.2 million and to a county with a population of more than 2.2 million only if the municipality and county create a venue district under the Sports and Community Venue District chapter of the Local Government Code. Before calling an election on a resolution providing for the development or construction of a stadium, a municipality or county would obtain from the Comptroller a determination that the implementation of the resolution would not have a significant negative fiscal impact on the state. Within 15 days of receipt of the resolution, the Comptroller would be required to perform an analysis to determine the fiscal impact on the state and to provide the municipality or county with a written notice of the results. Upon a finding that implementation would result in a significant negative fiscal impact on state revenue, the written notice of results would include information on how to change the resolution so as to avoid the significant negative fiscal impact. No response from the Comptroller would be considered to mean that there would be no significant negative fiscal impact on the state. If the Comptroller found that a resolution would have a significant negative fiscal impact on the state, a municipality or county could contest the finding by filing an appeal with the Comptroller. Within 11 days of receipt of an appeal, the Comptroller would be required to reply with the results of a new analysis. If it was again found that implementation would result in a significant negative fiscal impact on state revenue, the written notice of the results of the new analysis would include information on how to change the resolution so as to avoid the significant negative fiscal impact. No response from the Comptroller would be considered to mean that there would be no significant negative fiscal impact on the state. If the Comptroller determined that a resolution would have no significant negative fiscal impact on the state, a municipality or county could call an election on the proposed venue project. Voters would vote for or against the authorization of a venue project and the imposition of one or more local taxes to be used to finance the project. Further, and very similar to the Comptroller's determination of state impact process, if a resolution contained a sales and use tax and that tax would reduce the tax rate of a rapid transit authority, the authority would perform an analysis to determine if a reduction in their tax rate would have a significant fiscal impact on the authority's ability to provide services or impair any existing contracts. Once approved by a majority of the voters, a municipality or county could proceed with the planning, acquisition, establishment, development, construction, or renovation of a venue project. A municipality or county would be authorized to contract with persons (both public and private), including a sports team, club, or organization, to do this. No ad valorem taxes could be used by municipalities or counties to plan, acquire, establish, develop, construct, or renovate an approved venue project. A municipality or county in which a venue project had been established would be required to establish a Venue Project Fund (fund). Into the fund would be deposited the proceeds from any taxes levied under the provisions of this bill; proceeds from bonds sold to finance a venue; proceeds from the sale of luxury boxes, seat licenses, stadium rental payments, or concessions or parking; and any other monies required by law to be deposited into the fund. Money in the fund could be used by a municipality or county to pay for the cost of developing or constructing a venue project; the principal, interest, and other costs of bonds issued; or the operation or maintenance of a venue project. The bill states that a venue project would be owned, used, and held for public purposes by the municipality or county. While a facility was owned by a local government it would not be subject to property taxation. If the implementation of a resolution resulted in a loss of school property tax, the operator of the venue located on the affected property would pay to the school district an amount, annually, equal to the amount of school property taxes that otherwise would have been paid. This provision, however, would not apply to a venue operator that was a political subdivision of this state. Several local option taxes would be authorized under the provisions of this bill. Sales and use tax - A municipal sales tax would be governed by the Municipal Sales and Use Tax Act, except as inconsistent with the bill. Similarly, a county sales tax would be governed by the County Sales and Use Tax Act, except as inconsistent with the bill. The sections of both Acts addressing a maximum local sales tax rate of 2 percent would apply. Imposition in a city or county where certain other sales taxes are levied, such as transit authority, crime control district, or industrial development (4A or 4B), would be allowed, but, if necessary, the rate of one of these other entity sales taxes would be reduced so as to keep the total local rate less than or equal to 2 percent. If the tax rate of a transit authority was reduced as a result of enacting a sales tax, the revenue collected could only be used for purposes for which the transit authority could have used the revenue. Municipalities and counties would be authorized to levy the tax at a variety of rates not exceeding 0.5 percent. Revenue from the tax would be deposited into the new Venue Project Fund. The tax would be abolished once all bonds issued to finance a venue project had been paid in full, or the necessary amount of money to do so had been set aside in a trust account. Short-term motor vehicle rental tax - Municipalities and counties would be authorized to levy a tax on the rental for 30 days or less of motor vehicles. Motor vehicles would include passenger cars, vans, station wagons, sport utility vehicles, and trucks. The tax would be imposed in increments of one-eighth of one percent, not to exceed 10 percent. The owner of the rental car would be required to collect the taxes due under this bill and remit them to the appropriate local government. The tax could only be levied if bonds had been issued for a venue project, and it would cease to be imposed upon the retirement of that debt. Revenue from the tax would be deposited into the new Venue Project Fund. Admissions tax and a parking tax - A tax on each ticket sold to an event at a sport venue project could be levied at a rate not to exceed 10 percent. A tax on each motor vehicle parked in a facility of a sport venue project could be levied at an amount not to exceed $3 per vehicle. The owner of the project, or owner or lessee of the parking facility would be required to collect the tax and remit the revenue