| TO: | Honorable Chris Harris, Chair, Senate Committee on Economic Development |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | HB4525 by Parker (Relating to qualified manufacturing project zones. ), Committee Report 2nd House, Substituted |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2010 | $0 |
| 2011 | $0 |
| 2012 | ($46,875,000) |
| 2013 | ($46,875,000) |
| 2014 | ($6,250,000) |
| Fiscal Year | Probable Revenue (Loss) from General Revenue Fund 1 |
|---|---|
| 2010 | $0 |
| 2011 | $0 |
| 2012 | ($46,875,000) |
| 2013 | ($46,875,000) |
| 2014 | ($6,250,000) |
The bill would create a new Chapter 399 of the Local Government Code entitled, "Qualified Manufacturing Project Zones."
Qualified manufacturing projects would be defined as proposed new or expanded facilities with a Tax Code Chapter 312 or Chapter 313 agreement entered into on or after the effective date of the bill, in which at least $100 million is invested, and is forecasted to create at least 300 full-time jobs, and the construction of which begins after September 1, 2009. Projects having either a Tax Code 312 or Tax Code 313 agreement before the effective date of the bill would not qualify. Facilities would be required to be engaged in manufacturing as defined by Section 151.318, Tax Code. Projects not related to renewable energy generation, advanced battery technology, or waste recycling would be required to invest at least $200 million. The owner of a proposed facility would be required to be considering locating the facility outside the state, or be in competition with similar projects in other states for federal funds or financial support that would benefit the project. Electrical generation facilities capturing and sequestering carbon dioxide would also qualify.
A proposed facility would become a qualified manufacturing project on the date the owner of the facility files an election to become a qualified manufacturing facility with the Comptroller.
The owner of a project would be required to conduct an economic impact study of the county in which the project is located and submit the study to the Comptroller for certification within 120 days of the date the owner files an election to become such a project.
The economic impact study would be required to include estimates of: 1) the general economic impact likely to occur in the county as a result of the project, 2) the expected amount of increased state sales tax receipts in the county attributable to the project, 3) the projected number of FTEs likely to be available at the project, and 4) the investment projected for the project. The Comptroller would be required to certify the accuracy of the economic impact study within 30 days of receipt. If the Comptroller determined the study was inaccurate, the Comptroller would be required to submit a preliminary determination to the owner, and provide the owner with an opportunity to respond with a new or amended economic impact study.
The Comptroller would be required to certify the study if conducted by an independent third party engaged by the owner and utilizing generally accepted economic forecasting methods.
The owner of a project for which the Comptroller has certified an economic impact study could apply to the Comptroller for designation of the county in which the project is located as a qualified manufacturing project zone. The Comptroller would be required to approve the application upon a determination that the project is the first such facility in a county. The designation would take effect September 1, after the Comptroller's approval. Only one project per county would be allowed. The zone designation would remain in effect until the expiration of applicable Tax Code Chapter 312 or 313 abatements or agreements.
The owner of a project would be required to make annual certifications and reports regarding employment and investment to the Comptroller that would vary according to the age of the zone, with penalties for failure to certify such information.
For a period not to exceed 10 years, a qualified manufacturing project would be entitled to receive an annual refund based on state sales and use tax on taxable items purchased within the boundaries of the qualified manufacturing project zone. The refund would be calculated as 50 percent of the difference between the sales and use tax collected in a zone in any year after the project was designated and the sales and use tax collected in a zone in the year before the zone was designated. The total amount of sales tax refunds a particular project could receive would be limited to the lesser of $50 million or 5 percent of a project's total investments. Refunds could be used for workforce-related expenses associated with the planning, designing, construction, and operation of the project
The Comptroller would be granted authority to adopt rules and forms necessary to perform required Comptroller duties.
The bill would take effect immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would take effect September 1, 2009.
Eligibility as a qualified manufacturing project zone would be based on a project having an abatement agreement with a local governmental subdivision under Chapter 312 of the Tax Code, or a property tax value limitation agreement with a school district under Chapter 313 of the Tax Code executed on or after the effective date of the bill. Projects having either a Tax Code 312 or Tax Code 313 agreement before the effective date of the bill would not qualify. Furthermore, eligible projects would have to be engaged in manufacturing, have at least 300 jobs forecasted to be created and be considering locating the facility outside the state or be in competition with similar projects in other states for federal funds or financial support that would benefit the project.
The total number of projects that might qualify under this bill's provisions cannot be estimated. To the degree that some projects have an investment threshold of $100 million, and not $200 million, more projects could qualify. Similary, if construction or other non-permanent employment were to be counted as eligible employment creation, the number of projects that qualify for the tax refunds, and correspondingly the cost to the state, could be greater.
For the purposes of this analysis, two nuclear power projects that are well into planning are used to represent the potential fiscal implications of the bill. Manufacturing as defined by Tax Code 151.318, includes the generation of electricity.
The additional two units for the South Texas Nuclear Project (STNP) in Palacios ISD (Matagorda County), together representing an investment of approximately $8.6 billion, would appear not to qualify as a qualified manufacturing zone project, having executed Chapter 313 agreements on June 9, 2008.
The two nuclear projects, each with two units, are planned with estimated combined investments of approximately $20 billion: a project in Somervell County and one near Victoria. This estimate assumes these projects will each have a Chapter 313 agreement comprised of both proposed units, and that they will be in service by January 2015. Both of these projects have filed applications with the federal Nuclear Regulatory Commission (NRC), and interconnection requests with Electric Reliability Council of Texas (ERCOT). This analysis assumes the nuclear power projects, in addition to other requirements, would be qualified projects as they either would have considered at least one non-Texas location site or would have competed against similar non-Texas projects for federal funds.
Taxable activity related to these projects, representing the additional sales and use tax, that would be eligible for a refund was estimated based on data gathered from a variety of sources including Comptroller tax files. Expenditures were adjusted for timing of investment; purchases of exempt machinery and equipment; multiplied by the state sales tax rate, and adjusted for the 50 percent refund and effective date to determine the fiscal impact to the General Revenue Fund.
| Source Agencies: | 304 Comptroller of Public Accounts
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| LBB Staff: | JOB, JRO, SD, KK
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