LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session May 21, 1997 TO: Honorable James E. "Pete" Laney IN RE: House Bill No. 1445, As Passed 2nd House Speaker of the House Gray House of Representatives Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on HB1445 ( Relating to the continuation and functions of the Texas Racing Commission and to the transfer of certain commission functions to the Texas Department of Commerce; providing penalties.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by HB1445-As Passed 2nd House Implementing the provisions of the bill would result in a net positive impact of $2,624,000 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 House Bill 1445, 2nd House Substitute as passed, would continue the Texas Racing Commission through August 31, 2005 and make several changes to the enabling statute. The Texas Racing Commission is subject to the provisions of the Texas Sunset Act, and unless continued by the 75th Legislature, would be abolished September 1, 1997. The sections of the bill with a fiscal impact are as follows: A gain to General Revenue-Dedicated account 0597 would result from the collection of additional track officials fees, increased occupational license fees and race day fees from the opening of Valley Greyhound Park, increased race day fees from cross-species simulcasting, and an increase in outstanding ticket revenue from the increase in pari-mutuel handle. Costs to General Revenue-Dedicated account 0597 would result from the addition of the track officials at the racetracks, the addition of an auditor and a programmer, the cost of criminal history checks, travel costs, and the costs of computer phone lines and hardware for cross-species simulcasting, and the re-opening of Valley Greyhound Park. A gain to general revenue would include the increase in tax revenue from cross-species simulcasting, the temporary increase in the simulcast tax, the increase in revenue from automatic banking machines at the racetracks, and the increase to General Revenue-Dedicated account 099 through the fees to DPS for criminal history checks. The loss to general revenue includes the reduction of the pari-mutuel tax on live racing, and the repeal the .25 percent collected from simulcast pools (currently transferred to Texas Commission on Alcohol and Drug Abuse). Methodolgy Section 14 of the bill would require the Texas Racing Commission to employ all racetrack stewards and judges. Currently, only one of the three top regulatory officials is employed by the agency. The other two are employed by the racetrack associations. This section would increase the number of FTE's by 11 in fiscal year 1998 and by 10 in years thereafter. The addition of these FTE's would result in a cost of $794,402 in fiscal year 1997, and $764,452 in fiscal year 1999 and thereafter. Since the agency has the authority to recoup the costs of employing track officials from the racetracks, these costs would be offset, for a net zero impact. The costs that the agency would incur are due to the addition of cross-species simulcasting and the reopening of Valley Greyhound Park. The agency would need to hire a programmer for the first two years to make necessary changes to the database system. An additional auditor would also be needed to handle accounting for purse funds, the cross-species simulcasting funds, and Valley Greyhound Park. Additionally, the cost of travel, data lines, and computer hardware would increase, as well as the cost of criminal history checks for occupational licensees. Section 19 requires the agency to cover the costs of criminal history checks conducted by DPS, which incurs the costs. The cost for each criminal history check is $15 per fingerprint card to DPS and $24 per card to the FBI, for a total cost of $39 for each new license application. Every five years a federal criminal history check is required, at a cost of $24 per five year renewal. Based on projected numbers of licensees, the amount the agency would collect is expected to approximate $229,392 in fiscal year 1998, and $231,432 in each of fiscal years 1999 through 2002. Currently, the DPS absorbs some of the cost, and bills the Texas Racing Commission for a portion. The Texas Racing Commission does not currently pass that cost on to the licensee, thus the net impact to the state would be a gain to General Revenue-Dedicated account 0099. The changes to the simulcasting tax structure from Section 27 include a temporary increase of .25 percent on regular simulcasting through the earlier of January 1, 1999 or the date on which the debt and accrued interest is repaid. Based on agency calculations, the debt would not be paid off by January 1, 1999, so the additional simulcast tax is calculated through January 1, 1999. The temporary tax would be applied to the agency's debt. The .25 percent tax is expected to generate $909,457 of additional revenue to the general revenue fund in fiscal year 1998, and $300,832 in fiscal year 1999. The Racing Commission projects that cross-species simulcasting would generate additional wagering of $99 million in fiscal year 1998, which would be taxed at 1.25 percent, and thus would create $1,237,500 in revenue to general revenue for fiscal year 1998. The Racing Commission expects cross-species simulcasting to increase by 2 percent per year, and would generate tax revenue of $1,262,250 in 1999, $1,287,495 in 2000, $1,313,245 in 2001, $1,339,510 in 2002, and $1,366,300 in 2003. Section 28 alters the structure of the tax on live racing after January 1, 1999. The live tax would decrease by 1 percent for each $100 million wagered at horse tracks and by 2 percent for each $100 million wagered at greyhound tracks. This section would result in a loss to general revenue beginning in fiscal year 1999. The amount of wagering on live racing is expected to decrease by 5 percent per year. The Racing Commission estimates that the amount of the estimated loss is: $1,819,724 in 1999, $2,674,994 in 2000, $2,541,244 in 2001, $2,414,182 in 2002, and $2,293,473 in 2003. Section 28 also would redirect the funds currently allocated to the program for the prevention of problem gambling to be used to repay the agency's debt until that debt with interest thereon is repaid in full. The funds are derived from .25 percent of all simulcast wagers. The funds would be used to repay the debt until March 1999, which is when the agency estimates that the debt and interest would be repaid. After March 1999, the .25 percent of simulcast wagers would not be collected by the state, and would result in a loss to the state of $267,744 in fiscal year 1999, and losses of $902,497 in 2000, $920,547 in 2001, $938,958 in 2002, and $957,737 in 2003. Section 39 of the bill provides for the allowance of automatic banking machines at racetracks, with $1 from each transaction going to the state's general revenue fund. Assuming that 10 percent of all patrons would use an automatic banking machine, $356,746 would be earned in additional revenue each year. Floor amendment number 3 clarifies that totalisator services are subject to state sales tax. Although the taxes are currently paid under protest, they are not included in the revenue estimates. The services are approximately .002 percent of total handle plus some rental fees, and at a tax rate of 6.25 percent, would generate approximately $100,000 per year to the general revenue fund. 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 Change in Number Savings/(Cost) Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from of State from Texas Texas Racing General Revenue Operators and Employees from Racing Commission Fund Chauffeurs FY 1997 Commission Account/ License Account/ Account/ GR-Dedicated GR-Dedicated GR-Dedicated 0597 0597 0001 0099 1998 ($957,474) $1,522,652 $2,372,000 $229,392 13.0 1998 (887,523) 1,502,601 252,000 231,432 12.0 2000 (821,262) 1,512,699 (1,624,000) 231,432 12.0 2001 (821,262) 1,522,999 (1,631,000) 231,432 12.0 2002 (821,262) 1,533,505 (1,637,000) 231,432 12.0 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 $2,372,000 1999 252,000 2000 (1,624,000) 2001 (1,631,000) 2002 (1,637,000) Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No fiscal implication to units of local government is anticipated. Source: Agencies: 476 Racing Commission 304 Comptroller of Public Accounts LBB Staff: JK ,JD ,JA