SB 0282 - Fiscal Note

Fiscal Note - SB 0282 - Authorizes Neighborhood Preservation Pilot Project for St. Louis and St. Louis County

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0831-04

BILL NO.: HCS for SCS for SB 282

SUBJECT: Taxation and Revenue - Income; Housing; Cities, Towns, and Villages

TYPE: Original

DATE: May 3, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
All funds	$0 to ($19,000,000)	$0 to ($34,000,000)	$0 to ($34,000,000)
General Revenue	($25,311)	($375,641)	($312,103)
Total Estimated Net Effect on All State Funds	($25,311) TO ($19,025,311)	($375,641) TO ($34,375,641)	($312,103) TO ($34,312,103)

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 TO ($8,500,000)	$0 TO ($17,000,000)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 7 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Social Services and the Missouri Housing Development Commission assume this proposal would not fiscally impact their agency.

Officials from the Department of Economic Development (DED) that the $4 million increase in Neighborhood Assistance Program tax credits would require one additional Community Development Program Specialist ($35,364) plus associated expenses and equipment to administer the increase. The Community Development Program Specialist would conduct activities similar to those positions currently administering the program and would service the additional $4 million in tax credits.

Oversight assumes the additional increase in tax credits would be administered by current staff and current resources.

DED states that in looking at the census information, while there is no way to know for certain the demand, there are 629,868 pre-existing housing units in Missouri that were built prior to 1949. DED states that the pre-1949 housing units are used as an example. DED realizes the proposal refers to 40 year old houses. DED further states the proposal loosens the income guidelines for the tax credits. DED states that in Missouri 68.8% of the housing is owner-occupied. Therefore, DED assumes there could be a maximum of 433,349 eligible or qualified residences. DED states there is no way to predict how many would meet the income qualifier of this proposal. DED also states there are structures that qualify under other terms that would increase the number claiming the tax credit. Also, eligible costs for rehabilitation would let many other projects qualify.

DED states the $30 million in tax credits would make the Community Development and Neighborhood Revitalization Act a major program. DED is unable to determine a specific number of tax credits that would be issued but anticipate a large volume of work

DED assumes that an one (1) Economic Incentive Coordinator ($36,888), one (1) Economic Incentive Specialist II ($32,628), one (1) Housing Development Officer ($30,060), one (1) Auditor III ($41,868), and one (1) Clerk Typist ($19,260) would be needed to administer the program. DED states these positions would promote the program, develop forms, answer questions, review applications for the credit, view and monitor projects, approve or deny credits, draft rules or program guidelines, and other administrative duties associated with a statewide tax credit program.

Oversight assumes that no additional rental space would be needed.

Office of Administration officials defer their response to the Department of Economic Development.

Officials of the Department of Insurance (INS) state the proposal would grant tax credits against an insurer's premium tax payments (chapter 148 RSMo.) for contributions to organizations outlined in this proposal. INS states there are approximately 300 domiciled insurance companies in Missouri which pay premium tax to the state. There are over 1,800 insurance companies licensed to conduct business in the state. For purposes of estimating fiscal impact, the INS anticipates that only domiciled companies would invest in qualifying activities. INS states the maximum tax credits available would be $34 million. INS assumes that fifty percent of potential tax credits would be used. INS estimates a range of $0 to $17,000,000 for decreased payments. INS states the decreased payments would be split 50/50 between the General Revenue Fund and the County Foreign Insurance Fund.

Officials from the Office of the Secretary of State (SOS) state the proposal would create regulations for the Department of Economic Development. SOS states that new rules would be promulgated to regulate the Rebuilding Communities and Neighborhood Preservation Act. SOS states that based on experience with other licensing boards, the regulations and forms issued could require as many as twelve pages in the Code of State Regulations. SOS assumes the proposal would require the printing of additional pages in the Missouri Register and the Code of State Regulations and have estimated a publishing and distribution cost of $723 for FY 00. Additionally, future costs are unknown and depends upon the frequency and length of rules filed, amended, rescinded or withdrawn.

In addition, SOS assumes an unknown known fiscal impact on corporate franchise tax as they are unable to determine the number of returns that may be filed and the amount of tax credits claimed on those returns.

While this proposal alone would not require SOS to acquire additional staff, SOS assumes the

cumulative effect of additional Register and Code publishing duties could, at some point, require additional staff. However, Oversight assumes SOS could increase fees to cover any additional costs, per Section 536.033, RSMo and therefore, has not included associated costs in the fiscal impact specifications below.

