LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session April 1, 2001 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: HB2821 by Swinford (Relating to eligibility for certain franchise tax credits.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB2821, As Introduced: negative impact of $(58,200,000) through * * the biennium ending August 31, 2003. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(37,200,000) * * 2003 (21,000,000) * * 2004 (22,400,000) * * 2005 (23,900,000) * * 2006 (25,600,000) * **************************************************** All Funds, Five-Year Impact: ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * General Revenue Fund * * 0001 * * 2002 $(37,200,000) * * 2003 (21,000,000) * * 2004 (22,400,000) * * 2005 (23,900,000) * * 2006 (25,600,000) * ***************************************************** Fiscal Analysis The bill amends a portion of the franchise tax law, Section 171.721(2) of the Tax Code, and changes the definition of a "strategic investment area" (SIA). Under the bill, a county with a population of less than 50,000 and that is not included in federal metropolitan statistical area, primary metropolitan statistical area, or consolidated metropolitan statistical area would qualify as an SIA. The bill takes effect January 1, 2001. Methodology This estimate is based on analyses done by the Comptroller's Office. Comptroller staff estimated, based on 2000 Census data, that the bill would add 100 counties to the 114 counties that are designated as SIA's under current law. SIA's also include subcounty areas that are federally-designated urban enterprise communities or urban enhanced enterprise communities. The 100 counties that the bill would add have a total population of 1,382,774. The total population of the 114 counties currently designated as SIA's have a population of 5,458,668. The state's population is 20,851,820. Employment (1999) in the 100 counties that would be added was 615,339; employment in the 114 current SIA counties is 2,332,220. Statewide employment was 9,734,431. Additional franchise tax credits would become available in the newly-designated counties. These additional credits include a larger base for calculating the credit for research and development expenditures, and credits for job creation and for capital investment in certain industries other than agricultural processing. Counties with a population of less than 50,000 may currently qualify for credits related to activities in agricultural processing under present franchise tax provisions. The Comptroller estimate is based on the relative share of employment in the counties to be added compared to all current non-SIA counties for the research and development (R&D) credit. The existing R&D credit attributable to the added counties was increased to reflect the larger base available in an SIA. The estimate for the investment and jobs credits was based on employment in the counties that would be added as SIAs relative to employment in existing SIA counties. The estimated impact was reduced to account for the availability of credits in agricultural processing industries in these counties under current law. Because the effective date of the bill would be January 1, 2001, reports due after that date could reflect the changes made by this bill. The impact calculated for fiscal year 2001 has been moved to fiscal year 2002, because most taxpayers would have prepared and filed their reports before this bill could become law. Taxpayers with credits established by this bill were assumed to claim refunds in fiscal year 2002. Local Government Impact No significant fiscal implication to units of local government is anticipated. Source Agencies: 304 Comptroller of Public Accounts LBB Staff: JK, SD, CT