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 0862 - Establishes a Higher Education Savings Program
COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. NO. 3389-02
BILL NO. SB 862
SUBJECT: Education, Higher: Banks and Financial Institutions
TYPE: Original
DATE: February 18, 1998
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS Net Effect on All State Funds *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. ESTIMATED NET EFFECT ON FEDERAL FUNDS Net Effect on All Federal Funds
FUND AFFECTED
FY 1999
FY 2000
FY 2001 General Revenue*
($120,000)
($120,000)
($120,000)
Total Estimated
($120,000)
($120,000)
($120,000)
FUND AFFECTED
FY 1999
FY 2000
FY 2001 None
$0
$0
$0 Total Estimated
$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 5 pages.
FISCAL ANALYSIS
ASSUMPTION
Officials from the Senate, House of Representatives, Harris-Stowe State College, Missouri Western State College, Truman State University, Southwest Missouri State University and Department of Economic Development-Division of Job Development and Training 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, assume the CBHE would estimate the fiscal impact.
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.
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
ASSUMPTION (continued)
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.
| FISCAL IMPACT - State Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| GENERAL REVENUE FUND | |||
| Loss-Department of Revenue | |||
| Income tax exemption | ($120,000) | ($120,000) | ($120,000) |
| 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
No direct fiscal impact to small businesses would be expected as a result of this proposal.
DESCRIPTION
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 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 board would establish the maximum amount which could be contributed annually by a participant, but in no case would the amount exceed 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
DESCRIPTION (Continued)
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.
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
Missouri Western State College
Harris-Stowe State College
Department of Revenue
NOT RESPONDING: Central Missouri State University, Northwest Missouri State University, Missouri Southern State College, Southeast Missouri State University, Metropolitan Community College, St. Louis Community College
Jeanne Jarrett, CPA
Director
February 18, 1998