LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 23, 1997 TO: Honorable Bob Bullock IN RE: Senate Bill No. 1060, As Passed 2nd House Lieutenant Governor Patterson et al. Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB1060 ( relating to the management of certain funds by the Veterans' Land Board, to the creation of veterans homes, and to the Veterans' Land Board's entering into bond enhancement agreements for certain bonds.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB1060-As Passed 2nd House Implementing the provisions of the bill would result in a net negative impact of $(5,300,000) 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 The bill would amend provisions related to the Veterans' Land Board (VLB) authority for the management of funds and securities. In managing assets of the Veteran's Land Fund and the Veteran's Housing Assistance Fund, and pending the completion of an investment transaction, the bill would authorize the VLB, with the comptroller's approval, to select commercial banks or other financial entities to serve as custodians of the cash or securities in the fund, and authorize the custodian to make cash investments as directed by the board. The bill would allow the custodian under the direction of the board, to lend securities under certain conditions. The bill would allow one or more designated officers or employees of the board to act on behalf of the board in entering into and delivering bond enhancement agreements, and in setting terms of the bond enhancement agreements. The bill would allow the VLB to select the Comptroller or one or more commercial banks, depository trust companies, or other entities to serve as custodian of cash or securities for the Veterans' Financial Assistance Program. The bill would also allow the custodian to make investments at the direction of the board, and lend securities. The bill would allow the VLB, under its Veterans' Financial Assistance Program, to establish veterans homes. The bill would direct the board to adopt rules for the construction, acquisition, ownership, operation, maintenance, enlargement, improvement, or furnishing or equipping of veteran's homes. The bill would allow the board to enter into agreements for the management or operation of all or part of a veteran's home. The bill would take effect September 1, 1997 Methodolgy The VLB has constitutional authority to issue bonds. According to the VLB funds management staff, provisions which allow the use of an outside custodian for management of the funds will result in cost savings to the bond funds of approximately $150,000 annually in custodial services paid to the Office of the Comptroller. In addition, the VLB estimates that the ability to use an outside custodian will enable staff to conduct same day transactions which will produce $1 million annually in additional investment income. Provisions which allow the VLB to delegate authority for bond enhancement agreements is projected to produce $1.2 million in earnings to the funds each year. These estimated earnings will only impact the Constitutionally dedicated bond funds and will not impact any of the VLB's administration funds. Under the bill, the VLB staff projects there will be construction of two Veteran's Homes in 1998 and two constructed in 1999. The VLB projects using tax exempt revenue bonds and federal funds to fund the centers. Thirty five percent of the funds used will be from the issuance of tax exempt bonds and the other sixty five percent of the funds is projected to come from federal funding from the U.S. Veterans Administration. If the facilities are constructed, each one will require a one time appropriation of general revenue in the amount of $1.25 million for debt service and to establish a reserve fund. The VLB expects to use all the beds in the Veterans Homes for Medicaid eligible veterans only. The state could realize savings in Medicaid costs since these beds would be funded with U.S. Veterans Administration funds and not Medicaid funds. The VLB estimates receiving approximately $100 a day per patient from the U.S. Veterans Administration, Social Security payments, and Veterans Disability payments. These funds would be used to pay operational costs for the homes and debt service on the bonds. The Department of Human Services (DHS) has indicated that they are prepared to enter into a memorandum of agreement with the VLB to transfer $2.5 million in both 1998 and 1999 in medical assistance funds from their Nursing Facility and Hospice payments program for the development of homes. However, this would still constitute general revenue. Also according to DHS, if the four proposed homes are operational in the year 2000 and all clients in the homes are Medicaid eligible, and the Federal government approves the homes, savings to the state's share of Medicaid costs would total an estimated $5,143,801. The savings would continue every year. 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 Revenue Probable Probable Savings/(Cost) Gain/(Loss) from Savings/(Cost) Savings/(Cost) from General Federal Funds from Federal Funds from Veterans Revenue Fund Land Program Administration Fund 0001 0555 0555 0522 1998 ($2,650,000) $14,300,000 ($14,300,000) $150,000 1998 (2,650,000) 14,300,000 (14,300,000) 150,000 2000 (150,000) 150,000 2001 (150,000) 150,000 2002 (150,000) 150,000 Fiscal Year Probable Revenue Probable Gain/(Loss) from Savings/(Cost) Other - Various from General VLB Bond Funds Revenue Fund OTHER-OTH 0001 1998 $2,200,000 $0 1999 2,200,000 0 2000 2,200,000 5,143,801 2001 2,200,000 5,143,801 2002 2,200,000 5,143,801 Net Impact on General Revenue Related Funds: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 ($2,650,000) 1999 (2,650,000) 2000 4,993,801 2001 4,993,801 2002 4,993,801 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 501 Department of Health 324 Department of Human Services LBB Staff: JK ,JD ,JH