COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         3297-18

Bill No.:          HCS for SS for SCS for SB 711

Subject:           County Officials; Courts; Political Subdivisions; Property, Real and Personal; Public Officers; State Tax Commission; Taxation and Revenue - Property

Type:              Original

Date:               April 21, 2008

Bill Summary:            Would modify certain provisions regarding property taxation.

FISCAL SUMMARY

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 19 pages.

☐ Estimated Total Net Effect on All funds expected to exceed $100,000 savings or (cost).

☒ Estimated Net Effect on General Revenue Fund expected to exceed $100,000 (cost).

FISCAL ANALYSIS

ASSUMPTION

Officials from the Office of Administration, Division of Budget and Planning (BAP), assume this proposal would not cause any added cost to their organization.

Local government tax rate setting

This proposal would make various changes to the way local governments may set their tax levies. These changes may impact the Blind Pension Fund, and may impact the schools' foundation formula. BAP defers to DSS and DESE for any estimated impacts.

Property tax notifications

This proposal would create numerous new notification procedures for county clerks and assessors. Additional state appropriations may be required to comply with Article X, Section 21 of the Missouri Constitution.

Senior property tax deferral

This proposal would create a property tax deferral program for qualifying seniors. Deferred property taxes would be reimbursed to the county from the newly created property tax deferral revolving account, to be repaid on the death of the owner or transfer of the property. This proposal would have no impact on general and total state revenues.

Funds for the newly created revolving account would be transferred from the General Revenue Fund or the sale of bonds, and therefore could have an impact on the general revenue fund.

Railroad rolling stock property tax credit

This proposal creates a property tax credit for qualifying rolling stock of freight line companies. The state shall reimburse local governments for lost revenues. BAP defers to the STC for an estimate GR expenses resulting from this proposal.

ASSUMPTION (continued)

Officials from the Department of Elementary and Secondary Education (DESE) assumed a previous version of this proposal would have no direct fiscal impact on their organization. DESE officials stated that the proposal would make numerous changes to various tax statutes.

DESE officials assume this change would increase costs for some school districts while also decreasing tax revenue, but would not appear to have an impact on the foundation formula.

Officials from the Missouri State Tax Commission (TAX) assumed that the provision which would require TAX to develop a software program or a contract to be awarded to a vendor that would produce a tax liability notice. It is unknown to TAX the number or the complexity of the various computer systems maintained by the county collectors throughout this state. TAX would

need to employ at least 1 Computer Information Technology Specialist III and secure the necessary funding for office supplies and computer equipment. This individual would be responsible for developing a computer software program to assist with the production of the notices or work with the Information Technology Service to develop a contract to be awarded. Once the contract is awarded to the successful bidder, this individual would coordinate the installation of the new software with the numerous computer systems used by the county collectors. The cost of the contract is unknown but could be substantial. The Commission will prepare a budget request to secure the necessary funding for the FTE and contracts.

Oversight will indicate a cost in excess of $100,000 per year for the State Tax Commission for staff and/or contract costs to implement the proposal.

Officials from the Office of the State Auditor (SAO) assume this proposal would require additional staffing due to an anticipated increase in tax rate review workload. SAO submitted a cost estimate including 3.0 additional FTE and related equipment and expenditures totaling $144,851 for FY 2009, $157,504 for FY 2010, and $162,229 for FY 2011.

ASSUMPTION (continued)

Oversight has, for fiscal note purposes only, changed the starting salary for the new positions to correspond to the second step above minimum for comparable positions in the state's merit system pay grid. This decision reflects a study of actual starting salaries for new state employees for a six month period and the policy of the Oversight Subcommittee of the Joint Committee on Legislative Research. Oversight has also adjusted equipment and expenditures in accordance with OA budget guidelines.

Officials from the Office of the Secretary of State (SOS) provided this response to a previous version of the proposal.

