SB 0097 - Fiscal Note

Fiscal Note - SB 0097 - Creates the Individual Development Account Program

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0436-01

BILL NO.: SB 97 w/ SCA 1and 2

SUBJECT: Economic Development Department; Public Assistance; Taxation and Revenue - General

TYPE: Original

DATE: March 29, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	($204,260 to $304,260)	($199,712 to $4,299,712)	($204,868 to $4,304,868)
County Insurance	$0	$0 to ($4,000,000)	$0
Total Estimated Net Effect on All State Funds	($204,260 to $304,260)	($199,712 to $8,299,712)	($204,868 to $4,304,868)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	$0 to ($4,000,000)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 6 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Social Services assume this proposal would not fiscally impact their agency.

Department of Revenue (DOR) officials state the number of taxpayers eligible for this tax credit is unknown at this time. The Division of Taxation would need one Tax Processing Technician for every 3,680 credits claimed, one temporary tax season employee for every 20,000 individual income tax errors, and one temporary tax season employee for every 12,000 corporate income tax errors generated from this proposal. The proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates these modifications, including programming changes, would require 2,508 hours of overtime at a cost of $62,425. Modifications to the income tax return and schedules would be completed with existing resources. State Data Center charges would increase due to the additional storage and fields to be captured. Funding in the amount of $17,452 would be needed.

Oversight assumes that modifications to the income tax system and State Data Center charges would be completed with existing resources. In previous responses to similar proposals, DOR has responded that any modifications and/or additional charges could be completed with existing resources.

The Department of Insurance (INS) officials assume this proposal provides a tax credit for insurance companies against premium tax payments for contributions to a Family Development Account. INS states there are approximately 300 domiciled insurance companies in Missouri which pay premium tax to the state. INS further states there are over 1,800 insurance companies licensed to conduct business in the state. For purposes of estimating fiscal impact, INS anticipates that only domiciled companies would contribute to family development accounts. INS states that credits are capped at $25,000 per year. INS estimates a range of $0 to $4,000,000 for decreased payments, which is approximately 50% of potential tax credits. INS assumes any tax credits taken would be allocated on a 50/50 basis to the General Revenue Fund and the County Insurance Fund. The funds in the County Insurance Fund are allocated annually to local school districts.

Officials from the Department of Economic Development (DED) state that per the U.S. Census Bureau, there are 1,961,364 households in Missouri and the average household size is 2.61. The statistics also show that there are 663,075 people in Missouri at the poverty level. Dividing this figure by the average family size, there are 254,051 households that would qualify for this program at the poverty level. No figures are available to determine how many households in Missouri are at or below the 200% level as incomes do not rise proportionately with population. ASSUMPTION (continued)

The 200% qualification level would put the qualifying household income at about $35,000 and more than double the entities that qualify for the family development account.

DED estimates that solicitation of the community-based organizations, approval of these organizations, approval of the financial institutions, approval and tracking of credits, overseeing

the process and review of programs would require 4 FTE. DED assumes they would request two

(2) Community Development Program Specialists ($35,364), one Accountant II ($32,628), and one Clerk Typist ($19,260). DED states estimates of personnel needs could change based on acceptance and use of the program.

The Community Development Program Specialists would administer the program including drafting rules, regulations and policies, solicitation of proposals from Community-based organizations, approval of organizations, approval of tax credits and general overseeing of the program. These positions would be responsible for promotion of the program including education of community-based organizations and oversee the other two staff people.

The Accountant II would develop and monitor program accountability. The position would establish reporting requirements and auditing of accounts and reports including the community-based organizations, financial institutions, contributors and account holders. This position would certify amounts of credits approved to the Department of Revenue and would assist in development of bid specifications to acquire an independent evaluation of the program. DED assumes certification would be similar to the NAP program.

The Clerk Typist II would provide support for staff with answering calls, mailing information, communications with community based organizations, answering general correspondence and general office coordination.

