SB 0792 - Fiscal Note

Fiscal Note - SB 0792 - Modifies provisions pertaining to certain loans

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3536-05

BILL NO. HCS for SS for SB 792

SUBJECT: Banks & Financial Institutions

TYPE: Original

DATE: April 28, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	(Less than $100,000)	(Less than $100,000)	(Less than $100,000)
Total Estimated Net Effect on All State Funds	(Less than $100,000)	(Less than $100,000)	(Less than $100,000)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None	$0	$0	$0
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Political Subdivisions	(Less than $100,000)	(Less than $100,000)	(Less than $100,000)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 3 pages.

FISCAL ANALYSIS

ASSUMPTION

In response to an earlier version of the proposal, officials of the Department of Economic Development-Divisions of Finance and Credit Unions assumed the proposal would have no fiscal impact on their agencies. Oversight assumes changes in this version would not affect the fiscal impact to those agencies.

In response to a similar proposal, officials of the State Treasurer's Office (STO) assumed that the requirement to review CRA ratings before placing any state funds on deposit with a financial institution could increase the office's work load due to the large number of demand and time deposits administered by the STO, as well as result in delays when responding to demand and time deposit requests. However, STO officials indicate that the office could absorb any additional costs through its current appropriation.

In response to a similar proposal, officials of the Department of Revenue assumed that the proposal would have no administrative impact to their agency. However, officials noted that the provision that would allow banks that elect S-corporation status to receive an additional deduction for federal income taxes (although they do not presently pay corporate income taxes) to offset their franchise taxes due would decrease franchise taxes collected. As a result, the state's General Revenue Fund would incur losses of 2% of the decrease in taxes collected (representing the state's collection fee), and political subdivisions where such banks are located would incur losses of 98% of the remaining decrease in taxes collected. No estimate of decreased revenues was provided.

Oversight assumes that the number of banks that have elected status as S-corporations and the additional tax credits they may take cannot be reasonably estimated, but assumes that the number is likely small. Therefore, unknown losses not expected to exceed ($100,000) in any given year to the state's General Revenue Fund and to political subdivisions are shown.

Total state revenues would be expected to be decreased as a result of additional tax credits claimed to offset franchise taxes collected.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
GENERAL REVENUE FUND
Loss-decreased collection fees due to	(Less than	(Less than	(Less than
decreased franchise tax revenues	$100,000)	$100,000)	$100,000)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
POLITICAL SUBDIVISIONS
	(Less than	(Less than	(Less than
Loss-decreased franchise tax revenues	$100,000)	$100,000)	$100,000)

FISCAL IMPACT - Small Business

Certain financial institutions classified as small businesses could be fiscally impacted insofar as interest and fees charged to customers on small loans and second mortgage loans may increase or decrease. Sub-chapter S banking corporations would be fiscally impacted in the form of reduced taxes.

DESCRIPTION

The proposal would make modifications to various provisions applicable to interest and fees on small loans, second mortgage loans, and consumer credit loans. It would allow banks that elect status as S-corporations to claim credits offsetting their franchise taxes due that are equal to amounts that would be paid for federal income taxes if the corporation were subject to such taxes.

The proposal would require the state treasurer beginning July 1, 1999 to consider a depository institution's record of meeting community credit needs pursuant to the Community Reinvestment Act when depositing state funds in the institution.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Economic Development-Divisions of Finance and Credit Unions

State Treasurer's Office

Department of Revenue

Jeanne Jarrett, CPA

Director

April 28, 1998