Many bills considered by the General Assembly include provisions allowing or requiring agencies to submit rules and regulations to implement the act. The SOS is provided with core funding to handle a certain amount of normal activity resulting from each year's legislative session. The fiscal impact for this fiscal note to the SOS for Administrative Rules is less than $2,500. The SOS recognizes that this is a small amount and does not expect that additional funding would be required to meet these costs. However, we also recognize that many such bills may be passed by the General Assembly in a given year and that collectively the costs may be in excess of what our office can sustain with our core budget. Therefore, we reserve the right to request funding for the cost of supporting administrative rules requirements should the need arise based on a review of the finally approved bills signed by the governor.

Officials from Linn State Technical College assume this proposal would have no fiscal impact to their organization.

Officials from the City of Centralia assume their organization would have nominal costs as a result of this proposal.

Officials from the Metropolitan Community Colleges assume this proposal would cost their organization approximately $250,000 per year.

Officials from Moberly Area Community College assumed a previous version of this proposal would have no fiscal impact to their organization.

Officials from the Parkway School District assumed a previous version of this proposal would have a fiscal impact of $1,000 for their organization, to prepare property tax revenue estimates.

ASSUMPTION (continued)

Officials from Clinton County assume this proposal would adversely affect local governments if less revenue was collected.

Officials from Cooper County assumed a previous version of this proposal would have

startup costs in 2011 of $10,500 for computer programming, $5,075 for additional staff, and $350 for office supplies in the County Clerk's Office, and $25,000 for computer software and $45,000 for labor and supplies in the offices of the assessor and collector.

Officials from Buchanan County assumed that a previous version of this proposal would have costs no less than $50,000 per year for their organization.

Officials from Barry County assumed a previous version of the proposal would require additional resources in the County Clerk's office including computer programming estimated at $12,500, additional staffing estimated at $4,660, office supplies estimated at $465, and additional software, labor, and supplies in other courthouse offices totaling $30,000 and $45,000, respectively.

Officials from Carroll County assumed that a previous version of the proposal would require moving the timetables from the current dates to a more accelerated schedule for the offices of the Assessor, County Clerk and Collector-Treasurer. That change would result in staffing, programming, and postage and supply costs that will exceed $50,000 for the three offices involved.

Officials from St. Louis County assumed that a previous version of the proposal would result in additional costs for form design, printing setup, folding, and insertion totaling $27,500 per year.

Additional costs in the Assessor's office would include outsourcing new construction identification, occupancy verification, commercial valuation modeling, and quality control field reviews. These outsourcing costs are estimated at $668,120 for2009 (FY 2010). Additional staff cost to perform the additional work in-house for the 2011 reassessment totaled $607,390.

Oversight assumes the additional cost of additional staff would be permanent and that the costs are stated on an annual basis.

ASSUMPTION (continued)

Officials from Linn County assumed that a previous version of the proposal would result in additional costs to their organization as follows.

Programming: The Clerk's Office will need additional programming at an estimated cost of

$10,000.

Additional Staffing: A part time person for at least for two months at minimum wage would cost around $2,600.

Additional Office Supplies: Postage, paper, envelopes and other related materials in calculation the non-binding tax levy with 37 political subdivisions would cost $350.

Other County Offices: The costs for software, labor and supplies for the Assessor and Collector would be approximately $40,000.

Officials from Atchison County assumed that a previous version of the proposal would result in additional costs for their organization.

Additional Staffing

The requirements of the County Clerks office in this legislation will cover a two month time period. Eight weeks with one new office staff who shall make an abstract of the assessment book showing the aggregate amounts of different kinds of property, shall forward that information to the governing body of each political subdivision, will work in conjunction with each political subdivision to arrive at a "non-binding tax levy", shall forward each "non-binding tax levy" to the county collector. 1 staff x $5,075 ($3,975 salary + $1,100 benefits) = $5,075.

Overhead

Office supplies, postage, envelopes, and other related materials used in calculating the non-binding tax levy with 25 political subdivisions $250.

