RSMo
620.467 - SIMPLIFIED
(Previously
Referred to as HB 188)
This will attempt to clarify for the travel industry leaders and other interested parties how the Division of Tourism's budget is computed through legislation passed in 1993 and commonly referred to as
RSMo 620.467 (H.B. 188).
The overall premise of the bill is simple. The tourism industry in the state generates significant sales tax revenues. The Division of Tourism's budget is determined by sharing the growth of sales tax revenues generated by the industry with the general revenue fund of the State of Missouri. It is a commission plan for the Division of Tourism. If the industry grows, the Division of Tourism's budget is rewarded with an increase. If it does not grow, the budget does not increase.
There are several key points written into the language of the bill:
1. The travel industry is defined as 17 Standard Industry Classification codes, all of which unmistakably derive a significant or all of their revenues, and therefore sales taxes, from the travel industry. We all know that there is even more revenue generated by travel from SIC codes not listed in the bill. As an example, a mountain of research shows that the #1 activity of tourists is shopping. There are no retail sale SIC codes included in the bill.
2. It is obvious that in normal times, revenue from these SIC codes will increase due to inflation. To account for this, the first three percent of growth in sales tax revenues from these 17 SIC codes is excluded. In other words, the Division of Tourism's budget does not increase from year to year unless the growth exceeds three percent. Even when the growth exceeds three percent, the State of Missouri keeps 100 percent of the first three percent of growth.
3. After the growth from these 17 SIC codes reaches three percent, the Division of Tourism gets 50 percent of the growth and the State's general revenue fund keeps 50 percent.
4. In writing the legislation to create the funding mechanism for the Division of Tourism, it was determined that a cap should be included in the bill to assure legislators that the Division's budget would grow at a reasonable rate. The cap was established at $3 million. In other words, the Division's budget can not grow by more than $3 million per year, regardless of the rate of growth from the 17 SIC codes. If the rate of growth is at a level where calculations from #2 and #3 above exceed $3 million, the Division of Tourism will only get $3 million and the State of Missouri will keep 100 percent of any amount over $3 million.
5. If the growth in sales tax revenues from the 17 SIC codes exceeds three percent, the director of revenue will calculate, using #2 through #4 above, the amount to be transferred to the budget of the Division of Tourism. The amount calculated is added to the Division's budget from the prior year and the sum becomes the Division's budget for the next year. In other words, it is cumulative.
6. Prior to 1994, the Division's budget was appropriated from general revenue. It was stuck at the $5 to $6 million level (which is why
RSMo 620.467/H.B. 188 was created). There had to be a starting point for the Division's budget other than $0, so it was determined that the starting point would be $6.2 million. This was roughly equal to the Division's budget in 1993 and became the Division's budget for fiscal year 1994 as a result of the bill. The amount transferred to the Division's budget in the first year the calculations from
RSMo 620.467/H.B. 188 were made was added to the $6.2 million to get the Division's budget for fiscal year 1995, the first year the full effect of
RSMo 620.467/H.B. 188 was felt.
7. When the State of Missouri prepares its budget for the next fiscal year, it takes the prior year's budget from each department and generally adds money to it. The prior year's budget is considered the "core" budget and most, if not all, of the money in it will stay in the budget for the next year. This is an over simplification of the process, but any way you look at it the system is flawed. Be that as it may, one of the points in
RSMo 620.467/H.B. 188 was to pay back the Division's core budget (the $6.2 million in #6) to the State's general revenue over time. To that end,
RSMo 620.467/H.B. 188 specifies that ten percent of this core budget would be given back to the State's general revenue fund each year, beginning in fiscal year 1995, until the entire $6.2 million was returned. It is important to note that this HAS BEEN DONE. Today, the Division of Tourism's budget is derived 100 percent from growth in the 17 SIC codes.
