LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 10, 2001 TO: Honorable Kip Averitt, Chair, House Committee on Financial Institutions FROM: John Keel, Director, Legislative Budget Board IN RE: SB317 by Sibley (Relating to continuation and functions of the Office of Consumer Credit Commissioner and the regulation of certain financial businesses.), Committee Report 2nd House, Substituted ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB317, Committee Report 2nd House, Substituted: negative impact * * of $(2,714,000) 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. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(825,000) * * 2003 (1,889,000) * * 2004 (2,111,000) * * 2005 (2,195,000) * * 2006 (2,283,000) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Probable Probable Probable * * Year Revenue Revenue Revenue Revenue * * Gain/(Loss) Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to * * from General Cities Transit Counties * * Revenue Fund Authorities * * 0001 * * 2002 $(825,000) $(269,000) $(104,000) $(32,000) * * 2003 (1,889,000) (366,000) (141,000) (43,000) * * 2004 (2,111,000) (381,000) (147,000) (45,000) * * 2005 (2,195,000) (396,000) (153,000) (47,000) * * 2006 (2,283,000) (412,000) (159,000) (49,000) * *************************************************************************** ************************************************************************** *Fiscal Probable Probable Revenue Change in Number of * * Year Savings/(Cost) from Gain/(Loss) from State Employees from * * General Revenue Fund General Revenue Fund FY 2001 * * 0001 0001 * * 2002 $(1,029,835) $1,029,835 1.5 * * 2003 (536,840) 536,840 6.0 * * 2004 (536,840) 536,840 6.0 * * 2005 (536,840) 536,840 6.0 * * 2006 (536,840) 536,840 6.0 * ************************************************************************** Technology Impact Computers and software for the additional Full-time Equivalent positions (FTEs) and database enhancements would be needed for the Office of Consumer Credit Commissioner (OCCC) for coordination with the Texas Department of Transportation (TxDOT) totaling $57,000 in fiscal year 2002. Fiscal Analysis The provisions of the bill amend the Finance Code and would authorize the Finance Commission (FC) to set annual license fees for regulated lenders and pawnshops to include the cost of examinations, and it would repeal the stated annual license fees for regulated lenders and pawnshops. The bill would allow the FC to base fees on a licensee's loan volume. The OCCC would have to license rather than register the financing activities of motor vehicle dealers and third-party contract holders. The bill would authorize fees for these entities to cover initial investigation, annual license, and examination and administrative costs. The bill would authorize criminal background checks of motor vehicle dealers and third-party contract holders. The provisions of the bill would require the FC and the OCCC to conduct a study of mortgage lending practices and report their findings before December 1, 2002. The bill would continue the OCCC until September 1, 2013. The bill would take effect September 1, 2001. Methodology According to the Comptroller's Office, Section 9 of the bill which would define the terms, "sale-leaseback transaction" and "loan," would decrease limited sales and use tax collections. Under current law, pursuant to a sale-leaseback transaction, payments related to certain lease arrangements known as "operating leases" are subject to the sales tax. ("Operating leases" are instances where lease payments are made, but payment does not lead to ownership.) If, at the end of a lease term, an item were repurchased that sale would be subject to the sales tax as well. The bill would redefine such transactions as loans, thus making such lease payments/repurchases exempt from the sales tax. Similar sale-leaseback arrangements involving automobiles currently generate motor vehicle sales taxes when automobiles are sold, leased, and subsequently resold to the original owner. Generally, and for periods of less than six months, there is no tax due on the sale portion of the sale-leaseback. The subsequent rental payments are subject to motor vehicle rental tax. A resale, following the cessation of rental payments, is subject to the motor vehicle sales tax. The bill would delineate these activities as a loan. Neither the rental payments nor the resale would be subject to tax. According to the Comptroller's Office, this analysis assumes that sale-leaseback transactions involving items other than household items or personal-use automobiles would not be affected. Any sales of tangible personal property or of automobiles outside of a sales-leaseback transaction would continue to be taxable in the present manner. It is estimated that the provisions of the bill would require six FTEs within the OCCC starting in fiscal year 2003. The OCCC anticipates hiring the six FTEs in the fourth quarter of fiscal year 2002 equating to 1.5 FTEs in the first year. The provisions of the bill require the OCCC to do periodic on-site examinations of licensees. With a total of 5,700 businesses and an examination cycle of approximately four years, about 1,425 examinations would be conducted every year which would require five examiners each year. The new licensing and examination activity would also require the addition of an attorney for review of contracts, rules, and contested cases and other expenses for an administrative law judge and court reporter services. Car dealers and third-party contract holders would be required to obtain a license from the OCCC which requires an FBI criminal background check. The total cost for the criminal history background check for each applicant is $39. The OCCC anticipates fingerprinting approximately 4 principals from each of the 5,700 car dealer and third-party holder businesses in fiscal year 2002. The cost in fiscal year 2002 for 22,800 individuals is $889,200 and the OCCC estimates future costs for fingerprinting to be about $100,000 per year. The estimated cost of regulation is $1,029,478 in fiscal year 2002, with almost $900,000 of that being fingerprint costs to the Department of Public Safety. OCCC will recover these costs from fingerprint fees submitted by applicants. The cost of regulation in fiscal year 2003 and each year thereafter is $536,840. It is assumed the OCCC would adjust its fees to off-set the cost of the regulation of financing activities and third party holders from registration to licensure and the periodic on-site inspections. Local Government Impact Local units of government would have a corresponding fiscal impact from sales tax revenue as indicated in the table above. Source Agencies: 304 Comptroller of Public Accounts, 449 Finance Commission of Texas, 116 Sunset Advisory Commission, 466 Office of Consumer Credit Commissioner LBB Staff: JK, JO, RT, DE