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 0965 - Revises state school aid formula, reduces minimum levy to $1.25, increases sales tax for schools
COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
SUBJECT: Education, Elementary and Secondary: School Aid Formula
TYPE: Original
DATE: March 10, 1998
FISCAL SUMMARY
|
ESTIMATED NET EFFECT ON STATE FUNDS | |||
| FUND AFFECTED | FY 1999 | FY 2000 | FY 2001 |
| General Revenue | ($978,420,426) TO $221,579,574 | ($965,200,935) TO $234,799,065 | ($953,000,315) TO $246,999,685 |
| School District Trust | $0 | $0 | $0 |
| Highway | $13,725,000 | $34,275,000 | $35,475,000 |
| Total Estimated
Net Effect on All State Funds |
($964,695,426) TO $235,304,574 | ($930,925,935) TO $269,074,065 | ($917,525,315) TO $282,474,685 |
|
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 | *$230,275,000 TO $674,650,000 | *$577,425,000 TO $1,021,800,000 | *$603,325,000 TO $1,047,700,000 |
*Excludes unknown loss for county collectors' commissions and assessment fees.
Numbers within parentheses: ( ) indicate costs or losses
This fiscal note contains 7 pages.
FISCAL ANALYSIS
ASSUMPTION
Officials from the State Auditor's Office and Coordinating Board For Higher Education assume the proposal would result in no fiscal impact to them.
Officials from the Department of Elementary and Secondary Education (DESE) assume by reducing the local tax effort, line two of the foundation formula would decrease. This could increase the amount of foundation formula needed by $500 million to $1.2 billion. However, with the increase in sales and income taxes, the state could see $1.5 billion in added revenues. The Oversight Division has ranged the fiscal impact to the formula from zero to $1.2 billion, since the proposal does not require the districts to reduce their operating levies for school purposes. Oversight has used the tax revenue projections from the Office of Administration - Budget and Planning.
Officials from the State Tax Commission assume the proposal would result in no fiscal impact to them. They assume that if school districts lowered their tax rates from the minimum of $2.75 to $1.25, it would lower property taxes by approximately $750 million per year; however, the proposal does not force them to lower the tax rate. The Oversight Division has ranged the fiscal impact for the loss to school districts for property taxes from zero to $750 million, since the proposal does not require the districts to reduce their operating levies for school purposes.
Officials from the Department of Revenue (DOR) assume the Division of Taxation and Collection would notify all businesses of the change in the sales and use tax rates. There are currently about 130,000 such accounts. Notification costs are shown in DOR's cost estimate. In addition, due to the fact that no changes could be made in the withholding table for 1998, one Tax Processing Technician I for every 12,000 errors generated by the corporate income tax increase would be required for the first year only. Only one such FTE is included in DOR's cost estimate; however, DOR officials assume if the number of errors would exceed 12,000, additional temporary FTE would be requested accordingly.
DOR officials assume the Division would incur a one-time cost to reprint the withholding tax guides reflecting the change in rate at a cost of $41,000 and would incur $33,000 in postage costs (shown under the Division of Administration); however, because the election date for the tax is November 1, 1998, and the rate change is effective for the 1998 tax year, there would be insufficient time to adjust withholding for the 1998 tax year, resulting in many underpaid returns. The Division would request $11,700 in temporary employee costs (3 FTE for 15 weeks at $6.50 per hour) for the first tax season only to handle these underpaid returns.
ASSUMPTION (continued)
DOR officials assume the Division of Motor Vehicles and Drivers Licensing would revise the Titling Manual and office procedures to reflect the increase in the sales/use tax rate.
DOR officials assume the Division of Administration would incur postage costs for the mailings required by the Division of Motor Vehicle and the Division of Taxation.
For the Information Systems Division, DOR officials assume they would be required to make all necessary changes to the tax systems to allow the higher rate and the change in the distribution of the sales tax moneys. These changes would be accomplished with existing personnel; however, in order to complete the changes in the time allotted, overtime would be requested along with State Date Center costs for the additional programming required by this proposal.
Officials from the Office of Administration-Budget and Planning (OA - B&P) assume the changes in taxes would result in the following revenue increases:
Individual Income - Alters rates and brackets
FY 1999: $178.5 million
FY 2000: $189.2 million
FY 2001: $200.5 million
Corporate Income - Raises tax rate to 6.75%
FY 1999: $44.7 million
FY 2000: $45.6 million
FY 2001: $46.5 million
OA - B&P officials assume the effective date for the two provisions would be January 1, 1998. They assume it could be difficult or impossible for the Department of Revenue to implement these changes with less than two months lead time.
Sales and Use Tax - Raises the sales tax rate from 4 to 5 percent
FY 1999: $225.7 million
FY 2000: $566.0 million
FY 2001: $591.5 million
The Motor Fuel Tax Fund would also receive the following amounts
FY 1999: $18.3 million
FY 2000: $45.7 million
FY 2001: $47.3 million
ASSUMPTION (continued)
OA - B&P officials assume that sales tax change would be effective January 1, 1999, and there would be a one month implementation lag.
Advertisement costs for the proposal would be $3,990 per newspaper column inch for three publications of the text of the proposal, the introduction, title, fiscal note summary, and affidavit. The proposal would be on the ballot for the November, 1998, general election.
