Austin, Texas
                    FISCAL NOTE, 77th Regular Session
                                Revision 2
                               May 26, 2001
          TO:  Honorable Bill Ratliff, Lieutenant Governor
               Honorable James E. "Pete" Laney, Speaker of the House
        FROM:  John Keel, Director, Legislative Budget Board
       IN RE:  HB3343  by Sadler (Relating to the operation and funding
               of certain group coverage programs for certain school and
               educational employees and their dependents. ),
               Conference Committee Report
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  HB3343, Conference Committee Report:  negative impact of              *
*  $(1,860,600,000) through the biennium ending August 31, 2003.         *
*                                                                        *
*  The Conference Committee Report for Senate Bill 1 contains funding    *
*  of $1,860,600,000 for these purposes.                                 *
(This fiscal note revision was created to include three additional
personnel that would be needed by the Texas Education Agency to
implement the provisions of the bill.  These persons were not included
in previous fiscal notes for this conference report.)
General Revenue-Related Funds, Five-Year Net Impact:
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2002                       $(370,200,000)  *
          *       2003                      (1,490,400,000)  *
          *       2004                      (1,436,100,000)  *
          *       2005                      (1,453,731,000)  *
          *       2006                      (1,474,710,000)  *
All Funds, Five-Year Impact:
*Fiscal      Probable        Probable        Probable       Change in     *
* Year    Savings/(Cost)  Savings/(Cost)  Savings/(Cost) Number of State  *
*        from Foundation   from General     from Other    Employees from  *
*          School Fund     Revenue Fund       Funds          FY 2001      *
*              0193            0001            0997                       *
*  2002    $(367,200,000)    $(3,000,000)   $(22,000,000)            28.0 *
*  2003     (746,700,000)   (743,700,000)               0            28.0 *
*  2004     (760,500,000)   (675,600,000)               0            28.0 *
*  2005     (794,800,000)   (658,931,000)               0            28.0 *
*  2006     (805,900,000)   (668,810,000)               0            28.0 *
Fiscal Analysis
The bill, as reported by the conference committee, creates a statewide
health insurance pool and would mandate participation for school
districts, regional education service centers, and charter schools with
500 or fewer employees.  Districts with more than 500 but not more than
1,000 employees could join immediately.  Districts with more than 1,000
employees would have the option of joining beginning in fiscal year 2006,
unless the TRS Board of Trustees allows an earlier opt-in date.  The
pool would offer several tiers of coverage with at least one level
comparable to the benefits provided to state employees by the Employees
Retirement System.  The Teacher Retirement System (TRS) would administer
the plan, in cooperation with the Texas Education Agency, with
participation beginning in fiscal year 2003.  The proposed plan does not
include retirees.

Under the provisions of the bill, the state would contribute $900 per
participating employee ($75 per month), regardless of whether the
district is in the pool, to be used for providing health care coverage.
This payment would be distributed to the districts as part of the school
funding formulas. Beginning in fiscal year 2003, the state would provide
$1,000 per year to every public education employee in the state, to be
used for additional coverage levels, dependent coverage, health care
expenses, or taken as cash.  This pass-thru payment is provided
regardless of whether the employee is participating in the district's
health insurance plan, and would be distributed by TRS.

The bill would require maintenance of effort by all districts, with a
minimum required effort of $1,800 per employee per year ($150 per month).
For districts spending less than $150 per employee per month, the state
would provide hold harmless funding that would be phased out over 6
years so that all districts are contributing at least $150 per employee
per month by 2008.

School Finance Formula Provisions

The bill would increase school finance formulas as follows:  (1) Tier 2
Guaranteed Yield to $25.81 in fiscal year 2002 and $27.14 in fiscal year
2003; (2) increase the Equalized Wealth Level to $300,000 in fiscal year
2002 and $305,000 in fiscal year 2003; and (3) ensure that school
districts, that would not otherwise experience an increase in their
revenue associated with these two formulas (AKA gap districts), enjoy the
same revenue increase per weighted student as provided to Tier
2-eligible school districts.

State funding for the $900 per year ($75 per month) group insurance state
contribution, and state aid associated with a district's minimum effort
to spend up to $1,800 per year, would be provided through the
aforementioned Foundation School Program formula adjustments for school
district and charter school employees who participate in a group
insurance program.  A portion of the funding formula increase would be
applied to state aid related to the minimum effort hold harmless.

