LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
March 9, 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 or maintain jobs
in this state, and to continuing the Property
Redevelopment and Tax Abatement Act.), As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB1200, As Introduced: 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 in the future. *
* *
* The following fiscal impact to the General Revenue Fund 0001 *
* reflects estimated dynamic tax feedback effects created by the *
* reduction in industry tax burdens. *
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General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $0 *
* 2003 0 *
* 2004 954,000 *
* 2005 2,246,000 *
* 2006 7,212,000 *
****************************************************
All Funds, Five-Year Impact:
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*Fiscal Probable Revenue Gain/(Loss) to Probable Revenue Gain/(Loss) to *
* Year the General Revenue Fund School Districts *
* 0001 *
* 2002 $0 $0 *
* 2003 0 0 *
* 2004 954,000 0 *
* 2005 2,246,000 0 *
* 2006 7,212,000 (96,000,000) *
***************************************************************************
The state cost under the Foundation School Program (FSP) would increase
by an estimated $96 million, less $14.3 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
could increase state FSP payments by as much as $480 million by fiscal
2011, after revenue feedback effects are considered.
Fiscal Analysis
The bill would create the Texas Economic Development Act and authorize
certain property tax incentives.
To qualify for a reduction in school district property tax, companies
would apply to a local school board and enter into an agreement
concerning the investment and job targets. The companies would have to
pay an application fee to the school district, not to exceed the greater
of the district's processing cost or $50,000. The Comptroller's Office
would publish application forms and rules for the school tax limitation.
In addition, the Comptroller's Office, Legislative Budget Board, Texas
Department of Economic Development, Council on Workforce and Economic
Development, and Texas Workforce Commission would provide assistance to
local school districts in their evaluation of the merits of an
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 would be capped at the lower of the investment threshold or
its market value.
A company would receive a credit for property taxes paid on the portion
of value exceeding the appraised value, as defined by this bill, in the
first two years. The credit would be granted by the school district in
seven 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.
Methodology
The estimated fiscal impact on school districts is based on the
Comptroller's office analysis and 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
exceeding the threshold, as defined in the bill, and the estimated
average 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 investments projected to exceed
the investment threshold. This analysis assumes that only the largest 15
school districts would participate in the tax incentives authorized by
the bill, as these districts would have the least potential for negative
fiscal impact, relative to the size of their tax base. This analysis
also assumes there would be no minimum job requirement because the bill
would allow companies to maintain jobs. 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 capital
investments by Texas mining, manufacturing, and utility industries
provided by the U. S. Bureau of the Census. For other industries,
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 Texas
Department of Economic Development 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 a
seven-year period beginning in the third year an investment would be
made. Under the current school finance system, it is 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.
Local Government Impact
The impact on local school districts is reflected in the above table.
Source Agencies: 103 Texas Legislative Council, 480 Department of
Economic Development, 302 Office of the Attorney
General, 320 Texas Workforce Commission, 701
Texas Education Agency, 301 Office of the
Governor, 304 Comptroller of Public Accounts
LBB Staff: JK, SD, WP, BR