SB 0745 - Fiscal Note

Fiscal Note - SB 0745 - Revises higher education scholarship limits and approval of programs

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3056-05

BILL NO. HCS For SB 745

SUBJECT: Education, Higher: Scholarships

TYPE: Original

DATE: May 6, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	($120,000 TO $441,000)	($120,000 TO $441,000)	($120,000 TO $441,000)
Total Estimated Net Effect on All State Funds	($120,000 TO $441,000)	($120,000 TO $441,000)	($120,000 TO $441,000)

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
Local Government	($0 TO $20,000)	($0 TO $20,000)	($0 TO $20,000)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 12 pages.

FISCAL ANALYSIS

ASSUMPTION

MOSTARS

Officials from the Senate, House of Representatives, Harris-Stowe State College, Missouri Western State College, Truman State University, Southwest Missouri State University, University of Missouri, Department of Economic Development-Division of Job Development and Training and Missouri Ethics Commission assume the proposal would have no fiscal impact on them.

Officials from the Department of Elementary and Secondary Education (DESE) assume the proposal would have no fiscal impact on DESE or school districts.

Officials from the State Treasurer's Office (STO) assume total state revenues would decrease by an average of 6% of the total fund balance created by the bill. They state they would be prepared to absorb any additional workload with their current appropriation.

Officials from the Office of Administration, Division of Budget and Planning (OA-B&P), assume the CBHE would estimate the fiscal impact. They assume the proposal would result in no cost or savings to OA-B&P. They assume there would be an impact on total state revenue.

Officials from the Coordinating Board For Higher Education (CBHE) assume there are two main provisions of the bill that would present a potential fiscal impact. These are the deductibility of contributions and the removal of state income tax on earnings of accounts, both found in section 166.435.

The fiscal impact of these costs would be directly related to the volume of contributions which would be unknown. CBHE has surveyed other states with similar programs in order to estimate potential costs.

Utah - program established in November 1996 with 400 active accounts holding a total of $576,795. Utah provides the same tax incentives as proposed in this bill.

Indiana - program established in 1997 with 900 active accounts holding a total of $2 million. There is no tax benefit on contributions, tax on earnings is deferred and then assessed at the beneficiary's (student's) rate. Savings dollars are also excluded from state grant and scholarship programs.

ASSUMPTION (continued)

Kentucky - first accounts opened in 1990 with 2,780 active accounts holding a total of $6.3 million. There is no tax benefit on contributions, earnings are tax free.

Costs to Missouri would be a loss in tax revenue equal to 6% of contributions made that fiscal

year. Since few participants are likely to withdraw funds prior to FY 2001, this fiscal note does not account for the lost tax revenue on account earnings. This loss would be equal to 6% of earnings.

Based on the performance of similar programs in similar states, CBHE estimates the maximum contributions to the program to be $2 million per year. This is the estimated maximum since it equals the yearly volume of the largest of other states' savings programs. This yields a loss of tax revenue to the state of $120,000 per year ($2,000,000 x 0.06).

The Oversight Division assumes the deposits for the MOSTARS Higher Education Savings Program would not be deposited into a state fund. Therefore, the only fiscal impact included is the loss of tax revenue for state and local government due to the tax exemption. Oversight calculated the political subdivisions' earnings tax rate at 1% ($2,000,000 x .01 = $20,000) and ranged the fiscal impact from zero because the political subdivision loss would depend on the number of participants living in areas with an earnings tax. Oversight has noted in the fiscal impact section that the exemption of taxes on the investment earnings would increase the loss to the state, which would compound during the period the program funds would be invested.

Officials from the Department of Revenue (DOR) assume the number of taxpayers who would be eligible to participate in this program is unknown. For every one million returns impacted, the Division of Taxation would need two Tax Processing Technicians for six months to assist with pre-edit, error corrections and additional correspondence. Based on the CBHE's estimate of the maximum contributions to the program of $2 million, the Oversight Division assumes the number of returns would not reach 500,000 during the fiscal note period to warrant one Tax Processing Technician. Therefore, Oversight has not included any FTE for DOR in the fiscal impact section.

