LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session March 21, 1997 TO: Honorable Bill Ratliff, Chair IN RE: Senate Bill No. 893 Committee on Finance By: Moncrief Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB893 ( Relating to certain convention center hotel facilities.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB893-As Introduced Implementing the provisions of the bill could result in a negative fiscal impact to the State. The fiscal impact to the state would vary depending on which cities or counties would choose to develop convention center facilities under Section 4B of the Development Corporation Act of 1979. The impact 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 ANALYSIS The bill would lower the population bracket in the municipal hotel tax law for certain hotel facilities and for the pledging of hotel tax revenue for bonds. It would include convention center facilities as a project for economic development and lower the population bracket for a qualified hotel project in an enterprise zone. The bill would take effect immediately. METHODOLOGY Currently, the definition of convention center facilities in the hotel tax law includes hotels within 1,000 feet of a convention center owned by a city with a population of 1.5 million or more, and historic hotels within one mile of a convention center owned by a city with a population of 1.5 million or more. Hotel tax revenue from these two types of hotels may be pledged by a city of population 1.5 million or more for the payment of bonds issued to acquire and construct a convention center hotel or to acquire, remodel or rehabilitate a historic hotel. A hotel owned by a city with a population of 1.5 million or more is a qualified hotel project in an enterprise zone. The Development Corporation Act of 1979 does not include convention center facilities as an eligible project. The bill would lower the city population bracket to 440,000 or more and include counties with a population of 440,000 or more in the hotel tax law and would allow the hotels to be within the same specified distance to a city-owned or county-owned convention center. By lowering the population bracket, the City of Houston would be joined by the cities of Dallas, San Antonio, El Paso, Austin and Fort Worth. The city population bracket would also be lowered to 440,000 for a qualified hotel project in an enterprise zone. The bill would also include convention center facilities as an eligible project in Sec. 4B of the Development Corporation Act of 1979. There are currently 190 4B city development corporations within the state. Under Sec. 4B, a qualified convention center facility would be owned, used, and held for public purposes by the city or county. While a facility was owned by the city or county, it would not be subject to property taxation. The fiscal impact on the state and on local governments in reduced property tax revenue would vary depending on which cities or counties enacted the provisions of the bill and converted taxable property to exempt "public-use property." Article 5190.6, Development Corporation Act, Section 4B. (k) provides a property tax exemption for all approved projects owned, used and held by an eligible municipality or county. The exemption is based on a provision that defines all such projects as "public-use property" which is exempt from ad valorem taxes. 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. Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. LOCAL The fiscal impact on units of local government would vary depending on which cities or counties would choose to finance convention center facilities through the municipal hotel tax. Source: Agencies: 304 Comptroller of Public Accounts LBB Staff: JK ,RR ,SM