LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 24, 1997 TO: Honorable Fred M. Bosse, Chair IN RE: House Bill No. 2363, Committee Report 1st House, Substituted Committee on Land and Resource Management By: Hilbert House Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on HB2363 ( Relating to the provision of services in certain annexed areas.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by HB2363-Committee Report 1st House, Substituted No fiscal implication to the State is anticipated. Neither the changes to public hearing requirements proposed by the bill nor the costs to municipalities associated with preparing more detailed service plans are expected to result in significant fiscal impacts. Requiring municipalities to provide full municipal services to annexed areas within two years would, in some cases, require a municipality to make capital outlays within a shorter time frame than required by current law, thereby increasing the amount of interest a municipality would pay over the life of a capital improvements project. In some cases, this shortened time frame would render certain annexations unfeasible, since major capital improvement projects often require more than two years of construction. Municipalities could see increased costs associated with providing services equal to or better than those existing before annexation, depending on the nature of services provided and the municipality's determination of the necessity of such services. For example, if a municipality which normally provides solid waste collection services only once per week annexed an area with collections twice weekly, the municipality would be required to make additional allocations in the newly annexed area to maintain previous levels of service. The requirement that an annexation service plan provide for the same services as provided before annexation by any entity could, in some cases, result in significant negative fiscal implications, depending on the type of service that would need to be provided. In some cases, this could render certain annexations which would otherwise yield net revenues to a municipality cost-prohibitive. Likewise, the removal of the exceptions for providing fewer or lower levels of service to areas with unique land uses, topography and densities could increase the cost of annexing outlying areas, since such areas would require the same services as any other section of the municipality. For example, this could require that a municipality provide a low-density residential area with the same level of street lighting as provided in a municipality's central business district. It could also require that water and sewer service be provided to areas where, due to topography or density, the provision of such services would be determined to be cost-prohibitive. The bill's requirement that an outside engineer prepare a cost estimate for implementation of a municipality's service plan could result in significant costs to a municipality, depending on the detail and use of additional consultants such a study would require for a particular area. There could be some costs associated with performance bonding requirements to ensure the implementation of an annexation plan. This cost would depend on the cost of infrastructure included in the plan. The City of Corpus Christi estimates that the fee for such a bond would cost 1.5 percent of costs covered by the performance bond. The cost associated with a municipality paying a service provider whose property is condemned or rendered useless by the municipality after annexation would depend on whether a municipality chose to utilize all equipment and property of such previous service providers, and the value of such property. In cases where a municipality determined that substantial portion of such property was not needed, the cost to municipalities could be substantial. There would be some cost associated with mailing notice of intent to begin arbitration on the question of service plan deficiency, if a municipality receives a petition claiming the service plan is deficient, but the municipality disagrees with the claim. Because it would require signatures from only 10 percent of voters in an area to be annexed to validate a petition on the question of service plan deficiency, it is possible that a municipality would be required to submit the question to an arbitration panel on a majority of annexation proposals. This could add administrative costs to such annexations. The bill requires that: an account be created in the municipal treasury for each area a municipality annexes; at least 50 percent of property tax revenues collected from the annexed area be deposited into such an account; and such funds be used only for purposes which directly benefit the area. This would entail additional accounting costs for municipalities, which would increase with each additional annexation, since such accounts would have to be maintained and administered indefinitely, even for annexed areas which produce relatively insignificant amounts of revenue from property taxes. Any decision by an arbitration panel ordering an area disannexed would have significant negative fiscal implications to the municipality ordered to disannex, since the bill would require such a municipality to pay $25,000 per day for each day the municipality is found to have failed to perform its service plan obligations. A municipality's ability to expand its tax base through annexation could be severely limited by this bill. The City of Austin anticipates that, overall, this bill would have the effect of rendering any future annexations cost-prohibitive. Source: Agencies: LBB Staff: JK ,BB ,TL