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 ************************************************************************** * 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