The legislation authorizes an annual evaluation of the process at a cost of up to $100,000 if funds are appropriated. These costs are included in the response.

DED assumes that the full $8 million in credits would be authorized each year..

Oversight assumes this proposal will reduce corporate and individual income tax revenue, thereby reducing Total State Revenues. There is no data available to estimate the number of people who will take advantage of the Family Development Account Program (FDAP). Therefore, the impact is assumed to be between $0 and $8,000,000, since the maximum amount

of credits that can be issued in one year is $8,000,000.

Oversight assumes the three FTE requested by the DED would be housed in existing facilities. ASSUMPTION (continued)

Accordingly, Oversight has not included costs for rent expenses. Oversight also assumes the initial implementation of this proposal would not necessitate the purchase of an automobile. As the program expands, and routine travel becomes necessary, the DED may request funds for an automobile in the normal budget process.

The effective date of this proposal is for tax years beginning after December 31, 1999. Oversight assumes the entire credit could be claimed in fiscal year 2000. Allocations to school districts

from the County Insurance Fund would be affected the subsequent fiscal year.

This proposal would result in a decrease in Total State Revenues.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
GENERAL REVENUE FUND
Loss - reduced tax revenue due to	$0	$0 to	$0 to
new tax credits		($4,000,000)	($4,000,000)
Costs - Department of Economic Development
Personal Service (4 FTE)	($104,693)	($128,824)	($132,045)
Fringe Benefits	($30,246)	($38,505)	($39,468)
Expense and Equipment	($69,321)	($32,383)	($33,355)
	($204,260)	($199,712)	($204,868)
Other Costs - Department of Economic Development
(Subject to Appropriation)	$0 to	$0 to	$0 to
Outside program evaluation	($100,000)	($100,000)	($100,000)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($204,260)	($199,712)	($204,868)
	to	to	to
	($304,260)	($4,299,712)	($4,304,868)
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(10 Mo.)
COUNTY INSURANCE FUND
Loss - reduced tax revenue due to	$0	$0 to	$0 to
new tax credits		($4,000,000)	($4,000,000)
Savings-reduced distributions to
school districts	$0	$0	$0 to
			$4,000,000
ESTIMATE NET EFFECT ON
COUNTY INSURANCE FUND	$0	$0 to	$0
		($4,000,000)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
Loss - Local School Districts
reduced distributions from the
County Insurance Fund	$0	$0	$0 to
			($4,000,000)
FISCAL IMPACT - Small Business
This proposal would have an effect on small businesses as it provides tax credits to small businesses who elect to make contributions to the Family Development Account Program.

DESCRIPTION

This proposal would establish the "Individual Development Account Program" (IDA) which would provide eligible families and individuals with an opportunity to establish special savings accounts for funds which may be used for specified purposes only. Community-based organizations would submit proposals to administer these accounts on a not for profit basis. The proposals would contain a requirement that the individual account holder match the contributions made to the account. Families or individuals with a household income of less than or equal to 200 percent of the federal poverty level may open an IDA. The funds would be used for postsecondary education, job training, home ownership, home improvement, or small business capitalization. Financial institutions would be permitted to establish IDAs upon approval by the

Department of Economic Development. The total deposits to an IDA in any calendar year would DESCRIPTION (continued)

not exceed $2,500.00 and the total balance in an IDA would not exceed $50,000.00. If money would be withdrawn from an IDA for any purpose other than those listed in Section 620.1493,

RSMo, a fifteen percent penalty would be charged and the account would be closed. Any moneys the account holder deposited in the account would be returned to the account holder, but all contributions from other sources would be forfeited. Moneys deposited in and interest earned

by IDAs would be tax exempt, except for withholding taxes. Tax credits would be given to

contributors, up to $50,000.00. IDA funds would also be disregarded when determining eligibility to receive public assistance.

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

Department of Revenue

Department of Insurance

Department of Social Services

Jeanne Jarrett, CPA

Director

March 29, 1999