This Fiscal Note is not an official copy and should not be quoted or cited.
This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0386 - Allows custodial accounts to be acceptable securities for state treasurer; other banking law changes
COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. NO.: 1706-05
BILL NO.: HCS for SCS for SB 386
SUBJECT: Financial Institutions
TYPE: Original
DATE: May 3, 1999
FISCAL SUMMARY
|
ESTIMATED NET EFFECT ON STATE FUNDS | |||
| FUND AFFECTED | FY 2000 | FY 2001 | FY 2002 |
| General Revenue | (Less Than $100,000) | (Less Than $100,000) | (Less Than $100,000) |
| Insurance Dedicated Fund | $1,388 | ($4,145) | ($5,321) |
| Division of Credit Unions | $150,435 | $150,435 | $150,435 |
| Total Estimated
Net Effect on All State Funds |
$51,824 to $151,823 | $46,291 to $146,290 | $45,115 to $145,114 |
|
ESTIMATED NET EFFECT ON FEDERAL FUNDS | |||
| FUND AFFECTED | FY 2000 | FY 2001 | FY 2002 |
| None | $0 | $0 | $0 |
| Total Estimated
Net Effect on All Federal Funds |
$0 | $0 | $0 |
Numbers within parentheses: ( ) indicate costs or losses
This fiscal note contains 8 pages.
|
ESTIMATED NET EFFECT ON LOCAL FUNDS | |||
| FUND AFFECTED | FY 2000 | FY 2001 | FY 2002 |
| Local Government | $0 | $0 | $0 |
FISCAL ANALYSIS
ASSUMPTION
In response to a similar proposal, officials of the Department of Economic Development - Division of Finance assume that the proposal would have no fiscal impact to their agency.
In response to a similar proposal, officials of the Department of Economic Development - Division of Credit Unions (DED) assume the proposal would result in increased billings to credit unions by $150,000 during the first year of implementation and remain at that level for the next two to three fiscal years. DED officials assume they would bill credit unions the maximum amount allowed during this time to allow for the fact that billings allowed under current law have not been adequate to fund the actual costs of the division, resulting in the division being in arrears in its overhead transfers to General Revenue. Revenues in the Division of Credit Unions Fund would increase by $150,000 annually. This would also increase the overhead transfer made from the Division of Credit Unions Fund to General Revenue by $19,565 annually, based on assumed additional non-excludable expenses of $130,435 ($150,000 divided by 1.15) multiplied by 15%. The proposal identifies additional specific expenses which may be considered excludable expenses. In determining the gross overhead transfer to General Revenue, the overhead transfer rate (not to exceed 15%) is applied to total expenses less excludable expenses. Excludable expenses are also subtracted from the gross overhead transfer amount to arrive at the net transfer amount. DED officials assumed that an additional $20,000 in expenses could be reclassified as excludable expenses during the first year of implementation and would remain at this level during the fiscal note period. As a result of not applying the overhead transfer rate to an additional $20,000 of excludable expenses, cash inflows into General Revenue would decrease $3,000 (15% of $20,000), and cash inflows into the Division of Credit Unions Fund would also decrease $3,000, since the savings in overhead costs would result in credit unions being billed less. Therefore, the net additional income in the Division of Credit Unions Fund would be $147,000 ($150,000 additional based on the new fee schedule less $3,000). In addition, cash inflows into General Revenue would decrease by $20,000, and cash outflows from the Division of Credit Unions Fund would decrease by $20,000, since excludable expenses are subtracted from the gross overhead transfer amount to arrive at the net transfer amount. Officials assumed that the 15% overhead transfer rate would remain at 15% during the fiscal note period. ASSUMPTION (continued)
The net fiscal impact on the overhead transfer from the Division of Credit Unions Fund to General Revenue is assumed to be $3,435 annually.
Officials of the Department of Insurance (INS) assumes that this proposal would license viatical settlement providers, brokers, and representatives effective January 1, 2000. Persons would also not be allowed to use a viatical settlement contract or provide to a viator a disclosure statement form unless previously filed with and approved by the Director of the INS. Every licensee shall file with the Director of INS on or before March 1st of each year an annual statement containing information required by the INS. INS estimates approximately 100 viatical settlement providers at an initial fee of $700 and annual renewal fee of $250, and approximately 50 viatical settlement brokers and 100 viatical settlement representatives at an initial and renewal application fee of $100. Officials assume that every licensee will file on or before March 1st an annual statement and pay a miscellaneous filing fee of $50. Licensees shall file for approval prior to use their viatical settlement contracts and viator disclosure statement forms accompanied by a $50 filing fee. INS estimates an initial filing from every licensee. Officials estimate annual revenues to be $97,500 for FY 2000 and $52,500 annually thereafter.
