SB 0069 - Fiscal Note

Fiscal Note - SB 0069 - Authorizes pharmaceutical tax credit within circuit breaker structure

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0445-01

BILL NO.: SB 69

SUBJECT: Drugs and Controlled Substances; Elderly; Taxation and Revenue-Property

TYPE: Original

DATE: January 18, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	$0	($19,557,590)	($19,536,751)
Total Estimated Net Effect on All State Funds	$0	($19,557,590)	($19,536,751)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 5 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Social Services state this proposal would not fiscally impact their agency.

Officials of the Department of Revenue (DOR) state this proposal would expand the property tax credit to also include a pharmaceutical tax credit.

ADMINISTRATIVE IMPACT:

In a similar proposal last year, the Department of Revenue estimated 7,500 new Property Tax Credit returns would be filed in order to claim the pharmaceutical tax credit, along with a portion of the current returns already filed. However, with the increase of the maximum upper limit to $25,000 (SB 675), the Department estimates 9,800 new Property Tax Credit returns would be filed. The Division of Taxation states in order to maintain the current time frame for processing these returns, one temporary tax season employee would be needed.

The proposal would also require modifications to the income tax system. The Division of Taxation and Collections estimates these modifications, including programming changes, would require 909 hours of overtime at a cost of $20,839. Modifications to the income tax return and schedules would be completed with existing resources.

Officials of the Office of Administration (COA) assume this proposal would provide a refundable tax credit for the cost of prescription drugs of up to $750 to people who qualify for the property tax circuit breaker.

In a similar proposal, according to the Department of Social Services the Division of Family Services, Medicaid covers the expense of prescription drugs. The Department of Social Services Research and Evaluation Unit stated for fiscal year 1996 there were 93,723 individuals age 65 and over that were Medicaid eligible.

According to the State Demographer and the Office of Administration, Division of Budget and Planning, there are 290,000 Missouri Residents 65 and over with household incomes of less than $25,000. Therefore, 32% of this population "age 65 and over" are assumed to be covered by Medicaid.

Based on data from the Office of Administration regarding projected FY2000 Circuit Breaker Claims, only about 46% of individuals who would be in the age and income ranges to qualify for the credit actually file it. COA assumes the same (46%) utilization rate for this credit.

ASSUMPTION (continued)

Oversight referred to the 1997 Statistical Abstract table No. 171 Health Insurance Coverage Status, by Selected Characteristics: 1987 to 1995 for individuals 65 years old and over. This table shows that approximately 99% of all individuals 65 years of age and over are covered by private or Government health insurance. Therefore, Oversight, for purposes of this fiscal note has reflected 1% of the 290,000 (2,900 individuals) Missouri residents 65 and over with household incomes of less than $25,000 as not having insurance coverage.

Oversight assumes that the individuals that are covered by private or Government health insurance would average $350 annually in copays and deductibles.

COA assumes the average income for this population is $15,000. The 1% deduction prior to taking the credit would be an average of $150.

Oversight's calculation of the revenue impact is as follows:

Total Population 290,000

less: Medicaid (290,000 x 32%) (93,723)

196,277

Uninsured (2,900)

Balance x Utilization rate 193,377 x 46% = 88,953 @ $350 (copays and

deductibles) less 1% ($150)

Subtotal $17,790,684

Plus uninsured @ $750 less 1%($150) $1,740,000

Total estimated loss from credits $19,530,684

Oversight assumes because this legislation would become effective for tax years beginning after December 31, 1999 that costs would not be accrued until claims were filed in FY 2001.

This proposal would result in a decrease in Total State Revenues.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
GENERAL REVENUE FUND
Cost to General Revenue Fund
Department of Revenue (DOR)
Personal Service (.5 FTE plus O.T.)	$0	($26,906)	($6,067)
Fringe Benefits	$0	$0	$0
Expense and Equipment	$0	$0	$0
Administrative costs to (DOR)	$0	($26,906)	($6,067)
Loss to General Revenue Fund
Pharmaceutical Tax Credit	$0	($19,530,684)	($19,530,684)
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND	$0	($19,557,590)	($19,536,751)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
	0	0	0
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This act authorizes a state income tax credit for pharmaceutical costs incurred by income-qualified senior citizens and disabled veterans. The pharmaceutical tax credit is equal to the total amount spent on prescription drugs during a calendar year less reimbursements from other sources and less 1% of income. The credit cannot exceed $750 per tax year. The act will become effective on January 1, 2000 and applies to all taxable years beginning after December 31, 1999.

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 Revenue

Office of Administration

Department of Social Services

Jeanne Jarrett, CPA

Director

January 18, 1999