SB 0831 - Fiscal Note

Fiscal Note - SB 0831 - Revises part of "brownfields" law; allows developer who paid remediation costs to directly receive tax credits

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3585-02

BILL NO. SCS for SB 831

SUBJECT: Tax Credits for Brownfields

TYPE: Original

DATE: March 23, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Various State Funds	(Unknown)*	(Unknown)*	(Unknown)*
Hazardous Waste Fund	$0	$0	$0
Total Estimated Net Effect on All State Funds *	(Unknown)*	(Unknown)*	(Unknown)*

* Expected to be less than $100,000 per year.

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	(Unknown)	(Unknown)	(Unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 5 pages.

FISCAL ANALYSIS

ASSUMPTION

The Department of Economic Development (DED) assumes the current level of funding for this program will remain constant and will require no additional appropriations. The DED also assumes this substitute will have some impact on cities and counties in the form of reduced ad valorem tax if they do not choose to use tax increment financing.

The Department of Natural Resources (DNR) assumes the proposed legislation revises part of the abandoned property ("brownfields") law. Privately owned property is eligible for financial assistance under the brownfields program if the city or county approves the project. Therefore, the proposed legislation broadens the universe of projects that will qualify for assistance to include privately held properties. The act clarifies grants can only be made for public capital improvements.

The DNR assumes this substitute allows property developers who pay remediation costs to receive directly any remediation tax credits. The Department of Economic Development is given discretion to provide tax credits of up to 100% of eligible remediation costs, but total state incentives are limited to the net state economic impact of the project or the least amount which enables the project to occur.

The DNR's Voluntary Cleanup Program (VCP) recovers any costs incurred from the responsible party. The relationship between DED and the VCP is that all of the DED Brownfield Redevelopment Program projects must participate in VCP for oversight of the environmental remediation. This is a statutory requirement which appears in DED's law. According to DED they anticipate an additional 40 to 50 new sites per year participating in their program and therefore, in VCP.

At the present time the VCP project managers are carrying a site load of about 25 sites each. This is the maximum they can handle on a timely basis. With the expected increase in workload as a result of the proposed change in DED's law, the increase in the number of new sites will be more than our current resources could handle. As a result of the increased workload, the DNR would need two environmental specialists to review project remediation plans and approve or disapprove cleanup activities. If the actual number of new sites is greater than our projections, the department would need to request additional resources.

The Department of Revenue (DOR) assumes this substitute requires the owner of the abandoned or underutilized property must repay a portion of the tax credits if the property is sold within five years of receiving the tax credit. The DOR assumes the DED will collect the repayment of these tax credits. This substitute allows taxpayers to apply the tax credit to

ASSUMPTION (continued)

franchise taxes and banking institution taxes. This substitute would enhance current legislation and possibly add additional filers to existing credits. The DOR does not anticipate that the volume would be large enough to warrant additional staff or resources.

The Office of the Administration (COA) assumes this substitute should not result in additional costs or savings to the COA.

According to the DED, no Brownfield tax credits have been claimed. Additionally, DED does not anticipate increasing the amount of credits certified. Therefore, the tax credits to the potential participants may not be sufficient to entice participation by the projected amount. Accordingly, Oversight has included costs for one environmental specialist. If the number of projects increase, the DNR can request additional resources through the normal budget process. Oversight adjusted DNR costs to bring them in-line with Office of Administration guidelines.

Oversight assumes since this substitute allows the tax credit to be taken against franchise and financial institution taxes there would be an unknown loss to the various state funds. Because there have been no credits claimed to date, it is assumed the loss will be less than $100,000 per year during the fiscal note period. Additionally, there would be an unknown loss to local governments due to reduced distributions.

Oversight assumes the loss to the various state funds would likely be offset by repayment of the tax credit by taxpayers who sell the property within five years after receiving the tax credit. The amount of credits that would be returned is unknown.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
VARIOUS STATE FUNDS
Loss - Brownfield Tax Credits	(Unknown)	(Unknown)	(Unknown)
Income - Repayment of Brownfield
Tax Credits	Unknown	Unknown	Unknown
Estimated Net Effect on
VARIOUS STATE FUNDS*	(Unknown)*	(Unknown)*	(Unknown)*
* Expected to be less than $100,000 per year.
FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
(continued)	(10 Mo.)
HAZARDOUS WASTE FUND
Income - DNR
Clean-up cost recovery	$0	$59,434	$60,972
Costs - DNR - (1 FTE)
Personal Service	$0	($38,377)	($39,337)
Fringe Benefits	$0	(10,757)	(11,026)
Expense and Equipment	$0	(10,300)	(10,609)
	$0	($59,434)	($60,972)
Estimated Net Effect on
HAZARDOUS WASTE FUND	$0	$0	$0
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
CITIES AND COUNTIES
Loss - reduced distribution due to expanded
tax credit	(Unknown)	(Unknown)	(Unknown)

FISCAL IMPACT - Small Business

This proposal may impact small businesses that qualify as a Brownfield project. If so, they would be eligible for financial assistance.

DESCRIPTION

This act revises part of the abandoned property ("brownfields") law. Privately owned property is eligible for financial assistance under the brownfields program if the city or county approves the project. The act clarifies that grants can only be made for public capital improvements.

The Director of the Department of Economic Development may consider the direct and indirect economic benefits to be provided by the eligible project. The total amount of state funding, tax credits or tax exemptions is limited to the projected state economic benefit. Sales of any grants, loans or loan guarantees will require repayment of a portion of the owner's investment.

DESCRIPTION (continued)

Tax credits are allowed against corporation franchise tax and financial institutions tax.

Any property tax abatement for an eligible project must be for at least fifty percent for ten to twenty five years. As an alternative to property tax abatement, tax increment financing may be authorized.

The act allows property developers who pay remediation costs to receive directly any remediation tax credits. The Department of Economic Development is given discretion to provide tax credits of up to 100% of eligible remediation costs, but total state incentives are limited to the net state economic impact of the project or the least amount which enables the project to occur.

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 Natural Resources

Department of Economic Development

Department of Revenue

Office of Administration

Jeanne Jarrett, CPA

Director

March 23, 1998