Other County Offices

The previous listed costs are only those that will occur in the County Clerk's office. Additional costs for offices of Assessor and Collector are Software estimated at $25,000 and Labor and supplies $45,000.

ASSUMPTION (continued)

Oversight notes that the proposal would require the State Tax Commission to develop and provide software to the counties for preparing the required tax estimates. Oversight assumes the local governments would have significant additional costs as a result of this proposal. Oversight notes that certain assessment procedure changes in this proposal would become effective on January 1, 2009 for charter counties and effective January 1, 2011 for the balance of the state. For the purposes of this fiscal note, Oversight will indicate additional costs statewide in excess of $1,810,485 to local governments beginning in 2009 (FY 2010) for the additional responsibilities and notices to taxpayers.

Oversight assumes the proposal would have no significant impact on local government revenues.

County tax levy error provisions

These provisions would specify that a taxpayer could not be assessed a penalty or interest due to an error by the county. The taxpayer would file a claim and the collector would make the refund.

Oversight assumes that errors tax billings would be relatively rare and that this provision would have no net fiscal impact to local governments.

Local tax procedures

These provisions would allow a local opt-out for certain assessment procedures, would require the St. Louis County Assessor to assess all real property on a uniform timetable and with uniform taxpayer rights and privileges, and would change certain deadlines for tax book preparation.

Oversight assumes that these provisions would have no significant fiscal impact.

Assessment Process for Possessory Interest in Airport Buildings

Officials from the Office of Administration, Division of Budget and Planning, the Department of Elementary and Secondary Education, the Department of Revenue, Linn State Technical College, the Metropolitan Community Colleges, Clinton County, the City of Centralia, and the City of St. Louis assumed that a similar proposal

(HCS for HB 1836 LR 4519-02) would have no fiscal impact to their organizations.

ASSUMPTION (continued)

Officials from the State Tax Commission (TAX) that a similar proposal

(HCS for HB 1836 LR 4519-02) would have no fiscal impact on their organization. TAX officials stated that the proposal would void the current process used to appraise this type of property, and could reduce assessed valuations and tax revenues to local governments. TAX officials were not able to provide an estimate of the number or current assessed valuation of eligible properties.

Oversight assumes that this proposal could apply to certain leased real property which is on or adjacent to a commercial airport and owned by a political subdivision. The proposal would specify a method for determining the assessed valuation for tax purposes of such properties. Oversight assumes the assessed valuation of such properties would be reduced if this proposal was implemented. The proposal would become effective after 2008 taxes are determined and would become effective for 2009 taxes in FY 2010. Accordingly, Oversight concludes that the fiscal impact to local governments and the Blind Pension Fund for years after FY 2009 is unknown.

Senior property tax deferral program

In response to a similar proposal (HB 2417 LR 5085-01) officials from the Department of Revenue (DOR) assume this proposal would allow those that are disabled or 60 or older on October 15 of the year of filing to file a claim with the assessor, provided the Homestead Preservation credit is not claimed. The assessor would forward the claim to the Department of Revenue to determine if property is eligible. The election by the taxpayer would defer the tax for the year; continue the deferral of past deferrals which are not delinquent; continue the deferral of future property taxes as long as specified requirements are met. A guardian or conservator could act on behalf of taxpayer, and a trustee may act on behalf of taxpayer under certain conditions. A joint claim is not required of spouses.

The taxpayer's claim would be submitted on a form prescribed by the Department of Revenue. The property would be required to meet certain requirements, and DOR could deny a deferment claim. DOR would be required to notify the assessor of tax-deferred properties.

The county collector would send a tax statement for each tax deferred property to DOR, and DOR would pay to the respective county an amount equivalent to the deferred taxes less 2%. DOR would cause to be recorded in the mortgage records of the county a list of tax deferred properties of that county but would not be required to pay a recording fee. The deferred tax would accrue interest, and DOR would track deferred taxes, accrued interest, and partial deferrals.