INS officials estimate that an additional Insurance Financial Analyst will be needed to review application requests, contract and disclosure forms, and annual statements. INS will also require $50,000 in contract computer programming services to establish the viatical settlement electronic regulatory system. This is based on existing contract rates and approximately 500 hours of computer programming required. Once established, INS officials estimate 100 hours of computer programming time for maintenance of the system.
INS officials anticipate that existing staff and appropriations could absorb the other responsibilities of this proposal, i.e. issuing licenses, investigations, hearings, rule-making, and clerical. If however, the number of viatical settlement providers, brokers and representatives substantially exceed the number of licensees anticipated, a budget request for additional resources will be required.
In response to a similar proposal, officials of the Department of Revenue (DOR) assume that the number of taxpayers eligible for the state income tax credit for S Corporation shareholders of banks and bank holding companies equal to the shareholder's pro rata share of either the bank franchise tax or the tax in lieu of the franchise tax is unknown. The Division of Taxation will need one Tax Processing Technician for every 1,840 credits claimed per year and one Tax Processing Technician I for every 20,000 additional errors generated from this deduction. DOR officials assume that the legislation will require modifications to the income tax system. The Division of Taxation and Collections estimates these modifications, including programming ASSUMPTION (continued)
changes, will require 692 hours of overtime at a cost of $20,808. Modifications to the income tax return and schedules will be completed with existing resources. State Data Center charges will increase due to the additional storage and fields to be captured. Funding in the amount of $4,503 is requested. No estimates of the effect on general revenues from additional tax credits could be provided by DOR.
Oversight assumes that DOR would request appropriations for personnel once it is determined the number of credits that will be claimed each year. Based on the number of shareholders noted below according to 1992 data, it is unlikely that additional personnel would be required. Costs for programming changes are reflected in the fiscal note.
Oversight also contacted the Office of the Secretary of State, which is the agency responsible for collecting franchise taxes. Officials noted that there is no breakdown available by type of institution paying the taxes; therefore, there is no available figure for the total franchise taxes paid by subchapter S corporation banks. According to an Internal Revenue Service report based on 1992 income tax returns, there were, nationally, 43 tax returns filed by S corporation banks, representing 242 shareholders. However, there was no information available concerning the state taxes paid by these corporations, including franchise taxes. Therefore, Oversight has reflected an unknown impact to the state's general revenue fund representing personal income tax credits available to shareholders of S corporation banks for franchise taxes paid by such banks. Given the small number of S corporation banks nationally and the relatively small size of S corporations, Oversight would not expect tax credits claimed to exceed $100,000 annually.
In response to an earlier version of the proposal, officials of the Office of the Secretary of State (SOS) assume that the proposal would result in the printing of new rules by the Department of Insurance. They estimate the initial cost of printing the rules would be at least $1,325.50, with unknown future costs to general revenue. Due to the insignificant costs associated with this requirement, Oversight has not reflected additional costs for printing newly-promulgated rules. SOS officials also note that this proposal would not require them to hire additional personnel in the Division of Administrative Rules, but the cumulative effect of other proposals that require rulemaking activity in the aggregate may necessitate additional staff.
In response to a similar proposal, officials of the Office of the State Courts Administrator assume the proposal would not result in a significant increase in the number of criminal prosecutions for credit card or debit card fraud, although it could increase the conviction rates for some fraud cases. Officials would not expect any significant increase in the workload of the courts.
ASSUMPTION (continued)
In response to a similar proposal, officials of the Office of the State Public Defender (SPD) assume that existing staff could represent the 15 to 20 additional cases that might arise as a result of the provisions regarding credit card and debit card fraud. However, passage of more than one similar proposal could require the SPD to request increased appropriations to cover the cumulative cost of representing the indigent accused.
In response to a similar proposal, officials of the Office of Prosecution Services and Office of the Attorney General assume the proposal would have no fiscal impact to their agencies.
Total state revenues would be reduced insofar as income tax credits are claimed by shareholders of S corporation financial institutions as provided in the proposal and would be increased due to an increase in billings to credit unions.
