LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 1, 1997 TO: Honorable David Sibley, Chair IN RE: Senate Bill No. 1894 Committee on Economic Development By: Sibley Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB1894 ( Relating to the authority of the commissioner of insurance to adopt rules for general application.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB1894-As Introduced Implementing the provisions of the bill would result in a net positive impact of $455,322 to General Revenue Related Funds through the biennium ending August 31, 1999. Fiscal Analysis This bill would amend Article 1.03A of the Insurance Code to require that Texas Department of Insurance (TDI) rules be written in "clear and concise" language and that each rule state the subject matter to be regulated and the specific statutory authority for the rule. The bill state's that neither Article 1.03A nor any other provision of the Insurance Code may be used as general authority for rule-making. According to TDI, under current law if a statute needs clarification, TDI adopts a rule to strengthen the statute's intent. This bill would prohibit the agency from adopting a rule when the statute does not allow for general rulemaking. Therefore, the agency would have to increase the number of enforcement actions to enforce statutory provisions. Two additional attorneys, one legal assistant, and one legal secretary would be needed to prosecute new enforcement cases. Total costs to TDI General Revenue-Dedicated Fund 036 for these four FTEs would be $194,597 in FY 1998 and $172,018 in FYs 1999 through 2002. These increased enforcement actions would increase the amount of penalties and restitution assessed for unfair and illegal practices. Total gain to General Revenue is estimated to be $227,661 per year. According to TDI, the bill would also impact the rule adoption process by requiring TDI to respond to challenges on whether it had sufficient rule making authority to adopt certain pro-solvency standards which have been in use for many years. Also, the bill may jeopardize the ability of TDI to continue to use a number of pro-solvency standards which TDI currently adopts by rule. While it is believed that TDI would be largely able to continue to use the majority of these pro-solvency standards, it is also believed that TDI may be precluded from using certain portions of or sub-sets of these standards. As a result, TDI may need to perform a slightly higher number of target examinations, which are performed on insurers whose financial condition cause regulatory concerns. A target examination may be done on an insurer if it has been determined that the insurer should be examined every 2 years instead of the mandated 3 year interval. Since this workload increase is uncertain, no additional costs are associated with these examinations. Methodolgy Fiscal impact and estimates were based on the anticipated increase in workload required to implement this bill. In FY 96, there were 42 enforcement actions and seven attorneys handling these cases. Based on approximately 15 new enforcement actions due to the provisions of the bill, two additional attorneys would be needed to prosecute these new cases with one legal assistant and one legal secretary needed for research, document organization and support. Total gain to General Revenue of $227,661 per year is based on penalties and restitution from the 42 Market Activity enforcement actions in FY 96: (1) Penalties: $13,464.29 per action in FY 96 OR $201,964.35 for 15 actions; and, (2) Restitution: $1,713.12 per action in FY 96 OR $25,696.80 for 15 actions. 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 Change in Number Savings/(Cost) Gain/(Loss) from of State from Texas General Revenue Employees from Department of Fund FY 1997 Insurance Operating Account/ GR-Dedicated 0036 0001 1998 ($194,597) $227,661 4.0 1998 (172,018) 227,661 4.0 2000 (172,018) 227,661 4.0 2001 (172,018) 227,661 4.0 2002 (172,018) 227,661 4.0 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 $227,661 1999 227,661 2000 227,661 2001 227,661 2002 227,661 Source: Agencies: 454 Department of Insurance LBB Staff: JK ,TH ,BK