Oversight assumes an unknown fiscal impact on any given state fund. However, the total impact on all state funds would be a range of $0 to ($34,000,000).

Officials from the Department of Revenue (DOR) state that sections one through five of the proposal would establish a tax credit for the Neighborhood Preservation Act. DOR states that no tax credit would be issued to an eligible residence that is in violation of any municipal or county housing or zoning code. DOR assumes that the Department of Economic Development would be verifying the information prior to the issuance of the credit. DOR states the number of taxpayers eligible for this credit is unknown at this time. The Division of Taxation and Collection would

need one (1) Tax Processing Technician I for every 3,680 credits claimed to process these credits. One (1) Tax Processing Technician I would be needed for every 20,000 additional income tax errors generated from this proposal. DOR also states the proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates the modifications, including programming changes, would require 692 hours of overtime at a cost of $20,808. 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 $4,503 would be requested for implementation costs.

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

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
ALL STATE FUNDS
Loss - All State Funds
Increase in NAP tax credits*	$0 to	$0 to	$0 to
	($4,000,0000)	($4,000,000)	($4,000,000)
Rebuilding Communities and
Neighborhood Preservation Act
tax credits*	$0 to	$0 to	$0 to
	($15,000,000)	($30,000,000)	($30,000,000)
ESTIMATED NET EFFECT ON
ALL STATE FUNDS*	$0 TO	$0 TO	$0 TO
	($19,000,000)	($34,000,000)	($34,000,000)
*The tax credit in this proposal may be used by individuals and corporations, therefore the revenue impact of the tax credits on all state funds has been reflected as $0 to ($).
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(6 Mo.)
GENERAL REVENUE FUND
Cost - Department of Economic Development
Personal services (5 FTE)	$0	($168,840)	($173,062)
Fringe benefits	$0	($50,466)	($51,728)
Expense and equipment	$0	($156,335)	($87,313)
Total Cost - DED	$0	($375,641)	($312,103)
Cost - Department of Revenue
Reprogramming costs	($25,311)	$9	$0
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($25,311)	($375,641)	($312,103)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
LOCAL POLITICAL SUBDIVISIONS
Loss to Political Subdivisions
Transfers from County Stock Insurance Fund	$0	$0 to	$0 to
		($8,500,000)	($17,000,000)
ESTIMATED NET EFFECT ON
LOCAL GOVERNMENT	$0	$0 TO	$0 TO
		($8,500,000)	($17,000,000)
FISCAL IMPACT - Small Business
Small businesses would be expected to be fiscally impacted to the extent that they would qualify for the tax credits in this proposal.

DESCRIPTION

This proposal would authorize tax credits for rehabilitation of certain older housing through the Rebuilding Communities Act. The proposal would also authorize owner-occupied or intended to be owner-occupied houses to be eligible for the tax credits in two types of communities. These communities would be: distressed communities, defined as communities or census block groups DESCRIPTION (continued)

with median household incomes of less than 70% of the median household income for the entire state or metropolitan area; or other eligible communities, defined as communities or census

block groups with median household incomes of less than 90% of the median household income for the entire state or metropolitan area.

The proposal also provides varying amounts of tax credits based on the age of the structure, where the structure is located, what type and how extensive the rehabilitation has been, and what

percentage the cost of the rehabilitation is in relation to the cost basis of the property. Taxpayers would apply to the Department of Economic Development to be eligible for a credit against income taxes, corporate franchise taxes, or taxes on financial institutions and insurance premium taxes. These tax credits would be limited to $15 million per year in distressed communities and $15 million in other eligible communities. The tax credits authorized could not be claimed in addition to any other available tax credit, except for certain cases in distressed communities. The tax credits authorized may be transferred or sold, and credits exceeding tax liability may be carried back for 3 prior tax years and carried forward 5 subsequent years. The proposal also provides a procedure for verifying that the residence was sold at market rate and intended to be owner-occupied.

The proposal would also extend the existing affordable housing tax credits available through the Neighborhood Assistance Act to market rate housing in distressed communities. The substitute would also extend existing tax credits to certain businesses located in distressed communities that relocate employees from a facility outside of a distressed community into a distressed community.

The proposal would become effective January 1, 2000.

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

Missouri Housing Development Commission

Department of Social Services

Department of Revenue

Office of Administration

Division of Budget and Planning

Department of Insurance

Office of Secretary of State

Jeanne Jarrett, CPA

Director

May 3, 1999