| FISCAL IMPACT - State Government | FY 2000 | FY 2001 | FY 2002 |
| GENERAL REVENUE FUND | |||
| Costs-Department of Revenue (DOR) | |||
| Personal services (overtime) | $0 | ($20,808) | $0 |
| Fringe benefits | 0 | (2,080) | 0 |
| Equipment and expense | 0 | (4,503) | 0 |
| Total costs - DOR | $0 | ($27,391) | $0 |
| Losses | |||
| Net decrease in overhead transfers from | |||
| Division of Credit Union Fund | ($3,435) | ($3,435) | ($3,435) |
| Income tax credits * | (Unknown) | (Unknown) | (Unknown) |
|
ESTIMATED NET EFFECT ON |
|||
| GENERAL REVENUE FUND * | (Unknown) | (Unknown) | (Unknown) |
| * Not expected to exceed ($100,000) annually. | |||
| FISCAL IMPACT - State Government | FY 2000 | FY 2001 | FY 2002 |
| (continued) | |||
| INSURANCE DEDICATED FUND | |||
| Income-Department of Insurance | |||
| Viatical license fees | $97,500 | $52,500 | $52,500 |
| Costs-Department of Insurance | |||
| Personal services (1 FTE) | ($27,859) | ($34,280) | ($35,137) |
| Fringe benefits | (8,327) | (10,246) | (10,502) |
| Equipment and expense | (59,926) | (12,119) | (12,182) |
| Total costs - Department of Insurance | ($96,112) | ($56,645) | ($57,821) |
|
ESTIMATED NET EFFECT ON |
|||
| INSURANCE DEDICATED FUND | $1,388 | ($4,145) | ($5,321) |
| DIVISION OF CREDIT UNIONS FUND | |||
| Income-additional billings to credit unions | $147,000 | $147,000 | $147,000 |
| Savings-net decrease in overhead transfers to | |||
| General Revenue | 3,435 | 3,435 | 3,435 |
| ESTIMATED NET FISCAL IMPACT TO | |||
| DIVISION OF CREDIT UNIONS FUND | $150,435 | $150,435 | $150,435 |
| FISCAL IMPACT - Local Government | FY 2000 | FY 2001 | FY 2002 |
| 0 | 0 | 0 | |
| FISCAL IMPACT - Small Business | |||
| Certain Subchapter S corporation shareholders would be affected by this proposal as a result of tax credits authorized. Small business would be expected to be fiscally impacted to the extent they would incur additional administrative costs and licensing fees as a result of this proposal. | |||
DESCRIPTION
The proposal makes numerous changes to laws governing financial institutions. It would also allow shareholders of S corporation financial institutions to receive income tax credits based on their pro rata share of franchise taxes paid by the institutions.
This proposal would make several changes to the provisions governing the Division of Credit Unions within the Department of Economic Development. Current law requires credit unions
to pay an annual fee based upon total assets according to a fee schedule. This bill would repeal the fee schedule and requires the Director of the Division of Credit Unions to determine the fee,
according to a new maximum fee schedule.
The bill also repeals the current authorization of the director to assess each credit union with a surcharge to complete the director's office budget, including support services and fringe
benefits for the director's office. All credit unions pay the same percentage rate of the annual fee. Instead, no more than15% of examination and administration expenses, supporting services, and
an amount sufficient to cover the cost of fringe benefits will be paid by the credit unions by payment of the annual fees according to the new maximum fee schedule.
The proposal would repeal the requirement that the amount for supporting services, fringe benefits, and any amount remaining in the Division of Credit Unions Fund exceeding 5% of the amount assessed to credit unions be returned to the General Revenue Fund. Instead, any amount remaining in the Division of Credit Unions Fund would remain in the fund, subject to appropriation, to be applied against supporting services and fringe benefits expenditures and to be applied toward the reduction of the amount assessed to the credit unions in the succeeding fiscal year.
The provisions specifically regarding credit unions contain an emergency clause and are to be effective upon passage and approval.
The proposal sets standards for viatical settlements, a contract to pay a person (viator) with a life-threatening illness the proceeds from his or her life insurance policy. The bill requires viatical settlement providers, brokers, and representatives to obtain licenses from the Department of Insurance. The Department of Insurance can also regulate the amounts paid by viatical
settlement contracts. Viators must give informed written consent to viatical settlement contracts and have an unconditional right to rescind contracts before receiving payment. These provisions have an effective date of January 1, 2000.
The proposal would prohibit making false statements regarding another person for the purpose of fraudulently obtaining a credit or debit card. The proposal would also prohibit using another DESCRIPTION (continued)
person's personal identifying information for the purpose of obtaining credit, goods, or services without the consent of that person. In addition, the proposal contains penalty provisions.
The proposal would require banks that relocate from another state to have a five-year-old bank charter before engaging in interstate acquisition or merger.
Courts would be permitted to deposit their funds in credit unions and invest funds in accordance with requirements of the state treasurer's office.
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
Office of the Secretary of State
Department of Revenue
Department of Economic Development - Divisions of Finance and Credit Unions
Office of State Courts Administrator
Office of the State Public Defender
Office of Prosecution Services
Office of the Attorney General
Department of Insurance
Jeanne Jarrett, CPA
Director
May 3, 1999