LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  March 21, 1997
         
         
      TO: Honorable Kim Brimer, Chair            IN RE:  House Bill No. 2133, Committee Report 1st House, as amended
          Committee on Business & Industry                              By: Jackson
          House
          Austin, Texas
         
         
         
         
         FROM:  John Keel, Director    
         
In response to your request for a Fiscal Note on HB2133 ( Relating 
to the creation, powers, and duties of the State Office of Risk 
Management; provisions of workers' comp insurance coverage for 
state employees.) this office has detemined the following:
         
         Biennial Net Impact to General Revenue Funds by HB2133-Committee Report 1st House, as amended
         
Implementing the provisions of the bill would result in a net 
positive impact of $90,095 to General Revenue Related Funds 
through the biennium ending August 31, 1999.  Beginning in the 
year 2000, savings to General Revenue Related Funds are estimated 
to be $720,255 per year.
         

         
 
Fiscal Analysis
 
This bill would amend the Labor Code by deleting Chapter 412 
and adding a new Chapter 412.  This bill would create a new 
state agency, the State Office of Risk Management (SORM).  Section 
412.011 would establish the office to administer the government 
employee's workers compensation insurance and the state risk 
management programs.  This section would require the Texas Workers' 
Compensation Commission (TWCC) to provide the facilities and 
administrative support for the office, which would be independent 
of TWCC.  

Section 412.012 would establish the funding mechanism 
for SORM.  The agency would be funded by a state appropriation, 
interagency contracts with state agencies for the risk management 
program and the allocation program for the financing of workers' 
compensation benefits.  Currently, the legislature appropriates 
75 percent of expected claims costs to the Division of Workers' 
Compensation in the Attorney General's Office and agencies reimburse 
the Attorney General for the other 25 percent from their budgets. 
 The bill states that the legislature shall appropriate the 
amount designated by the appropriations structure for the payment 
of state workers' compensation claims costs to the SORM.  

SORM 
would establish an allocation program for claim costs incurred 
by state agencies that account for 90 percent of the claim costs 
for the preceding fiscal biennium.  SORM would compare the allocation 
to the agency's actual workers' compensation claim expenses 
and if expenses were higher than the amount allocated to that 
agency, the agency would reimburse SORM for the additional costs. 
 If claim costs are lower, the agency would retain a portion 
of the savings.  

Section 412.033 would allow SORM's Board 
of Directors to hire a Director to serve as the state risk manager. 
 Section 412.041 would allow the Director to secure and provide 
for services that are necessary and employ and compensate professional 
consultants, technical assistants, and employees on a full-time 
or part-time basis.

Section 412.051 would require certain 
state agencies to manage agency risks by developing, implementing, 
and maintaining programs designed to assist employees who sustain 
compensable injuries to return to work.

Section 10 of the 
bill would abolish the Division of Workers' Compensation in 
the Attorney General's office and the Division of Risk Management 
at TWCC and transfer all employees, records, equipment, and 
supplies to SORM, as those divisions existed on August 31, 1997, 
not later than December 31, 1997.  Total costs to consolidate 
TWCC's Risk Management Division and the Attorney General's Division 
of Workers' Compensation would be $630,160 in FY 1998 and $405,960 
every year thereafter. FY 1998 costs include moving costs, procurement 
of software and hardware to link SORM's office to the TWCC LAN, 
upgrades to TWCC's mainframe due to anticipated increased usage 
from SORM, and software to make Attorney General Macintosh computers 
IBM-compatable.  Continuing costs include rent, software maintenance 
charges and phone line charges.

After the FY 1998 start-up 
period, TWCC's assumes that the creation of SORM would result 
in a savings of $1,126,215 in total workers' compensation claims 
due to better focused risk management efforts, better coordination 
between loss control specialists and claims adjusters in the 
return to work programs and the implementation of the cost allocation 
program.  This savings takes into account a three percent increase 
in medical costs due to revised TWCC medical cost guidelines.
 
Methodolgy
 
Costs were based on the following assumptions:

(1) Per Section 
1 of the bill, 75 percent of expected claim costs would be appropriated 
to SORM and agencies would reimburse SORM for the other 25 percent 
of claim costs from their operating budgets.  

(2) All staff, 
direct and indirect, of TWCC's Risk Management Division and 
the Attorney General's Division of Workers' Compensation would 
constitute SORM staff and would be located at a new site.

(3) 
Any administrative support that SORM's indirect staff could 
not handle would be absorbed by TWCC.

(4) Per Section 10 
of the bill, all equipment, including office furniture and supplies 
would be transferred from TWCC's Risk Management Division and 
the Attorney General's Division of Workers' Compensation to 
SORM.

(5) After the FY 98 start-up period, there would be 
a 9 percent reduction in indemnity costs offset by a 3 percent 
increase in medical costs which would net a total savings in 
General Revenue claim costs of $1,126,215 per year.  These savings 
were based on FY 96 incurred workers' compensation claim payments.

(6) 
Texas Department of Criminal Justice workers' compensation claim 
costs, which accounted for approximately 23 percent of total 
FY 96 claim costs and which increased 30 percent between FY 
95 and 96 due to an increase in FTEs, would stabilize in the 
1998/1999 biennium.
 
The probable fiscal implications of 
implementing the provisions of the bill during each of the first 
five years following passage is estimated as follows:
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           
            Savings/(Cost)     Savings/(Cost)                                                             
            from General       from General                                                               
            Revenue Fund       Revenue Fund                                                               
            0001               0001                                                                        
       1998        ($630,160)                $0                                                      
       1998         (405,960)         1,126,215                                                      
       2000         (405,960)         1,126,215                                                      
       2001         (405,960)         1,126,215                                                      
       2002         (405,960)         1,126,215                                                      
 
 
         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           ($630,160)
               1999              720,255
               2000              720,255
               2001              720,255
               2002              720,255
 
          
   Source:            Agencies:   
                                         
                      LBB Staff:   JK ,TH