LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
April 22, 2001
TO: Honorable Rene Oliveira, Chair, House Committee on Ways &
Means
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB1200 by Brimer (Relating to the enactment of the Texas
Economic Development Act, authorizing certain ad valorem
tax incentives for economic development, including
authorizing school districts to provide tax relief for
certain corporations and limited liability companies
that make large investments that create jobs in this
state, to authorizing the imposition of certain impact
fees, and to continuing the Property Redevelopment and
Tax Abatement Act.), Committee Report 1st House,
Substituted
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB1200, Committee Report 1st House, Substituted: positive impact *
* of $0 through the biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
* *
* The following fiscal impact to the General Revenue Fund 0001 *
* reflects estimated dynamic tax feedback effects created by the *
* reduction in industry tax burdens. *
**************************************************************************
This bill would create the Texas Economic Development Act and authorize
certain property tax incentives.
The provisions of the bill concerning property value limitations and
school tax credits would expire December 31, 2007.
General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $0 *
* 2003 0 *
* 2004 364,000 *
* 2005 890,000 *
* 2006 2,880,000 *
****************************************************
All Funds, Five-Year Impact:
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*Fiscal Probable Revenue Gain/(Loss) to Probable Revenue Gain/(Loss) to *
* Year General Revenue Fund School Districts *
* 0001 *
* 2002 $0 $0 *
* 2003 0 0 *
* 2004 364,000 0 *
* 2005 890,000 0 *
* 2006 2,880,000 (41,799,000) *
***************************************************************************
The state cost under the Foundation School Program (FSP) would increase
by an estimated $41.8 million, less $5.8 million in revenue feedback
effects, in fiscal 2007. Annual growth in values subject to the
property tax reductions and school tax credits provided by the bill
would increase state FSP payments by an estimated $231.4 million, less
$25.3 million in revenue feedback effects, by fiscal 2011.
Fiscal Analysis
To qualify for a reduction in school district property tax, firms would
apply to a local school board and enter into an agreement concerning the
investment and job targets. The firms would have to pay an application
fee to the school district, not to exceed the district's estimated
processing cost. The bill would require the district, if the district
elected to consider an application, to engage a third person to conduct
an economic impact evaluation of the application.
For the first two years after the finalization of an agreement, a company
would pay school property tax on its full appraised value. Beginning in
the third year, and for a total of eight years, the appraised value of
the property for maintenance and operations property taxes would be
capped at the lower of the investment limitation, as determined by the
school district, or its market value. The agreement would have to
include provisions for the protection of future school district revenues,
require the property owner to maintain a viable presence in the school
district for at least three years after the date the tax limitation
expired, and provide for the recapture of property tax revenue lost
including penalties and interest if the property owner failed to comply
with the terms of the agreement.
A company would receive a credit for property taxes paid on the portion
of value exceeding the investment limitation in the first two years. The
credit would be granted by the school district in eight annual
installments beginning in the year following the approval of the
application by the school district. The credit for any year could not
exceed 50 percent of the year's property taxes imposed on the qualified
property.
The bill would authorize a municipality or county to impose an impact fee
against a new development to recover the costs of capital improvements
or facility expansions attributable to property subject to a tax
limitation.
Methodology
The estimated fiscal impact on school districts is the sum of the revenue
losses from the property value limitation provision and the proposed
school tax credits.
The revenue loss from the property value limitation was computed for each
year as the product of the appraised value of qualifying investments
(limited to the manufacturing and research and development industries)
exceeding the threshold, as defined in the bill, and the estimated
average maintenance and operations school tax rate in that year. The
amount of appraised value exceeding the threshold was computed by
multiplying the estimated total Texas annual investment by the share of
qualified investments projected to exceed the investment threshold. The
resulting amount was adjusted by the percentage of investment by
corporations and for differences in capital investment and appraised
values.
Total Texas annual capital investment was estimated using data on new
capital investments by Texas mining, manufacturing, and utility
industries provided by the U. S. Bureau of the Census. For other
industries, new investment was estimated using data from the Census
Bureau's annual U. S. capital expenditures survey. The data were
apportioned to Texas using Texas' share of gross state product for each
industry. The future growth rate of capital investment was provided by
Wharton Econometric Forecasting Associates. The share of total Texas
investment exceeding the investment threshold was estimated from data
provided by TDED on business expansions in Texas during the last half of
the 1990s.
The fiscal impact of the proposed school tax credits was estimated using
the same methodology, except the credit amounts were spread over an
eight-year period beginning in the third year an investment would be
made. Under the current school finance system, the Comptroller's office
assumed that the state would reimburse school districts for their losses
for the property value limitation and the school tax credits after a
one-year lag.
Once the static fiscal impact was estimated, the dynamic fiscal impact
was calculated using a Texas-specific general equilibrium model to
distribute among the state's economic sectors the savings that otherwise
would have been paid in taxes by businesses. The revenue feedback
calculation was based on the historical relationship between state tax
revenues and associated economic factors.
Note: This fiscal note assumes that the exception for semiconductor
fabrication cleanroom equipment in Section 313.021 (2) (C) (ii) would be
for new cleanroom equipment installed in an existing building, and that
it would not apply to existing cleanroom equipment.
Local Government Impact
The impact on local school districts is reflected in the above tables.
The fiscal impact to cities and counties from imposing impact fees would
depend on the number of projects and the cost to cities and counties of
providing improvements, and is therefore not reflected in the above
tables.
Source Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK, WP, BR, SD