to the appropriate local government. The tax could only be levied if bonds had been issued for a venue project, and it would cease to be imposed upon the retirement of that debt. Revenue from the tax would be deposited into the new Venue Project Fund. Facility use tax - A tax on each member of a major league professional sports team that played a professional sports game in a venue project would be authorized. The tax rate could not exceed $5,000 per game. The owner or lessee of the project would be required to collect the tax and remit the revenue to the appropriate local government. The tax could only be levied if bonds had been issued for a venue project, and it would cease to be imposed upon the retirement of that debt. Revenue from the tax would be deposited into the new Venue Project Fund. Athletic events in certain municipalities - Municipalities with a population in excess of 500,000 located in a county bordering the United Mexican States would be allowed to imposed a tax on the short-term rental of motor vehicles for the purpose of operating or paying costs associated with a post-season intercollegiate football bowl game. Sports and Community Venue Districts (combinations of municipalities and counties) would be allowed by this bill. The districts could consist of two or more counties, two or more municipalities, or a combination of municipalities and a counties, and such districts would become a political subdivision of the state. These districts would be able to do the same things as municipalities or counties with regard to venues and venue projects, subject to the same determination of fiscal impact on the state by the Comptroller and, if necessary, the local transit authority. The districts would be allowed to impose the same local option taxes discussed above and in the same manner. A district would not be allowed to impose an ad valorem tax. A district could use the provisions of this bill for a venue project originated under other law, including Section 4B, Development Corporation Act of 1979, or Subchapter E, Chapter 451 of the Transportation Code. The bill would amend the Development Corporation Act of 1979 to provide that cities that create or have created corporations under either Section 4A or 4B of that act would be allowed to submit a proposition to voters authorizing the use of 4A or 4B sales tax revenue for specific projects, including sports venues. A municipality would be allowed to contribute or dedicate up to 25 percent of the sales tax revenue received by the municipality to pay for all or part of the costs of one or more venue projects in the municipality. The contribution or dedication would be subject to voter approval. A municipality dedicating sales tax in such a manner could direct the Comptroller to deposit the pledged revenue to a trust or account. The changes in law that would be made by the bill would not apply to the use of tax revenue pledged to secure bonds issued before the effective date of this bill. Also, the bill would not affect the authority of a municipality that had created an industrial development corporation, before the effective date of this bill, to continue collecting any tax authorized for the benefit of the corporation, or to continue any project or projects, before that date. Notwithstanding any other provision of the bill, a Comptroller fiscal analysis would not be required if, at election held before this bill takes effect, voters approved of the establishment of stadiums for professional sports teams. This bill would expire August 31, 2001. This bill would take effect immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would take effect 90 days after adjournment. Methodology The fiscal impact on the state and local governments would vary depending on which cities and counties would form authorities and, of those, what taxes the authorities would choose to enact under the provisions of this bill. The fiscal impact on local governments would depend on the local option taxes that a locality chose to impose and that a majority of the local voters approved. It is possible to provide examples of what the impact might be for a city in Texas if that city were to impose the local option sales tax at certain rates to finance a venue project pursuant to the provisions of the bill. Local Option Tax: Houston Dallas San Antonio Sales Tax @ 1/2 cent $106,956,000 $69,498,000 $42,986,000 The fiscal impact on the state and on local governments in reduced property tax revenue would vary depending on which cities and counties enacted the provisions of the bill and converted taxable property to exempt "public-use" property. Section 334.044 of the bill provides a property tax exemption for all approved sports venue projects owned, used, and held by a municipality or county. The exemption is based on a provision that defines all such facilities as "public-use" property which is exempt from ad valorem taxation. In addition, the bill would specifically exempt all leasehold or other possessory interest granted by the municipality or county while the municipality or county owns the project. The bill would require an operator of an approved venue project to pay to a local school district an amount equal to the ad valorem taxes that would otherwise have been levied for the preceding year on the subject venue property, without including the value of any improvements. This would be payable to the district on January 1 of each year in which the project is in operation and in which the real property is exempt from ad valorem taxation. This section does not apply if the operator of the project is a political subdivision of this state. This section would have no effect on the calculation of state aid for public education. Section 403.302, Government Code, requires the Comptroller to conduct a property value study to determine the total taxable value for each school district. Total taxable value is an element in the state's school funding formula. Passage of the bill could cause a reduction in a school district's taxable values reported to the Commissioner of Education by the Comptroller. When calculating state aid for public education, the state must recognize the loss in local property value due to exemptions granted to qualified organizations within the school district. Depending on a school district's wealth per student, this could result in an increased cost to state-funded public education. The economic benefits of the type of developments authorized by the provisions of the bill should be positive over time. However, no estimate of the secondary economic benefits have been calculated. Similar annual fiscal implications of the bill would continue as long as the provisions of the bill are in effect. Source: Agencies: 304 Comptroller of Public Accounts LBB Staff: JK ,JD