LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  March 17, 1997
         
         
      TO: Honorable Barry Telford, Chair            IN RE:  House Bill No. 1780
          Committee on Pensions and Investments                              By: Greenberg
          House
          Austin, Texas
         
         
         
         
         FROM:  John Keel, Director    
         
In response to your request for a Fiscal Note on HB1780 ( Relating 
to the purchase of service credit in the Employees Retirement 
System of Texas and the Teacher Retirement System of Texas.) 
this office has detemined the following:
         
         Biennial Net Impact to General Revenue Funds by HB1780-As Introduced
         
Implementing the provisions of the bill would result in a net 
negative impact of $(278,000) to General Revenue Related Funds 
through the biennium ending August 31, 1999.
         

         
 
Fiscal Analysis
 
House Bill 1780 would expand the purchase of service credit 
options for Employee Retirement System (ERS) employees and allow 
for a payroll deduction for purchase of credit with the Teachers 
Retirement System (TRS). Active members of both systems would 
gain more flexibility in their purchase of credit options. ERS 
employees would be allowed a simple monthly payment option over 
a period not to exceed five years. The bill would require ERS 
to provide additional information to members regarding the costs 
of purchasing service. 

The bill would allow ERS to base 
the interest rate used to calculate the cost of purchasing service 
on actuarial recommendations. ERS anticipates additional service 
credits would be purchased and would cost the system an additional 
$8 million per year. This cost assumes the interest rate was 
left at the current 5%. Current costs to ERS for the purchase 
of service credit are $17 million per year. If instead the interest 
rate was raised to the actuarial interest rate (currently at 
8%,) there would be some additional revenue for ERS which would 
partially offset the additional costs.

TRS expects no significant 
fiscal impact from passage of the bill.
 
 
Methodolgy
 
The ERS actuary anticipates additional service credit purchases 
would be made. When these are made for service which has not 
been previously established (such as military service), the 
state must make an additional contribution. The cost to the 
state to make these additional contributions is estimated to 
be $229,000 per year. The method of finance is provided by using 
estimated 1998 ERS retirement state contributions. 
The probable fiscal implications of implementing the provisions 
of the bill during each of the first five years following passage 
is estimated as follows:
 
Five Year Impact:
 
Fiscal Year Probable           Probable           Probable           Probable           Change in Number   
            Savings/(Cost)     Savings/(Cost)     Savings/(Cost)     Savings/(Cost)     of State          
            from General       from State         from all GR        from Federal Funds Employees from    
            Revenue Fund       Highway Fund       Dedicated Funds                       FY 1997           
            0001               0006               NEW-DED            0555                                  
       1998        ($139,000)         ($33,000)         ($12,000)         ($44,000)               0.0
       1998         (139,000)          (33,000)          (12,000)          (44,000)               0.0
       2000         (139,000)          (33,000)          (12,000)          (44,000)               0.0
       2001         (139,000)          (33,000)          (12,000)          (44,000)               0.0
       2002         (139,000)          (33,000)          (12,000)          (44,000)               0.0
 
 
Fiscal Year Probable           
            Savings/(Cost)                                                                                
            from Other State                                                                              
            Funds                                                                                         
            OTHER-OTH                                                                                      
       1998                                                                                          
       1999           (1,000)                                                                        
       2000           (1,000)                                                                        
       2001           (1,000)                                                                        
       2002           (1,000)                                                                        
 
         Net Impact on General Revenue Related Funds:
 
The probable fiscal implication to General Revenue related funds 
during each of the first five years is estimated as follows:
 
              Fiscal Year      Probable Net Postive/(Negative)
                               General Revenue Related Funds
                                             Funds
               1998           ($139,000)
               1999            (139,000)
               2000            (139,000)
               2001            (139,000)
               2002            (139,000)
 
Similar annual fiscal implications would continue as long as 
the provisions of the bill are in effect.
          
No fiscal implication to units of local government is anticipated.
          
   Source:            Agencies:   304   Comptroller of Public Accounts
                                         323   Teacher Retirement System and Optional Retirement Program
                                         327   Employees Retirement System
                                         
                      LBB Staff:   JK ,PE ,WM