Professional Licenses and Student Loan Defaults

Officials from the Coordinating Board For Higher Education (CBHE) assume the bill would require the CBHE to provide the identity of individuals in default status to four state agencies. The CBHE would also report to those agencies individuals who subsequently make satisfactory arrangements to voluntarily repay the loans in question. CBHE assumes that these responsibilities could be satisfied with resources currently available to the department through the Missouri Student Loan Program (MSLP). However, the MSLP could only provide default

ASSUMPTION (continued)

status on individuals for whom a valid Social Security Number would be submitted.

CBHE officials assume the bill would also require the department -- in Section 173.117 (3) -- to promulgate by rule a procedure for determining when a person in default on a student loan made satisfactory arrangements to ensure (voluntary) repayment of the loan (this would include having received an initial payment after an agreement has been made) and to provide a hearing for appeals made by persons aggrieved by a decision of the department. The current contractual rate for MSLP's administrative hearing officer is $75 per hour for an attorney, about $40 per case for copying, faxing, long distance phone charges and other administrative costs, and $25 per hour for a law clerk or paralegal. MSLP has no data to estimate the time or cost involved to prepare for and hold a hearing of this type. However, because this would be a state rather than a federal regulation, the state guaranty student loan fund in all likelihood could not be used to pay for the hearings. CBHE assumes that the cost of such hearings would be assessed to either the agency withholding the license or the individual appealing the decision. The Oversight Division assumes the individual appealing the decision would pay for the hearing.

Officials from the Department of Elementary and Secondary Education (DESE) assume in order to comply with the provisions of the legislation, DESE would request 1.5 FTE and associated expenses. DESE assumes a Supervisor (1 FTE) would be necessary to coordinate the hearing process; work as a liaison between the State Board of Education, the Coordinating Board for Higher Education and the Attorney General; and process and approve reinstated teaching certificates. A Senior Secretary (.5 FTE) would provide clerical assistance to the supervisor. The secretary's duties would include scheduling meetings between the affected state agencies; tracking revoked and reinstated certificates; answering increased phone calls and written correspondence; and tracking CBHE lists.

Officials from the Department of Insurance (INS) assume the proposal would have an insignificant fiscal impact on the department. The department would have to be supplied with electronic media to cross check original and renewal agent and broker license applications. One-time programming changes would have to be conducted by management information systems

staff and/or through management information systems contract services.

INS officials assume that the additional cost and responsibilities resulting from passage of the proposal could be absorbed by existing core appropriations and staff. Total one-time additional costs would be less than $10,000.

INS officials state that any expenditures resulting from the passage of the proposal would be paid from the Insurance Dedication Fund. This fund is financed by license fees established by statute. These fees are not indexed for inflation. Increased expenditures paid by the department as a

ASSUMPTION (continued)

result of the new legislation effectively reduces the Insurance Dedication Fund.

INS officials assume that if these assumptions would not be correct and additional resources beyond core appropriations would be needed to carry out the additional responsibilities, the department wold then be required to submit a budget request for the additional resources to carry out the additional responsibilities.

Officials from the Department of Economic Development-Professional Registration (DPR) state that in general the boards within the Division of Professional Registration do not have authority to use social security numbers for cross-referencing applicants or licensees who have defaulted on student loans. DPR states they are establishing this right through changes in the application and renewal forms. However, they state they could not require that the applicant or licensee provide their social security numbers, but they could only request it. DPR states this would be the only way to obtain positive identification to cross-reference to a default list. Therefore, they do not know the level of accuracy of the cross-reference or percentage of detections that the cross-reference would disclose.

