[1] NOTE: As provided in LFC policy, this report is intended only for use by the standing finance committees of the legislature. The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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F I S C A L I M P A C T R E P O R T

SPONSOR:	Marquart		DATE TYPED:	02/03/02		HB	304
SHORT TITLE:		Daycare Services Gross Receipts Deduction				SB
					ANALYST:		Neel

REVENUE

Estimated Revenue		Subsequent Years Impact	Recurring or Non-Rec	Fund Affected
FY02	FY03
	($1,299.0)	($1,417.0)	Recurring	General Fund
	($956.0)	($1,043.0)	Recurring	Local Funds

(Parenthesis ( ) Indicate Revenue Decreases) – In thousands

SOURCES OF INFORMATION

LFC files

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 304 enacts a new section of the Gross Receipts and Compensating Tax Act to allow a gross receipts tax deduction for receipts received from Children Youth and Family Department pursuant to contracts for providing child daycare services.

FISCAL IMPLICATIONS

TRD notes the following assumptions regarding the fiscal impact:

· CYFD reported paying $68 million in daycare subsidies in FY 2000, primarily from the federal child daycare block grant;

· 1997 Economic Census reports that 58% of total payments for child daycare services were to for-profit daycare providers, 42% to non-profit providers; and

· This estimate assumes modest growth to $70 million.

Effective Date – July 1, 2002

OTHER SUBSTANTIVE ISSUES

TRD notes the following substantive issues:

Under this bill, amounts reimbursed by CYFD are deductible, but co-payments made by parents are not. Most parents participating in the childcare subsidy program are required to pay some fraction of the cost of their child’s care. The percentage of costs payable by the family increases with family income, but total reimbursement to the provider (state share + family share) is the same regardless of family income. Providing a gross receipts tax deduction for the state’s share but not the family’s share of childcare costs makes providing care to some subsidized families more profitable than providing care to others.

Savings from tax deductions, exemptions and credits are not necessarily passed-on to the consumer. If the intent is to lower the tax burden on low-income parents, a direct subsidy would be a more efficient and reliable mechanism.

F I S C A L I M P A C T R E P O R T

REVENUE

SOURCES OF INFORMATION

Effective Date – July 1, 2002

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