LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
April 10, 1997
TO: Honorable Jerry Patterson, Chair IN RE: Senate Bill No. 226, Committee Report 1st House, Substituted
Committee on Veteran Affairs & Military Installations-Special By: Madla
Senate
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on SB226 ( 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 SB226-Committee Report 1st House, Substituted
Implementing the provisions of the bill would result in a net
negative impact of $(4,131,000) 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. This impact was then adjusted upward
to take into account the effect of excluding Texas receipts
of services, provided by projects in the zones, from apportionment.
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.
The probable
fiscal implications of implementing the provisions of the bill
during each of the first five years following passage is estimated
as follows
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 Revenue Probable Revenue
Gain/(Loss) from Gain/(Loss) from
General Revenue General Revenue
Fund Sales Tax Fund Franchise
Tax
0001 0001
1998 $0 $0
1998 (3,000,000) (1,131,000)
2000 (3,000,000) (2,151,000)
2001 (3,000,000) (3,057,000)
2002 (3,000,000) (3,849,000)
Net Impact on General Revenue Related Funds:
Fiscal Year Probable Net Postive/(Negative)
General Revenue Related Funds
Funds
1998 $0
1999 (4,131,000)
2000 (5,151,000)
2001 (6,057,000)
2002 (6,849,000)
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: 304 Comptroller of Public Accounts
465 Department of Commerce
352 Bond Review Board
LBB Staff: JK ,JD ,CG