FISCAL NOTE

Date Requested: January 31, 2019
Time Requested: 01:35 PM
Agency: Treasurer's Office, WV
CBD Number: Version: Bill Number: Resolution Number:
3056 Comm. Sub. SB451
CBD Subject:


FUND(S):

Special Revenue

Sources of Revenue:

General Fund

Legislation creates:

Creates New Revenue, Creates New Expense, Creates New Program



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government. The purpose of this bill is comprehensive public education reform. This fiscal note only deals with the creation and operation of the Educational Savings Account Program. This fiscal note does not repeat concerns, such as potential tax consequences, discussed in the fiscal note we prepared for the originating Senate Bill 451. Our fiscal note for House Bill 2002 contemplated Education Savings Accounts (ESAs) only for exceptional children. As originated, this bill expanded an “eligible student” to an “elementary or secondary student who has been a resident of this state for at least a year and continues to be a resident.” The Committee Substitute alters this definition to a “student who has attended a West Virginia public school in the prior school year and is not attending a public school outside of West Virginia.” This change will reduce the estimated number of accounts because children in private schools, etc., will not be able to have accounts. The Committee Substitute also limits the number of accounts to 2500. Assuming the Treasurer’s Office can implement the ESA Program, there may well be litigation (which is anticipated in §18-31-9), as has happened in other states. The outcomes of the litigation to date in other states are mixed. There will need to be an appropriation to cover those expenses, even if the Attorney General provides the legal services. We estimate the litigation expenses at $200,000. There will also be the need for specialty counsel for the creation and structure of the program and to consider any tax consequences. We estimate cost in years 1 and 2 at $100,000 total ($75,000 in year 1 and $25,000 in year 2). We anticipate the need for at least three employees, with annual salaries and benefits estimated at $250,000. This includes a director, accountant (Treasurer is required to audit individual accounts on a random basis, as well as to manage the funds) and an administrative assistant. Altering the definition of eligible students and limiting the number of accounts allows for reduction in the costs estimated in the fiscal note to the originating Senate Bill 451. For current expenses, we estimate annual current expenses at $100,000. In addition, an auditing firm would have to be hired annually at an estimated cost of $50,000 per year (Treasurer is required to audit the individual accounts at least annually). Add to that the Treasurer is authorized to contract with a private organization to administer the ESA Program and to contract with a private institution to provide a payment system. These contracts are estimated to cost $125,000 per year. This amounts to a total of $ 800,000 for year 1, $550,000 for year 2 and $525,000 thereafter. All of these estimates are subject to increases due to inflation. With the limit of 2500 accounts, we estimate the total amount of assets of $10 million at any point in time; however, we expect funds to be almost immediately expended as received, thereby reducing the average amount of assets to $2 million. The bill limits the amounts that may be deducted from accounts for administration in §18-31-5(5) to maximum of 5% in years 1 and 2 of the Program and then a maximum of 3% annually thereafter. That means in years 1 and 2, the amount would be $100,000, and then $60,000 thereafter. As you can see, those amounts are insufficient to cover the expenses of administering the ESA Program and a separate appropriation will be required. Other than some technical issues, we believe that an ESA fund should be established in the Treasurer’s Office to receive the Department of Education transferred moneys, and that the moneys in the Treasurer’s ESA fund would be transferred to the ESAs and used for administration. One additional point we would like considered is that any account may remain open for 15 or more years and that the maximum number of accounts may be reached quickly and no new accounts could be authorized.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 800,000 550,000 525,000
Personal Services 250,000 250,000 250,000
Current Expenses 350,000 300,000 275,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 200,000 0 0
2. Estimated Total Revenues 100,000 100,000 60,000


Explanation of above estimates (including long-range effect):


Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years. Please see the Fiscal Note Summary above.



Memorandum


Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form. Please see the Fiscal Note Summary above.



    Person submitting Fiscal Note: Diana Stout
    Email Address: diana.stout@wvsto.com