LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
April 8, 1997
TO: Honorable Bob Hunter, Chair IN RE: House Bill No. 713
Committee on State, Federal & International Relations By: Jones, Delwin
House
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on HB713 ( Relating
to defense economic readjustment zones; authorizing the issuance
of bonds.) this office has detemined the following:
Biennial Net Impact to General Revenue Funds by HB713-As Introduced FN Revision 1
Implementing the provisions of the bill would result in a net
negative impact of $(3,377,000) to General Revenue Related Funds
through the biennium ending August 31, 1999.
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
This bill would amend Subtitle G, Title 10, Government Code
by adding Chapter 2310 to authorize the creation of defense
economic readjustment zones in communities that have been adversely
affected by the actual or proposed establishment, realignment,
or closure of a defense facility, or by the termination of a
United States Department of Defense contract or failure of the
Department of Defense to proceed with an approved major weapon
system program. The bill would require the Department of Commerce
to establish the criteria for determining which communities
would be classified as a defense economic readjustment zone.
The bill would also would amend Chapters 151, 171, and
312 of the Tax Code to provide tax incentives for business projects
located in defense economic readjustment zones.
The bill
would become effective immediately, contingent on passage by
a two-thirds vote of both houses.
Methodolgy
The maximum annual refund of $250,000 per readjustment project
was used to estimate the potential fiscal implication due to
the sales tax refund. The maximum of 12 projects were assumed
to be eligible for tax incentives (a maximum of six zones, each
having the maximum of two projects). It was assumed that a
one-year period would lapse between the date of project designation
and the first refund of sales taxes paid. Thus, there would
be no impact due to the sales tax refund in FY 98 for projects
designated in that same year. In FY 1999 and thereafter, the
annual fiscal impact due to the sales tax refund was estimated
as follows: 12 authorized projects, times $250,000 per project,
for a total of $3,000,000. Although the bill would allow the
total number of readjustment zones to exceed six beginning in
FY 2002, six zones were assumed to exist during that year.
The bill would allow a reduction in franchise tax paid, equivalent
to either 50 percent of investment computed against the taxable
capital portion of the tax, or 5 percent of the investment computed
against the earned surplus portion of the franchise tax. It
was assumed that the first reductions would occur in FY 1999.
The annual fiscal impact was estimated as follows: 5 percent
of a project's yearly investment, multiplied by the earned surplus
tax rate of 4.5 percent, times the 12 projects. The reduction
could be taken only on the depreciated value of the investment
and, like the sales tax incentive, would be effective for the
five-year life of a project.
Readjustment zones would also
be eligible for tax increment financing and property tax abatement
incentives. This analysis assumes that most readjustment zones
will largely consist of property and structures leased from
and owned by the federal government and therefore, exempt from
property taxation. New private development on federal property
designated as a readjustment zone would be subject to property
taxation, even if it was located within a tax increment financing
district (although it would be exempt under a tax abatement
agreement). Additional tax revenue collected within a tax increment
financing district would be diverted away from taxing entities,
including school districts, towards the payment of bond obligations.
However, no significant impact on school finance as a result
of tax increment financing is anticipated.
Because the Texas
Department of Commerce (TDOC) currently administers a similar
program (the Texas Enterprise Zone program), this analysis assumes
that the additional responsibilities that would be imposed by
the bill could be absorbed within TDOC's current budget.
Although
the potential exists for costs to begin in FY 98, this analysis
assumes that, due to the time required to implement the provisions
of the bill, significant costs are not likely to begin until
FY 99.
Five Year Impact:
Fiscal Year Probable Revenue Probable Revenue
Gain/(Loss) from Gain/(Loss) from
General Revenue General Revenue
Fund:
Sales Fund:
Franchise
Tax Refund
Tax Reduction
0001 0001
1998 $0 $0
1998 (3,000,000) (377,000)
2000 (3,000,000) (717,000)
2001 (3,000,000) (1,019,000)
2002 (3,000,000) (1,282,000)
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 $0
1999 (3,377,000)
2000 (3,717,000)
2001 (4,019,000)
2002 (4,282,000)
Similar annual fiscal implications would continue as long as
the provisions of the bill are in effect, assuming that additional
readjustment zones would be designated by the department of
commerce.
No additional administrative costs to units of local government
are anticipated.
Source: Agencies: 304 Comptroller of Public Accounts
352 Bond Review Board
LBB Staff: JK ,TH