LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
April 1, 1997
TO: Honorable Rene Oliveira, Chair IN RE: House Bill No. 3512
Committee on Economic Development By: Greenberg
House
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on HB3512 ( Relating
to assistance or benefits provided to state employees who lose
their jobs as a result of a reduction in force or the privatization
of state services or who retire.) this office has detemined
the following:
Biennial Net Impact to General Revenue Funds by HB3512-As Introduced FN Revision 1
Implementing the provisions of the bill would result in a net
positive impact of $10,486,200 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
HB 3512 provides that a state employee whose position is eliminated
due to a reduction in force or privatization would receive preferential
treatment in employment with other state agencies. The bill
also directs the Texas Workforce Commission (TWC) to provide
a variety of outplacement services to former employees of state
agency that implemented a reduction in force or eliminated 25
or more positions due to privatization of certain services.
HB
3512 would also establish an early retirement incentive during
the 1998-99 biennium for members of the Employees Retirement
System (ERS). The incentive would reduce the age requirement
for retirement by three years for members of ERS, and eliminate
actuarial reductions for early retirement for members of the
Law Enforcement and Custodial Officers Supplemental Retirement
Fund. In order to receive the incentive, members must retire
when first eligible during the incentive period. Once an employee
retires, ERS would submit to the Comptroller's office information
about the employee's monthly salary and the Comptroller's office
would reduce appropriations to the agency by this amount times
the number of months remaining in the biennium. This incentive
is similar to the early retirement incentive recommended by
the Texas Performance Review.
In addition, Section 2 of the
bill would prohibit a state agency from hiring or contracting
with any individual who was employed by the state within the
previous twelve months. However, it is not clear whether this
provision applies to all former employees or only to employees
who have retired under the incentive.
Finally, the bill requires
that any contract between a state agency and a private entity
for services that were previously performed by state employees
must require the private entity to provide a level of compensation
and benefits that is at least comparable to those provided by
the state.
Methodolgy
The Texas Workforce Commission projects that there will be no
fiscal impact from the provisions of this bill that apply directly
to that agency. Most services called for by the bill are currently
provided to all job-seekers, whether or not they are former
state employees.
The early retirement incentive will have
both a fiscal impact and an actuarial impact. The actuarial
impact is a result of allowing employees to retire earlier than
they would otherwise have, thus reducing the plan's assets as
a result of a reduction in employee and state contributions.
The reduction in plan assets, both for the Employees Retirement
System and for the Law Enforcement and Custodial Officers Supplemental
Retirement Fund would be minimal in relation to the size of
the actuarial surpluses in those funds.
The fiscal impact
is a result of the early retirement of state employees and the
subsequent reduction in appropriations mandated by the bill.
The savings estimate assumes five percent of eligible employees,
or 323, would take advantage of this incentive over the biennium.
A reduction is made for lump sum termination payments. In addition
to a projected average annual salary of $29,761, savings would
be derived from not paying Social Security or ERS retirement
contributions on this salary. To the extent employees are replaced,
additional costs would be incurred for paying retiree health
insurance as well as employee health insurance. But these additional
costs would be balanced by additional savings of employee health
insurance and Benefit Replacement Pay for those employees which
are not replaced. The additional retiree health insurance, together
with the reduced employee health insurance and Benefit Replacement
Pay, is assumed to produce no net costs. A final reduction is
made for lump sum termination payments.
This savings estimate
is dependent upon inclusion of language in the General Appropriations
Bill assigning appropriation reduction authority to the Comptroller's
Office.
Early retirement incentives are usually offered
on the assumption that a younger replacement will earn less
than the person they replace was making, resulting in a savings
of some percent of the original salary ( i.e. the replacement
ratio). This incentive, by enforcing a savings of 100 percent
of salary, may in some cases limit the agencies ability to
replace the employee. This is tempered by excluding agencies
with appropriations of less than $1,000,000, but still may have
some effect on agencies with many early retirements. If more
than 5 percent of eligible employees retired, total savings
would increase. Also, the effect on agencies would be greater.
The FTE reductions for 1998 and 1999 are derived from payroll
reductions provided by the Comptroller's Office and assume half
of the retirees would be replaced during the biennium.
A
straight line projection of savings would result in annual savings
of $10,936,200 after 1999. This would be offset by the desire
of agencies affected by retirements to replace employees. Since
the appropriation reduction provision expires at the end of
the 1998-99 biennium, future salary savings would be calculated
using the difference between the original salary and the replacement
salary. However, there would be additional costs for paying
the retiree's health insurance as well as the employee's health
insurance. The actuary for the ERS Retirement Fund assumed it
was unlikely the salary savings would be greater than the cost
of additional health insurance for the years 2000, 2001, and
2002. Over the course of the three years, the costs and the
savings would both be slightly less than 10 percent of salary
and would effectively cancel each other out.
The estimate
for the fiscal impact of the early retirement incentive is based
on the fiscal analysis done for recommendation EI6 of the Texas
Performance Review.
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 All from Federal Funds from State Employees from
Revenue Fund GR-Dedicated Highway Fund FY 1997
Accounts
0001 8021 0555 0006
1998 $4,335,600 $378,000 $1,402,200 $1,028,400 (122.0)
1998 6,150,600 533,400 1,958,400 1,452,000 (152.0)
2000 0 0 0 0
2001 0 0 0 0
2002 0 0 0 0
Fiscal Year Probable
Savings/(Cost)
from Other Funds
8042
1998
1999 42,600
2000 0
2001 0
2002 0
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 $4,335,600
1999 6,150,600
2000 0
2001 0
2002 0
No fiscal implication to units of local government is anticipated.
Source: Agencies: 327 Employees Retirement System
LBB Staff: JK ,TH ,SC ,RA