8. When RSMo 620.467/H.B. 188 was being formulated, it was decided that the bill would get more votes if it had a sunset clause, which was determined to be ten years after enactment, or 2004. This was later extended with H.B. 1620 to the year 2010. Speaking of H.B. 1620, there were three other changes to
RSMo 620.467/H.B. 188 enacted as a result of the new legislation. One clarified that the computation of the amount transferred to the Division of Tourism would be based on all state sales taxes collected (4.225 percent) instead of just the general state sales tax of three percent. Another change clarified that the funds transferred would be from general revenue funds only. The final change increased the total allowable annual transfer from "no more than a total of $3 million per year" to "no more than an increase of $3 million per year."
9. Sales taxes are paid well after they are actually collected by businesses. It also takes some time after that for the director to calculate the amounts collected from each SIC code. The Division of Tourism's budget must also be prepared well in advance of the start of the fiscal year. Because of this (and the fact that Branson got hot in 1991), the computation of growth from the 17 SIC codes is based on the fiscal year "three years prior" compared to the fiscal year "four years prior" to the fiscal year in which the funds are to be transferred to the Division's budget. In other words, there is a three-year lag time on getting the growth, if there was any. In the first year of
RSMo 620.467/H.B. 188, this lag time allowed the Division to benefit from the explosive growth in Branson.
10. RSMo 620.467/H.B. 188 specifies that the amount calculated for transfer by the director of revenue to the Division's budget is transferred into what is called the Tourism Supplemental Revenue Fund by the State Treasurer. The bill states that the money in this fund "be used solely by the division of tourism of the department of economic development to carry out the duties and functions of the division as prescribed by law." However, the money must be appropriated out of this fund to the Division of Tourism. Before this can happen, the Division of Tourism must present "a promotional marketing strategy" to the Committee on Tourism, Recreational and Cultural affairs in the House and the Transportation and Tourism Committee in the Senate.
11. RSMo 620.467/H.B. 188 also specifies that the "Minority Business Development Commission shall consult with the Tourism Commission in establishing rules and regulations for African-American and other minority business participation."
Now for some math to help explain how all this works. The numbers used are not real but will illustrate the computation. We will also use the following assumptions.
* We are computing the Division's budget for the fiscal year 2000.
* The Division's budget for fiscal year 1999 was $15,000,000.
* The 17 SIC codes included in RSMo 620.467/H.B. 188 generated a total of $500,000,000 in state sales tax revenues in fiscal year 1996 (four years prior to 2000).
* The 17 SIC codes generated a total of $525,000,000 in state sales tax revenues in fiscal year 1997 (three years prior to 2000) - a growth rate of 5%.
* The entire original core budget of $6.2 million has already been paid back to general revenue.
$525,000,000
1997 sales tax
-500,000,000
1996 sales tax
$25,000,000
Growth (equal to 5%)
$500,000,000
1996 sales tax
X 3%
3% excluded for inflation
$15,000,000
Total excluded from calculations
$25,000,000
Growth
-15,000,000
Total excluded from calculations
$10,000,000
Remaining balance
$10,000,000
Remaining balance
X 50%
Percentage of growth to Division
$5,000,000
Amount to Division BEFORE Cap
With this example, the amount added to the Division's budget would be $3,000,000 since the rate of growth caused the calculations to exceed the cap. Therefore, the Division's budget for fiscal year 2000 would be $15,000,000 plus $3,000,000, or $18,000,000.
A VERY IMPORTANT POINT is illustrated by this example. Because of the exclusion of the first three percent of growth and because of the $3,000,000 cap, the maximum percentage of growth the Division of Tourism can obtain from the growth in these 17 SIC codes is no where near 50% of the total growth. In this example, the Division of Tourism would only get $3,000,000 of the total growth of $25,000,000, or 12.0%! The State of Missouri would retain 88.0%! Using real numbers, the highest percentage the Division would ever get of the total growth would be less than 25%.
You should now know everything you ever wanted to know about
RSMo 620.467/H.B. 188. The actual bill takes much less space than this explanation and easily fits on four, 5 1/2 X 8 1/2 pages. If you read it after reading this, it will make much more sense.
Missouri
Association
of Convention & Visitor Bureaus
