LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 76th Regular Session
  
                              March 29, 1999
  
  
          TO:  Honorable David Sibley, Chair, Senate Committee on
               Economic Development
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB899  by Sibley (Relating to certain investments by
               insurance companies and related organizations.), As
               Introduced
  
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*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB899, As Introduced:  negative impact of $(20,000,000) through       *
*  the biennium ending August 31, 2001.                                  *
*                                                                        *
*  The bill would make no appropriation but could provide the legal      *
*  basis for an appropriation of funds to implement the provisions of    *
*  the bill.                                                             *
**************************************************************************
  
General Revenue-Related Funds, Five-Year Impact:
  
          ****************************************************
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2000                                   $0  *
          *       2001                         (20,000,000)  *
          *       2002                         (20,000,000)  *
          *       2003                         (20,000,000)  *
          *       2004                         (20,000,000)  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
***************************************************************************
*Fiscal      Probable        Probable        Probable       Change in     *
* Year       Revenue      Savings/(Cost)     Revenue     Number of State  *
*          Gain/(Loss)      from Texas     Gain/(Loss)    Employees from  *
*          from General   Department of     from Texas       FY 1999      *
*          Revenue Fund     Insurance     Department of                   *
*              0001         Operating       Insurance                     *
*                            Account/       Operating                     *
*                          GR-Dedicated      Account/                     *
*                              0036        GR-Dedicated                   *
*                                              0036                       *
*  2000                $0       $(99,421)        $150,000             2.0 *
*  2001      (20,000,000)        (87,991)         100,000             2.0 *
*  2002      (20,000,000)        (87,991)         100,000             2.0 *
*  2003      (20,000,000)        (87,991)         100,000             2.0 *
*  2004      (20,000,000)        (87,991)         100,000             2.0 *
***************************************************************************
  
Fiscal Analysis
  
The bill would allow for the creation of "certified capital companies,"
which would have as their primary business activity the investment of
cash in qualified businesses.  The bill would define a "certified
investor" as an insurance company or other entity with an insurance
premium tax liability who either contributes certified capital to a
certified capital company or who prepared and filed a premium tax credit
allocation claim under this bill.

The bill would also allow certified investors in certified capital
companies to earn vested premium tax credits equal to 100 percent of
their investment of certified capital.  No more than 10 percent of the
credit could be applied to the investor's insurance premium tax liability
each year, and the credit taken could not exceed the premium tax
liability for that year.  The credit could not trigger any additional
retaliatory tax liability, and it could be transferred or sold.

The bill would take effect immediately upon enactment, assuming that it
received the requisite two-thirds majority votes in both houses.
Otherwise, it would take effect 90 days following adjournment.
  
  
Methodology
  
The Comptroller of Public Accounts estimated the maximum potential fiscal
impact by assuming that the bill's maximum limit on the aggregate amount
of capital for which premium tax credits could be claimed ($200 million
per year) would be certified in 2000. Since the credit could be claimed
at a rate of 10 percent per year against the certified investor's premium
tax liability, the maximum loss in fiscal 2001 would be 10 percent of
$200 million, or $20 million, with $20 million in additional credits
taken each year thereafter.

TDI estimates the need for two additional FTEs and associated operating
costs to review applications for "certified capital company" status and
to regulate these entitites and their qualified investments.  TDI
estimates revenues from twenty firms paying initial licensing fees of
$7,500 each in 2000 and paying annual non-refundable renewal fees of
$5,000 in subsequent years.

Since no investments could be made until January 1, 2000, the first
credit could not be claimed until the report due on March 1, 2001, for
the 2000 tax year.
  
  
Local Government Impact
  
No fiscal implication to units of local government is anticipated.
  
  
Source Agencies:   
LBB Staff:         JK, TH, DP, RT