DPR officials state that based on the assumption that the cross-references would be done manually for new applications, as part of the initial application process, and by computer for renewals, they assume the proposed legislation would be of minimal fiscal impact to the division and could be funded through existing appropriations. However, DPR officials state that if the legislation would result in manual cross-referencing for renewals or defaults and larger than anticipated volume of rejections, additional personal services and/or expense and equipment would be requested.

Officials from the Office of State Courts Administrator would not anticipate any appreciable impact upon the workload of the courts as a result of the proposal.

The Oversight Division assumes that using computer cross-referencing with the Coordinating Board For Higher Education, the Department of Elementary and Secondary Education and Department of Insurance could meet the requirements of the proposed legislation with existing resources. Oversight also assumes that even though the proposal could result in higher collections on student loans, the administrative costs saved based on less defaulted loans would be offset by the administrative costs for MSLP of notifying agencies of the borrowers' default status. Since the MSLP is an agency acting on behalf of the federal government, the state would only benefit from less defaults from an administrative position.

ASSUMPTION (continued)

Student and Faculty Representatives

Officials from the Coordinating Board For Higher Education (CBHE) and Governor's Office assume the proposal would have no fiscal impact on the agencies.

Officials from Missouri Western State College, Southwest Missouri State University, University of Missouri and Harris-Stowe State College assume the proposal would have no fiscal impact on the institutions.

Officials from Truman State University assume the estimated fiscal impact would be $5,200 per year to cover operational costs of an additional board member. The Oversight Division assumes the university could accomplish the provisions of the proposal with existing resources.

Modifying a Course or Program of Study

CBHE assumes there is no fiscal impact associated with the proposed section 173.005.2(10). The CBHE currently has no authority to restrict independent institutions from creating or modifying a course or program of study or from adding a new location.

Survivor Grants

Officials of the Department of Public Safety - Missouri State Highway Patrol, Missouri Department of Transportation, Missouri Department of Conservation, Department of Corrections, and Department of Labor and Industrial Relations assume this proposal would have no fiscal impact to their agencies.

Officials from the Department of Natural Resources (DNR) assume the department's state park rangers have been added to the definition of a public safety officer. The department has 43 state park rangers and 20 commissioned state park superintendents that would be included in the definition of a public safety officer and therefore eligible to participate in the Survivor Grant Program.

Officials from the Coordinating Board For Higher Education (CBHE) stated that the number of permanently and totally disabled public safety officers and subsequently the number of eligible spouses or other dependents that would qualify for the program as a result of this proposal is unknown. There is no way of estimating the number of public safety officers that would become permanently and totally disabled in the future, and whether or not their qualified spouses and/or dependents would choose to take advantage of this program if it were expanded as proposed. CBHE officials stated that as currently constituted the program is very small

ASSUMPTION (continued)

averaging 2 to 3 participants per year. The average award to qualified recipients is approximately $1,500 per year.

In a similar proposal from the previous legislative session, the Oversight Division estimated the fiscal impact based on information from the Missouri Department of Transportation, Missouri Department of Conservation, Statistical Abstract of the United States, Coordinating Board For Higher Education and Department of Natural Resources. Total "employees" and "public safety officers" as defined by the bill were estimated at 34,191. Of this amount, 30,157 were public safety officers (PSO). Per the Department of Public Safety, Highway Patrol, approximately .6% of highway patrolmen are disabled. Applying the Highway Patrol percentage to the population of "employees" and "public safety officers" would result in 205 (34,191 x .6%) employees and public safety officers disabled. 64% of the disabled were considered as being within the age range to possibly have college student dependents, based on the age group breakdown in the statistical abstract. Assuming one qualifying dependent per PSO and employee, there would be 131 (205 x 64%) dependents eligible. This proposal also allows for the disabled public safety officers to qualify for the grant, who would be estimated at 181 (30,157 x .6%). This proposal would also make the spouses of public safety officers eligible for the grant. Applying information from the 1990 Census of Population and Housing, 56% of Missouri's population were married with a spouse present, to our approximate number of disabled public safety

officers, would leave an estimated 101 (30,157 x .6% x 56%) spouses to qualify.