ASSUMPTION (continued)

On or before December fifteenth of each year, DOR would send a notice to each taxpayer who is qualified to claim deferral of property taxes for the current tax year; under certain circumstances, the taxpayer could delay filing until January 30, of the following year. When the taxpayer elects to defer property taxes, DOR would estimate the amount of property taxes that will be deferred, thereafter, DOR would have a lien in the amount of the estimated taxes. Deferred taxes would become payable if the eligible owner dies, moves from the property, or if the property is sold or refinanced, but a spouse could continue the deferral under certain circumstances.

The Senior Property Tax Deferral Revolving Account would be created to pay county tax collectors the property taxes deferred, for administrative expenses, and to receive repayments of deferred property taxes. Interest would accrue annually on the actual amount of taxes advanced to the county for the tax-deferred property at the rate of the average annual interest rate paid on

bonds plus 2% rounded up to the nearest whole percentage. If there is insufficient money in the account to make payments to the counties as determined by the State Auditor, the necessary

amount would be transferred from the General Revenue Fund and repaid as funds become available, or the account may be funded by bonds.

DOR assumes that new forms and instructions would need to be created, and a deferred property tax system would need to be developed.

Due to the complexity of this legislation, the detailed tracking that would be required, and the lien process, DOR assumes that Personal Tax would require twenty-three FTE Tax Processing

Technician I in addition to the current 9 FTE that process the property tax credit claims. There are approximately 192,000 property tax credit claims for individuals that could qualify for this deferral system. DOR also assumes that {Personal Tax would require one FTE Section Supervisor to maintain the unit and handle policy issues, and one FTE Revenue Band Manager to oversee the new requirements of this section.

DOR assumes that Customer Assistance would require one FTE Tax Collections Technician I for every 15,000 calls on the income tax line, one FTE Tax Collections Technician I for every 24,000 calls on the delinquent tax line, and seven FTE Tax Processing Technician I for the field offices.

ASSUMPTION (continued)

DOR provided this estimate of the IT cost to implement the proposal.

The Office of Administration, Information Technology Services Division (ITSD/DOR) assumes

the IT portion of this request could be accomplished with existing resources; however, if priorities shift, additional FTE/overtime would be needed. ITSD/DOR estimates that this legislation could be implemented utilizing three FTE existing CIT III for 3 months for modifications to MINITS and an additional 5 CIT III for 6 months at a total cost of $163,254.

In response to a previous version of this proposal, DOR provided an estimate of the total cost including thirty-four additional employees and the related equipment and expenses for a total of $1,297,380 for FY 2009, $1,377,188 for FY 2010, and $1,418,503 for FY 2011.

Oversight has reviewed the federal Census Data and notes that approximately 70% of housing units are owner-occupied, and approximately 22% of Missouri residents are 60 years of age or older. Therefore, approximately (70% x 22%) = 15% of Missouri housing units would be owned by persons 60 years of age or older.

Oversight is not able to estimate the number of persons who would actually apply for this tax deferral, the value of real estate they own, or the amount of taxes which would be subject to deferral under this proposal. However, Oversight notes that the proposal would limit the amount of deferred taxes based on the assessed value of the home and any existing liens against the home. These factors would significantly reduce the number of additional claims filed. Oversight also assumes that many potential tax deferral claimants would already be enrolled in the Homestead Preservation Credit program.

Oversight assumes that a relatively small number of additional properties would be enrolled in the program. Since DOR has personnel involved in tracking Homestead Preservation Credit claims; Oversight assumes this proposal could be implemented with existing resources. If unanticipated costs are incurred or if multiple proposals are implemented which increase the DOR workload, resources could be requested through the budget process.

ASSUMPTION (continued)

Oversight assumes the first applications for deferral would be prepared in October, 2008 for 2008 taxes. The resulting deferrals would be for 2008 taxes otherwise payable December 31, 2008. The first reimbursements to county collectors would be in January 2009 for those deferred taxes. The deferrals, reimbursements, and withholdings would begin in state FY 2009.

