LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 9, 2001 TO: Honorable Rodney Ellis, Chair, Senate Committee on Finance FROM: John Keel, Director, Legislative Budget Board IN RE: HB1839 by Junell (Relating to research and excellence funding at certain institutions of higher education.), Committee Report 2nd House, Substituted ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1839, Committee Report 2nd House, Substituted: impact of $0 * * 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, Five-Year Net Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $0 * * 2003 0 * * 2004 0 * * 2005 0 * * 2006 0 * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Revenue Gain/(Loss) Probable Revenue Gain/(Loss) * * Year from Permanent Higher Education from New * * Fund Texas Excellence Fund outside * * 0346 Treasury * * 2002 $(9,198,000) $8,400,000 * * 2003 (10,072,000) 9,198,000 * * 2004 (35,490,000) 32,411,000 * * 2005 (41,355,000) 37,767,000 * * 2006 (47,602,000) 43,472,000 * *************************************************************************** Fiscal Analysis The bill would amend Chapter 62 of the Education Code to create the Texas Excellence Fund outside the State Treasury, in the custody of the Comptroller. The Comptroller would be responsible for administering and investing the fund. The Comptroller would be required to deposit all interest, dividends, and other income earned from investment of the Excellence Fund to the credit of the fund and would be permitted to accept gifts or grants from any source for deposit in the Excellence Fund. In addition, the bill will redistribute Capital Equity and Excellence funding by apportioning $8,5500,000 in general revenue between the University of Texas System and the Texas A&M University System for Capital Equity. The amount distributed is based on the amount apportioned between the systems during the 2000-01 biennium and the amount of restricted research funds expended by each institution. The remaining $61,456,155 is allocated to all general academic teaching institutions, other than the University of Texas at Austin and Texas A&M University, for Excellence according to the current Higher Education allocation formula. In the next biennium, an additional amount is shifted to general academic institutions, other than the University of Texas at Austin and Texas A&M University, for Excellence. It is anticipated that $70,006,155 will be allocated to these institutions. The bill would require that an institution use money appropriated from the Excellence Fund only for the support and maintenance of educational and general activities (including research and student services) that promote research capacity and develop institutional excellence. The bill would require that 80 percent of the amount appropriated go to comprehensive research universities and that the remaining 20 percent be appropriated to other eligible institutions. The allocation formulas for specific universities or institutions would not be used in the 2002-03 biennium; for that biennium, the funds would be appropriated to eligible institutions as provided by the General Appropriations Act. The bill would require that each year, from the first undedicated $50 million that comes to the state, the Comptroller deposit to the credit of the Excellence Fund an amount equal to the income earned from the investment of the Permanent Higher Education Fund (PHEF) in the preceding state fiscal year. The remainder would be deposited to the credit of the PHEF. After the PHEF reached $2 billion, the bill would require that the Comptroller continue to deposit to the credit of the Excellence Fund each year an amount equal to the investment income earned by the PHEF, up to a maximum of $50 million. The bill would require that the Comptroller, in consultation with the presiding officers of the governing boards of the institutions eligible to benefit from the income from the investment of the PHEF, invest the fund in a manner that maximized the amount of income earned and gains realized. This bill would take effect September 1, 2001. Methodology Losses to the PHEF occur for 2 reasons: (1) the decrease in total expected income earned for the fund and (2) the decrease due to the shift to the Excellence Fund of an amount equal to the previous year's investment income. In addition, losses to the PHEF would be greater than the gains to the Excellence Fund because the anticipated shift in asset allocation away from equities and toward fixed-income securities would result in lower overall returns to state funds. The estimate of the PHEF is based on projected total returns, as calculated over the next five years by the Comptroller's Office, considering the expected change in asset allocation beginning in 2003. An allowance was made for the annual deposit to the Excellence Fund based on income earned from the PHEF as required by the bill. Further, it is assumed that the entire amount in the Excellence Fund is appropriated each year. Potential gifts or grants, from public or private sources, into the newly-created fund are not included. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: 781 Texas Higher Education Coordinating Board, 304 Comptroller of Public Accounts LBB Staff: JK, SD, DC, DB