LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session March 19, 1997 TO: Honorable Kim Brimer, Chair IN RE: House Bill No. 2133 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-As Introduced Implementing the provisions of the bill would result in a net negative impact of ($24,736,120) to General Revenue Related Funds through the biennium ending August 31, 1999. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. 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% 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% from their budgets. The bill states that the legislature shall appropriate the total amount designated for the payment of state workers' compensation claims costs to the SORM. The bill does not address whether or not the current funding structure would be replaced. This analysis interprets the bill language to mean that the state's appropriation for workers' compensation payments would be 100% of expected claims costs. Furthermore, it is assumed that agencies' budgets would not be reduced based on previous reimbursements for workers' compensation claims. For the 1998/1999 biennium, it is estimated that workers' compensation claims costs for the state will be $94.6 million. The additional 25% cost to General Revenue is estimated to be $23.7 million at the beginning of each biennium. SORM would establish an allocation program for claim costs incurred by state agencies that account for 90% 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 412.042 requires the Director to report to the Legislature at the beginning of each session on administrative expenses, all workers' compensation claims, and a listing of all state agencies that fail to meet their obligation regarding the prevention of accidents and injuries to state employees. Section 412.051 would require that all state agencies manage agency risks by developing, implementing, and maintaining programs designed to assist employees who sustain compensable injuries to return to work. Section 412.052 would exempt from Section 412.051 agencies that had medical malpractice insurance coverage, workers' compensation insurance coverage, or other self-insurance coverage with associated risk management programs before January 1, 1989. Section 412.053 would require each state agency to file an annual report with the Director of SORM each fiscal year. 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 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. However, an increase in health care costs may offset these savings. Methodolgy Costs were based on the following assumptions: (1) Per Section 1 of the bill, the state's appropriation for workers' compensation payments would be 100% of expected claims costs. (2) State agencies' budgets would not be reduced based on previous reimbursements for workers' compensation claims. (3) 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. (4) Any administrative support that SORM's indirect staff could not handle would be absorbed by TWCC. (5) 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. 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) ($23,700,000) 1998 (405,960) 2000 (405,960) (23,700,000) 2001 (405,960) 2002 (405,960) (23,700,000) 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 ($24,330,160) 1999 (405,960) 2000 (24,105,960) 2001 (405,960) 2002 (24,105,960) 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: 453 Workers' Compensation Commission 302 Office of the Attorney General LBB Staff: JK ,TH ,BK