LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session March 11, 1997 TO: Honorable David Sibley, Chair IN RE: Senate Bill No. 293 Committee on Economic Development By: Carona Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB293 ( Relating to the authority of a municipality to create an industrial development corporation and to levy a sales and use tax to carry out the projects of the corporation.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB293-As Introduced FN Revision 1 Implementing the provisions of the bill could result in negative fiscal impacts under the various scenarios possible. The bill would amend the Development Corporation Act of 1979. Under current law, Section 4B defines an eligible city as a city in a county with a population of more than 1,100,000, in which there are more than 40 incorporated cities, and where, in no area, does the combined state and local sales tax rate exceed 7.75 percent. This definition of an eligible city is due to expire on September 1, 1997. The bill would remove the expiration date provision. The bill would change the definition of an eligible city by reducing the number of required incorporated municipalities from 40 to 29. Note: This bill would become effective immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would become effective 90 days after adjournment. Methodology This bill could apply to those cities in four counties--Harris, Dallas, Bexar, and Tarrant--that do not have a total combined state and local sales tax rate exceeding 7.75 percent. The fiscal impact on the state and on local governments in reduced property tax revenue would vary depending on which cities enacted the provisions of the bill and converted taxable property to exempt "public-use property," as allowed under Section 4B. 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 fiscal impact on the state would depend on the number and amount of local taxable property removed from the local tax rolls due to being converted to public-use property, but it is possible to provide a hypothetical example of such an impact. In a hypothetical school district that qualifies for both tier-one and tier-two state aid for public education, it would cost the state one dollar for each dollar of local school district property tax revenue loss due to the provisions of the bill. In such a hypothetical school district in which, for example, $100 million of taxable property would be converted to public-use property, the probable cost to General Revenue-related funds during each fiscal year that the property remained off the local tax rolls would be $1.5 million, based on a tax rate of $1.50 per $100 of valuation. Fiscal Impact The fiscal impact on the state and on local governments would vary depending on which cities enacted taxes under the provisions of the bill. The fiscal impact on the state would likely be negative under many scenarios possible under the bill. The probable 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 ,TH ,SM ,BR ,TL