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

SPONSOR Garcia, MH

DATE TYPED 2-21-05

HB 811

SHORT TITLE Public School Construction Gross Receipts

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($13,500.0)

Similar Recurring

General Fund

($8,900.0)

Similar Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department

Public Education Department

Public Schools Facility

SUMMARY

House Bill 811 would provide a gross receipts tax deduction for receipts from construction ser-

vices provided to a local school district or the public school facilities authority for the construc-

tion of public school facilities.

The bill has an effective date of July 1, 2005.

FISCAL IMPLICATIONS

The Public School Facilities Authority (PSFA) estimates that Public School Capital Outlay

Council annual awards will be approximately $100-125 million annually, and, on average, will

be matched by an equal local contribution. This implies total school construction services of

$200 to $250 million. In addition, school districts finance projects outside the PSFA process.

TRD assumes that these projects would increase total activity by approximately 50 percent. So,

assuming the base is $340 million (PSFA midpoint, or $225 million plus an additional $115 mil-

lion in locally financed projects) and an average tax rate of 6.6 percent, revenues would be re-

duced by approximately $22.4 million. About 60 percent of this or $13.5 million would impact

the general fund. The estimated revenue loss to local governments would be about $8.9 million.

House Bill 811 -- Page 2

ADMINISTRATIVE IMPLICATIONS

Administrative implications are expected to be relatively modest.

OTHER SUBSTANTIVE ISSUES

The Public Education Department noted that no other public works construction projects are ex-

empt from the gross receipts tax, and that this tax is a primary source of local government fi-

nance. School construction projects would benefit, but other government services would be

negatively impacted.

The Taxation and Revenue Department raised this policy issue:

The sale of construction services and materials to government entities -- federal, state, lo-

cal and tribal -- is generally taxable under the gross receipts tax. The proposal would

provide exemptions from this tax for certain spending by state and local government enti-

ties. This raises the concern that the federal government could potentially challenge the

taxation of construction sold to the federal government as discriminatory. Given the

large presence of federal facilities in the state, this could pose a serious threat to the

state’s tax base. Construction services currently contribute about 12% of the GRT tax

base, equivalent to about $300 million of state and local tax revenue per year.

BT/lg