Based on the Statistical Abstract of the United States, 33.1% of the population is a high school graduate and 18.4% attended some college, but did not attain a degree. Therefore, the Oversight Division multiplied the populations eligible for the grants by 50%. Oversight also multiplied the qualifying public safety officers and spouses by 30%, since this would include the age groups likely to attend college.

The combined number of individuals potentially eligible for this grant as a result of this proposal would be:

131 children of disabled public safety officers or employees + 181 disabled public safety officers + 101 spouses of disabled public safety officers = 413 eligible grantees. The 131 children were multiplied by 50% for children likely to attend college, for a total of 65 children. The 181 disabled public safety officers plus 101 spouses would total 282. Therefore, 282 x 50% likely to attend college x 30% in an age group likely to attend college = 42. Therefore, the total eligible population likely to attend college would include 107 (65 + 42) individuals. With an annual tuition amount of $3,000, the total possible additional grants would be $321,000 annually. Oversight has ranged the fiscal impact from $0 to the maximum amount estimated ($321,000).

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
GENERAL REVENUE FUND
Cost-Coordinating Board For Higher Education
Scholarships	($0 to	($0 to	($0 to
	$321,000)	$321,000)	$321,000)
Loss-Department of Revenue
Income tax exemption	(120,000)	(120,000)	(120,000)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($120,000	($120,000	($120,000
	TO	TO	TO
	$441,000)	$441,000)	$441,000)
The exemption of taxes on the investment earnings would increase the loss to the state, which would compound during the period the program funds would be invested.
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
Loss-Cities
Earnings tax exemption	($0 to	($0 to	($0 to
	$20,000)	$20,000)	($20,000)
FISCAL IMPACT - Small Business

Small businesses could be fiscally impacted in their ability to operate to the extent licenses to practice could not be renewed due to the failure of professionals to repay student loans.

DESCRIPTION

MOSTARS

The proposal would create the MOSTARS Higher Education Savings Program. The program would be administered by the MOSTARS Higher Education Savings Board consisting of the State Treasurer serving as the chairman, Commissioner of Department of Higher Education, Commissioner of the Office of Administration, Director of Department of Economic Development and a person from the investment community selected by the President Pro Tem of the Senate and Speaker of the House of Representatives. The board would have the power to develop and implement the program; promulgate rules and regulations; establish policies; inform families regarding methods for financing education; enter into agreements with financial

DESCRIPTION (continued)

institutions and state and federal agencies; enter into participation agreements; accept any grants, gifts, legislative appropriations and other federal, state and local funds; invest funds from participants; make payments and distributions on behalf of beneficiaries; make refunds to participants; make provision for paying administrative costs; and procure insurance and guarantees against loss.

The board could enter into savings program participation agreements with participants on behalf of beneficiaries. The execution of a participation agreement would not guarantee the beneficiary would be admitted to an institution of postsecondary education, be allowed to continue to attend an institution, or would graduate.

The maximum amount which could be contributed by a participant would be eight thousand dollars per year.

Money paid by a participant would be deposited as received and invested by the board. Deposits and earnings could be used for eligible postsecondary education costs. Any participant could cancel an agreement at will, and the return of funds would be subject to terms and conditions established by the board, provided the penalties would comply with the Internal Revenue Code's provisions related to savings plans.

The assets of the savings program and any income would be exempt from all taxation by the state and any political subdivisions. Contributions to the savings plan would not be counted toward

the calculation of gross income for state income tax purposes.

The STO would review the financial status and investment policy of the program as well as participation in the program, on a semi-annual basis.

Money deposited in individual accounts would not be part of "total state revenues", and expenditures would not be an expense of state government.

Professional Licenses and Student Loan Defaults

The proposal would require the State Board of Education to refuse to issue or renew and require them to suspend or revoke any certificate of license to teach, any license of any insurance agent, upon proof the person is in default on the repayment of any student loan and has not made satisfactory arrangements to ensure repayment.