The proposal would increase total state revenues by the increases in individual, corporate and sales taxes.
| FISCAL IMPACT - State Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| GENERAL REVENUE FUND | |||
| Income-General Revenue Fund | |||
| Increase in Individual Tax Rate | $178,500,000 | $189,200,000 | $200,500,000 |
| Increase in Corporate Tax Rate | 44,700,000 | 45,600,000 | 46,500,000 |
| Sales Tax (additional one cent) | 225,700,000 | 566,000,000 | 591,500,000 |
| Total Income-General Revenue Fund | $448,900,000 | $800,800,000 | $838,500,000 |
| Cost-General Revenue Fund | |||
| Transfer to School District Trust Fund | ($225,700,000) | ($566,000,000) | ($591,500,000) |
| Cost-Secretary of State's Office | |||
| Advertisement Costs | ($1,465,000) | $0 | $0 |
| Cost-Department of Revenue | |||
| Personal Service | ($11,592) | $0 | $0 |
| Fringe Benefits | (3,246) | 0 | 0 |
| Expense and Equipment | (138,763) | (935) | (315) |
| Overtime-Information Systems Division | (1,825) | 0 | 0 |
| Total Cost-DOR | ($155,426) | ($935) | ($315) |
| Cost-DESE | |||
| Foundation Formula | ($0 TO | ($0 TO | ($0 TO |
| $1,200,000,000) | $1,200,000,000) | $1,200,000,000) | |
|
ESTIMATED NET EFFECT ON | |||
| GENERAL REVENUE FUND | ($978,420,426) | ($965,200,935) | ($953,000,315) |
| TO | TO | TO | |
| $221,579,574 | $234,799,065 | $246,999,685 | |
| FISCAL IMPACT - State Government | FY 1999 | FY 2000 | FY 2001 |
| (Continued) | (10 Mo.) | ||
| SCHOOL DISTRICT TRUST FUND | |||
| Income-Department of Elementary and | |||
| Secondary Education | |||
| Transfer from General Revenue Fund | $225,700,000 | $566,000,000 | $591,500,000 |
| Cost-Department of Elementary and | |||
| Secondary Education | |||
| Foundation Formula (additional sales tax) | ($225,700,000) | ($566,000,000) | ($591,500,000) |
|
ESTIMATED NET EFFECT ON | |||
| SCHOOL DISTRICT TRUST FUND | $0 | $0 | $0 |
| HIGHWAY FUND | |||
| Income-Highway Fund | |||
| Sales Tax and Highway Use Tax | |||
| (75% of additional one cent) | $13,725,000 | $34,275,000 | $35,475,000 |
| FISCAL IMPACT - Local Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| Income-Cities | |||
| Sales Tax (15%) | $2,745,000 | $6,855,000 | $7,095,000 |
| Income-Counties | |||
| Sales Tax (10%) | $1,830,000 | $4,570,000 | $4,730,000 |
| Income-School Districts | |||
| Increase in Foundation Formula: | |||
| Additional Sales Tax | $225,700,000 | $566,000,000 | $591,500,000 |
| Reduction in Property Tax | 0 TO | 0 TO | 0 TO |
| 1,200,000,000 | 1,200,000,000 | 1,200,000,000 | |
| Loss-School Districts | |||
| Reduction of taxes for school purposes | ($0 TO | ($0 TO | ($0 TO |
| $750,000,000) | $750,000,000) | $750,000,000) | |
| FISCAL IMPACT - Local Government | FY 1999 | FY 2000 | FY 2001 |
| (Continued) | (10 Mo.) | ||
| Loss-Counties | |||
| Reassessment Funds | ($0 TO | ($0 TO | ($0 TO |
| $5,625,000) | $5,625,000) | $5,625,000) | |
| Collectors' Commissions and | |||
| Assessment Fees | (UNKNOWN) | (UNKNOWN) | (UNKNOWN) |
|
ESTIMATED NET EFFECT ON | |||
| LOCAL GOVERNMENT | *$230,275,000 | *$577,425,000 | *$603,325,000 |
| TO | TO | TO | |
| $674,650,000 | $1,021,800,000 | $1,047,700,000 | |
| *Excludes unknown loss for county collectors' commissions and assessment fees. | |||
FISCAL IMPACT - Small Business
Small businesses would be affected as a result of this proposal. They would pay higher sales taxes on taxable purchases and higher corporate income taxes.
DESCRIPTION
The proposal would reduce the income tax rate for Missouri taxable income of every resident over $9,000 from 6% to 5.5%. The income tax rate would increase from 6% to 6.5% for taxable income over $10,000. The tax rates would apply on and after January 1, 1998.
For all tax years beginning on or after January 1, 1998, the tax imposed on corporations would equal 6.75% of taxable income.
The proposal would raise the state portion of the sales tax from four percent to five percent of the purchase price. The amount going to the School District Trust Fund would be raised from one cent on the dollar to two cents on the dollar.
In the definition of "operating levy for school purposes", the maximum levy would be $1.25 per one hundred dollars assessed valuation ($4.60 under current law).
The proposal would be submitted to the voters of the state for approval at a special election in November, 1998.
DESCRIPTION (Continued)
This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space. The proposal would increase total state revenues by the increases in individual, corporate and sales taxes.
SOURCES OF INFORMATION
Department of Elementary and Secondary Education
Department of Revenue
State Tax Commission
Office of Administration - Budget and Planning
State Auditor's Office
Coordinating Board For Higher Education
NOT RESPONDING: Secretary of State's Office
Jeanne Jarrett, CPA
Director
March 10, 1998