LEGISLATIVE BUDGET BOARD

Austin, Texas

FISCAL NOTE, 79TH LEGISLATIVE REGULAR SESSION

April 19, 2005

TO:	Honorable Kino Flores, Chair, House Committee on Licensing & Administrative Procedures
FROM:	John S. O'Brien, Deputy Director, Legislative Budget Board
IN RE:	HB3004 by Zedler (Relating to the regulation of owners, operators, employees, and independent contractors of sexually oriented businesses; providing penalties.), As Introduced

Estimated Two-year Net Impact to General Revenue Related Funds for HB3004, As Introduced: a positive impact of $1,317,629 through the biennium ending August 31, 2007.

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
2006	($318,723)
2007	$1,636,352
2008	$970,352
2009	$970,352
2010	$970,352

All Funds, Five-Year Impact:

Fiscal Year	Probable (Cost) from GENERAL REVENUE FUND 1	Probable Revenue Gain from GENERAL REVENUE FUND 1	Change in Number of State Employees from FY 2005
2006	($318,723)	$0	5.0
2007	($417,148)	$2,053,500	5.0
2008	($417,148)	$1,387,500	5.0
2009	($417,148)	$1,387,500	5.0
2010	($417,148)	$1,387,500	5.0

Fiscal Analysis

The bill would require statewide licensing and regulation of sexually oriented businesses and their employees. The Department of State Health Services (DSHS) is directed to administer the licensing program and to set fees to cover the cost of administering the program. The Health and Human Services Commission (HHSC) is required to adopt rules to administer the program and to monitor license holders' compliance. The State Office of Administrative Hearings (SOAH) is authorized to hold hearings and issue proposals for decision pertaining to enforcement proceedings. Violation of license requirements would be a Class A misdemeanor. The bill specifies civil and administrative penalties.

Methodology

It is assumed, based on DSHS input, that the cost of a two-year business license would be $1,000. The cost of a two-year employee license would be $50. Based on DSHS input, it is assumed that there are 2,000 businesses in Texas that would be regulated under this bill, and that each business has 7 employees, for a total of 14,000 employees. It is assumed that licenses would begin being issued in fiscal year 2007. In the first year, in order to create a staggered licensing system, half of the businesses and half of the employees would be issued a one-year license and half would be issued a two year license. Revenue in the first year is estimated to be $2,025,000. Revenue in subsequent years is estimated to be $1,350,000.

DSHS estimates that the new regulatory program would require 5 FTEs (2 Inspector IVs, 1 Program Administrator III, and 2 Public Health Technicians I). Total costs for salaries, benefits, travel, rent and utilities, other operating expenses, and computer hardware total $308,723 in fiscal year 2006 and $342,148 in subsequent years. In fiscal year 2006, there would be a one-time programming cost of $10,000 related to the Regulatory Automated System.

DSHS and SOAH estimate that there would be 25 hearings per year resulting from this bill at a cost of $75,000 per hearing. It is assumed that hearings would begin in fiscal year 2007.

DSHS estimates that 75% of enforcement actions would result in a penalty, with the average penalty being $500. They estimate 75 enforcement actions in the first year and 100 in each subsequent year. Enforcement actions would begin in fiscal year 2007, with revenue from penalties totalling $28,500 in 2007 and $37,500 in each subsequent year.

The Office of the Attorney General and the Health and Human Services Commission indicate that costs associated with this bill could be absorbed within existing resources.

Technology

Computer hardware costs total $5,351 in 2006 and $3,586 in each subsequent year. There would be one-time programming costs of $10,000 in 2006 related to programming the Regulatory Automated System.

Local Government Impact

Costs to local governmental entities to implement the provisions of the bill would depend upon the number of violators of the licensing requirements, which would then determine the number of offenders to arrest, prosecute, and fine. Costs to district courts would also depend on the number of persons who request judicial review of a departmental order.

Source Agencies:

302 Office of the Attorney General, 360 State Office of Administrative Hearings, 529 Health and Human Services Commission, 537 Department of State Health Services

LBB Staff:

JOB, JRO, KF, LW, KJG