Within sixty days of the determination, the proposal would require the Department of Higher Education to provide the director of the Division of Professional Registration, State Board of

DESCRIPTION (continued)

Education, Clerk of the Supreme Court and director of the Department of Insurance the name of any person in default on the repayment of any student loan issued by the Department of Higher Education and who has not made satisfactory arrangements to ensure repayment.

The Department of Higher Education would be required to promulgate rules for determining

when a person in default on a student loan has made satisfactory arrangements to ensure repayment of the loan. The Department of Higher Education would be authorized to garnish any state payment to a person in default on the repayment of a student loan.

Any attorney or counselor at law could be suspended from practice for avoiding in bad faith the repayment of any student loan administered by the Department of Higher Education.

The director of the Division of Professional Registration would be required to notify each board

and commission in the division the names of every person regulated by such board or commission. The director would also be required to maintain a special indicator showing the

status of the licensee with regard to repayment of student loans.

No board or commission in the Division of Professional Registration could grant or renew any license to a person in default on the repayment of a student loan, if satisfactory arrangements had

not been made to ensure repayment.

The proposal would prohibit the Clerk of the Supreme Court from permitting any person from taking the bar examination, would prohibit a person from being admitted to the Missouri Bar and would prohibit an attorney from paying annual enrollment fees to renew a license to practice law, if the person is in default on a student loan.

Student and Faculty Representatives

The proposal would allow student representatives of the University of Missouri, each educational institution referred to in section 174.020, Truman State University and Lincoln University to attend closed meetings. The student representative would be required to remain current on tuition and fee payments. The student representatives would receive the same reimbursement for expenses as other members of the board.

The Governor would appoint a faculty member representative to the Board of Curators of the University of Missouri and Lincoln University, the Board of Regents of each education institution per section 174.020, and the Board of Governors of Truman State University. The faculty member representatives would receive the same reimbursement as other members of the board.

DESCRIPTION (continued)

Meetings would be closed to the student or faculty representative pursuant to sections 610.021 and 610.022.

The proposal would revise the appointment of the board of governors.

The Governing Board of Truman State University would consist of eleven members (under current law ten members).

Modifying a Course or Program of Study

The proposal would limit the duties and responsibilities of the CBHE by not allowing them to restrict any approved private institution of higher education from creating or modifying a course or program of study or adding a new location.

Survivor Grants

This proposal would provide college grants, subject to appropriation, for children of public safety officers and certain employees of the Department of Highways and Transportation who were killed or permanently and totally disabled in the line of duty. A child is eligible under current law only when such parent was killed in the line of duty. The definition of "public safety officer" would be expanded to include capitol police officers and park rangers. It would also make the spouse of public safety officers and disabled public safety officers themselves eligible for college grants.

A "permanent and total disability" would be defined as one which renders a person unable to work and which is expected to result in death or to last for at least twelve months. "Line of duty"

would be defined as any action whose primary function was crime control, enforcement of criminal laws or suppression of fires, that was authorized by law or regulation.

If a person suffering from a permanent and total disability ceased to have such disability, neither the child, the spouse or the public safety officer or employee would be eligible for this grant money.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space. The income tax exemption would result in a decrease in total state revenues.

SOURCES OF INFORMATION

Coordinating Board For Higher Education

Department of Elementary and Secondary Education

State Treasurer's Office

Office of Administration (Budget and Planning)

Department of Economic Development

Senate

House of Representatives

Southwest Missouri State University

Truman State University

University of Missouri

Missouri Western State College

Harris-Stowe State College

Department of Revenue

Missouri Ethics Commission

Office of State Courts Administrator

Department of Insurance

Governor's Office

Department of Public Safety

Department of Transportation

Department of Conservation

Department of Natural Resources

Department of Labor and Industrial Relations

Department of Corrections

Jeanne Jarrett, CPA

Director

May 6, 1998