LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                            February 22, 2001
  
  
          TO:  Honorable Dale B. Tillery, Chair, House Committee on
               Pensions & Investments
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  HB28  by McClendon (Relating to credit in the Employees
               Retirement System of Texas for military service.), As
               Introduced
  
**************************************************************************
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  HB28, As Introduced:  negative impact of $(14,674,637) through the    *
*  biennium ending August 31, 2003.                                      *
*                                                                        *
*  The bill would make no appropriation but could provide the legal      *
*  basis for an appropriation of funds to implement the provisions of    *
*  the bill.                                                             *
**************************************************************************
  
General Revenue-Related Funds, Six-Year Impact:
  
          ****************************************************
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2001                         $(2,989,168)  *
          *       2002                         (10,313,031)  *
          *       2003                          (1,372,438)  *
          *       2004                          (1,399,887)  *
          *       2005                          (1,427,885)  *
          *       2006                          (1,456,443)  *
          ****************************************************
  
All Funds, Six-Year Impact:
  
***************************************************************************
*Fiscal      Probable        Probable        Probable        Probable     *
* Year    Savings/(Cost)  Savings/(Cost)  Savings/(Cost)  Savings/(Cost)  *
*          from General    from General    from Federal     from Other    *
*          Revenue Fund      Revenue     Funds - Federal      Funds       *
*              0001         Dedicated          0555            0997       *
*                            Accounts                                     *
*                              0994                                       *
*  2001      $(2,989,168)      $(294,017)      $(882,050)      $(735,041) *
*  2002      (10,313,031)     (1,014,396)     (3,043,189)     (2,535,991) *
*  2003       (1,372,438)       (134,994)       (404,982)       (337,485) *
*  2004       (1,399,887)       (137,694)       (413,081)       (344,235) *
*  2005       (1,427,885)       (140,448)       (421,343)       (351,119) *
*  2006       (1,456,443)       (143,257)       (429,770)       (358,142) *
***************************************************************************
  
Fiscal Analysis
  
This bill would allow state employees who are eligible to receive federal
retirement payments based on 20 years or more of active federal military
duty to establish up to 5 years of military service credit under the
employee class of the Employees Retirement System (ERS).  The bill would
take effect immediately upon passage.
  
  
Methodology
  
Under current statute, when a member purchases military service credit
the state must also contribute for the service purchased, at a rate of
6.0% of salary.  ERS estimates that there are currently 3,000 state
employees who would be able to purchase service under this bill, with
300 new eligible employees hired each year.  This analysis assumes that
the 3,000 current employees would begin purchasing the maximum 5 years
of service credit in 12 monthly installments upon the bill's passage.
The resulting cost for existing employees is $4,900,275 in fiscal year
2001 and $14,700,825 in fiscal year 2002.  The annual cost for newly
hired employees is estimated at $2,205,783 in fiscal year 2002,
increasing to $2,387,612 in fiscal year 2006 as the average starting
salary increases.  The method of financing for the state's contributions
will be proportional to the method of financing their salaries, which is
assumed to mirror that of the overall ERS membership.  It is assumed
that all eligible current and new employees would purchase their service
during the first year of eligibility to avoid interest penalties.
  
  
Local Government Impact
  
No fiscal implication to units of local government is anticipated.
  
  
Source Agencies:   327   Employees Retirement System
LBB Staff:         JK, RB, SC