For fiscal year 2002, school districts and charter schools can use the
additional revenue resulting from the formula funding increases for any
lawful purpose.  For fiscal year 2003 and thereafter, school districts
and charter schools would be required to use an amount not to exceed 75
percent of their additional formula revenue to increase their group
insurance coverage.  Entities that receive insufficient revenue through
the formula adjustments to meet obligations under the bill would be
provided hold harmless funding.

The hold harmless funding related to a district's minimum effort
requirement would be phased-out beginning in 2004.  Because some
property-poor districts might have to increase tax rates to fund the
$150/employee/month required contribution in the out years, the bill
would allow some districts to access state aid based on current year tax
rates rather than tax rates from the last year of the prior biennium.
Also, school districts at the $1.50 maintenance and operations tax rate
limit (nominal rate) would not be subject to the minimum effort hold
harmless phase-out (i.e., they would continue to receive a state subsidy
in order to provide the $150 per employee minimum contribution).

Other Plan Elements

The bill would require the state to offset the cost that school districts
participating in Social Security would experience because some of their
employees choose to take the $1,000 pass-through as compensation.

Since the children of employees working in the districts participating in
the statewide pool may no longer be eligible for federal financing of
enrollment in the Children's Health Insurance Program (CHIP), the bill
would provide additional state funds to replace federal funds for CHIP
enrollees made ineligible for the federal match.
The costs related to school finance changes are calculated based on the
assumed passage of the conference committee report on House Bill 2879.

The combined cost of funding formula changes ($1,114 million), and all
health insurance benefits and related administrative expenses ($1,241
million) is approximately $2,355 million for the 2002-2003 biennium.
Approximately $490 million of the formula funding would be applied to the
cost of the health insurance benefits, resulting in a net biennial cost
of for the 2002-2003 biennium to the General Revenue Fund of $1.86

The pass-through for all school employees (including charter school and
Education Service Center employees) would cost approximately $590 million
in fiscal year 2003.  Increases in this cost for future years reflect an
assumed employee growth rate of 3 percent per year.

The costs for the $900 per year ($75 per month) insurance contributions
and the $150 per month minimum effort state subsidy, would be funded in
large part by the school finance formula adjustments in fiscal year 2003.
The costs are based on an estimated 573,000 participating employees in
fiscal year 2003.  The combined cost of these items is estimated to be
$640 million in 2003, with $490 million coming from the formula funding
increase.  The remaining portion would be hold harmless funding related
to both provisions.

Social Security Hold Harmless

The cost of providing the hold harmless provision to districts that
participate in Social Security is estimated to be $1,361,000 million in
each fiscal year, beginning in fiscal year 2003.

Children's Health Insurance Program Subsidy

Currently there are 15,500 children of school district employees enrolled
in the CHIP program.  An estimated 4,263 will become ineligible for
federal financing in fiscal year 2003.  The projected cost for providing
state funding to replace the federal funding is estimated to be
$4,200,000 in fiscal year 2003, $4,800,000 in fiscal year 2004,
$5,600,000 in fiscal year 2005, and $14,100,000 in fiscal year 2006.
This estimate assumes that the number of children increases by five
percent each year, and that the cost for the CHIP program increases ten
percent each year.  All districts in the mandatory pool (less than 500
employees) would be affected, and this analysis assumes that 50 percent
of the employees in the optional districts would join the statewide pool,
their children would lose federal funding eligibility, and be covered by
full state funding.

TRS Start-Up Cost

TRS will require funding in fiscal year 2002 for the design and
implementation of the program.  TRS estimates the first year start-up
costs will be $25,000,000, and will require 25 new employees.  Most of
this cost could be financed using the remaining balances from the $10
annual fee charged to active employees from 1993-1996, estimated to be
$22,000,000.  Administrative costs in subsequent years will be part of
the program costs, and will be paid from by the state, district, and
employee contributions to the plan.
Local Government Impact
School districts would benefit from the increase in funding formulas and
related hold harmless provisions mentioned above.  At least 25% of
revenue related to the formula increases in 2003 would not be dedicated
to a district's health insurance obligations.  School employees would
benefit from the provision of the $1,000 per year pass-through funding
and state assistance of $900 per year ($75 per month) participant for
group insurance coverage.

To the extent that employees choose to take a portion of their supplement
as income, the districts will be required to pay employer matching costs
for Medicare for employees hired after September 1, 1986, at a rate of
1.45 percent of the amount chosen as income.  Districts would not be
required to make any TRS retirement contributions on that income.
Districts may also incur costs in setting up and administering health
care reimbursement accounts if those accounts do not currently exist.
Source Agencies:   
LBB Staff:         JK, CT, SD, PF, RN