Oversight assumes that transfers from the state General Revenue Fund to the Senior Property Tax Deferral Revolving Account would be required for the first few years of operation. Oversight assumes the 2% withholding from tax reimbursements would result in reduced transfers from the General Revenue Fund to the Senior Property Tax Deferral Revolving Account; however, for the purposes of this fiscal note, Oversight will indicate the 2% withholding as revenue to the General Revenue Fund since the withholding is a permanent reduction in revenues to the taxing authorities.

If a limited number of properties are enrolled in the deferral program the General Revenue Fund could provide funding for the reimbursements and expenses involved in the program. If there would be insufficient funds in the state General Revenue Fund to make the required transfers, the proposal provides for a bond issue to fund expenses and payments to county collectors. For the purposes of this fiscal note, Oversight will indicate the expenditure payments and transfers from the General Revenue Fund.

Oversight also assumes there would be significant unknown costs for county collectors, assessors, clerks, and recorders in implementing this proposal.

Oversight assumes that the two percent withholding from payments to the collectors would result in an unknown reduction in revenues to the political subdivisions since county collectors would distribute the reduced tax collections resulting from the tax deferrals and reimbursements from the Senior Property Tax Deferral Revolving Account to all taxing authorities. Oversight assumes the impact on the state Blind Pension Fund would be ½ of 1% of the impact to local governments, with an unknown net loss of tax revenue less than $100,000.

This proposal could affect total state revenue.

Property Tax Credit for Rolling Stock Expenditures

Officials from the Department of Revenue assume this proposal would have no fiscal impact on their organization.

ASSUMPTION (continued)

In response to a similar proposal (HB 1810 LR 4268-01), officials from the State Tax Commission (TAX) assumed the proposal would create a tax credit against a freight line company's ad valorem property tax. TAX assumed that only those freight line companies that are defined by Section 137.1003. (4) RSMo would be eligible for the tax credit. There are approximately 345 freight line companies that could qualify for this credit.

In calendar year 2006, the amount of freight line ad valorem property tax was $3.5 million dollars and in calendar year 2007, the amount of freight line ad valorem property tax was $4.1 million dollars. TAX assumes that annual taxes would be approximately $4 million dollars. If we assume that each of these companies have significant eligible expenses to offset the total amount of tax due, the State of Missouri would be required to annually reimburse the local political subdivision approximately $4 million dollars. This credit would be effective on January 1, 2009 for property taxes due in FY 2010.

Officials from the Department of Transportation did not respond to our request for information.

Oversight will use the State Tax Commission estimate of tax credits allowable and the reimbursement due to political subdivisions. The reimbursement for local revenues lost would be known in FY 2010, and appropriated and paid in FY 2011.

School bond election ballot provisions

These provisions would mandate certain content in school bond election ballots.

Oversight assumes these provisions would have no significant fiscal impact.

Taxpayer Advocate Program

Officials from the Department of Revenue (DOR) assume this proposal would require the Director of Revenue to appoint a public counsel whose duties are prescribed in the proposal. DOR officials assume these duties could be performed by one Senior Counsel and one Senior Office Support Assistant. DOR officials provided an estiamte of the cost to implement these provisions including two FTE and the related equipment and expense totaling $122,048 for FY 2009, $136,212 for FY 2010, and $144,087 for FY 2011.

ASSUMPTION (continued)

Oversight has, for fiscal note purposes only, changed the starting salary for the two additional positions to correspond to the second step above minimum for comparable positions in the state's merit system pay grid. This decision reflects a study of actual starting salaries for new state employees for a six month period and the policy of the Oversight Subcommittee of the Joint Committee on Legislative Research. Oversight has adjusted the DOR estimate of equipment and expense cost in accordance with OA budget guidelines, and Oversight assumes that two additional employees could be accommodated in existing office space.