Austin, Texas
                    FISCAL NOTE, 77th Regular Session
                                May 3, 2001
          TO:  Honorable Teel Bivins, Chair, Senate Committee on
        FROM:  John Keel, Director, Legislative Budget Board
       IN RE:  HB3343  by Sadler (Relating to benefits, including group
               benefits coverage, for certain participants of the
               Teacher Retirement System of Texas and employees of
               certain charter schools.), Committee Report 2nd House,
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  HB3343, Committee Report 2nd House, Substituted:  negative impact     *
*  of $(1,673,759,000) 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 Impact:
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2002                       $(537,655,000)  *
          *       2003                      (1,136,104,000)  *
          *       2004                      (1,176,697,000)  *
          *       2005                      (1,211,653,000)  *
          *       2006                      (1,243,777,000)  *
All Funds, Five-Year Impact:
*Fiscal    Probable    Probable    Probable    Probable   Change in    *
* Year     Savings/    Savings/    Savings/    Savings/   Number of    *
*        (Cost) from (Cost) from (Cost) from (Cost) from    State      *
*          General   Other Funds   General     General    Employees    *
*          Revenue   for startup   Revenue     Revenue   from FY 2001  *
*          Fund for      0997      Fund for    Fund for                *
*          startup                 TRS-Care      CHIP                  *
*            0001                  contrib       0001                  *
*                                    0001                              *
*  2002                                                $0       140.0  *
*           $(53,000,   $(22,000,   $(95,521,                          *
*                000)        000)        000)                          *
*  2003             0           0                               140.0  *
*                                   (101,252,(10,900,000)              *
*                                        000)                          *
*  2004             0           0                               140.0  *
*                                   (107,300,(12,600,000)              *
*                                        000)                          *
*  2005             0           0                               140.0  *
*                                   (113,800,(14,600,000)              *
*                                        000)                          *
*  2006             0           0                               140.0  *
*                                   (120,600,(16,800,000)              *
*                                        000)                          *
         * Fiscal Year      Probable Savings/(Cost) from      *
         *                     Foundation School Fund         *
         *                              0193                  *
         *      2002                           $(389,134,000) *
         *      2003                          (1,023,952,000) *
         *      2004                          (1,056,797,000) *
         *      2005                          (1,083,253,000) *
         *      2006                          (1,106,377,000) *
Fiscal Analysis
The bill, as substituted, creates a statewide health insurance program
for school districts, regional education service centers and charter
schools, references certain adjustments to the Foundation School Program
Chapter 42 Tier 2 guaranteed yield and Chapter 41 equalized wealth level,
increases the benefits provided to Teachers Retirement System (TRS)
retirees, and creates a retiree health insurance account within the
pension trust fund.  The bill also increases funding for the TRS-Care
health care program for retirees.  Enactment of the bill's provisions
related to the active and retiree health insurance programs is contingent
upon passage of a  constitutional amendment related to the use of the
state's contributions to the retirement system for health care benefits.

Statewide Health Insurance Program

The bill creates the Texas School Employees Uniform Group Benefits
Program to provide health insurance and other benefits to employees of
the public school districts, regional education service centers, and
charter schools.  The program would be administered by the Teacher
Retirement System (TRS) and offer five levels of health coverage ranging
from the first tier basic plan to the fifth tier standard plan, which
would be comparable to the benefits offered by the Employees Retirement
System to state employees.  Plan participation would begin in fiscal year
2003, and participation by the districts and other entities would be
optional.  Only an entity that joins the plan is eligible for the state
contributions provided through the school finance formulas.

The bill includes provisions for providing coverage to children of
employees who meet the income eligibility guidelines for the Children's
Health Insurance Program (CHIP).  Since district participation in a
statewide plan will make these children ineligible for federal funding of
CHIP benefits, the bill requires the state to provide coverage that
offers the same benefits as the CHIP program does, and with the state
contributing 80 percent of the cost.

State Group Insurance Contributions and School Finance

State funding for group insurance contributions would be provided through
Foundation School Program formula adjustments -- an increase in the Tier
2 Guaranteed Yield and the Equalized Wealth Level -- for school
districts that choose to participate in the Texas School Employees
Uniform Group Benefits Program.

For fiscal year 2002, participating school districts can use 80 percent
of additional revenue for non-recurring expenses, including capital
outlay, or debt service.  For fiscal year 2003 and thereafter, school
districts that participate in the program would be required to use 80
percent to provide group insurance coverage as specified in the bill.
Participating school districts that receive insufficient revenue through
the formula adjustments would be provided enough revenue to reach the per
employee amount specified in the General Appropriations Act for each
fiscal year. All of that revenue must be used to provide group insurance

For fiscal year 2002, the school finance aspects of the bill would
provide all districts the complete benefit of the increase in the
guaranteed yield (we assume an increase to $26.26 - $24.99 in current
law) less any increase they would receive from other formula changes. As
a result, school districts eligible for Tier 2 state aid would receive
the benefit of the higher Tier 2 guaranteed yield. All other school
districts would experience an increase in their total revenue per
weighted student that is comparable to the state aid increase provided to
Tier 2 eligible districts.

For fiscal year 2003, all districts would be insured some increase in
"flexible state aid" as described above, but tied to a guaranteed yield
of $27.60.

School districts that do not participate in the group insurance program
would be eligible for funding under different formula levels and would be
subject to a different salary schedule. The Texas Education Agency (TEA)
would establish dual school finance systems and dual salary schedules.

Employees of participating charter schools and regional education service
centers would receive the equivalent amount specified in the General
Appropriations Act as their school district employee counterparts.

TRS Pension Benefits

The bill increases the current multiplier used in calculating the TRS
retirement benefit for future retirees from 2.20 to 2.25 percent, and
increases the annuities of retirees by the corresponding amount.
Annuitants who retired before August 31, 2000 would receive a
cost-of-living adjustment of 6.0 percent.

Retiree Health Insurance Account

The bill establishes a 401(h) account within the retirement trust fund to
pay for retiree health insurance costs.  The 401(h) account would pay
retiree health care claims first.  Once those expenses exceed the amount
available in the 401(h) account, the existing TRS-Care program would
provide benefits.  For fiscal years 2003 through 2010, 2.0 percent of the
state's current 6.0 percent retirement contribution would be deposited
into the 401(h) account.  In addition, active employees would contribute
0.25 percent of their salary into the 401(h) account instead of into the
TRS-Care program, as currently required.

TRS-Care Funding

The current TRS-Care program for retirees is continued under the
provisions of this bill, and will pay claims that exceed the amounts
available in the 401(h) account.  The state's current contribution of
0.5 percent of active member's salary would be increased to 1.0 percent.
Statewide Health Insurance Plan

Once the program is operational, it is assumed that the administrative
costs, estimated by TRS at four-five percent of claims, will be covered
by the annual state, district, and employee contributions.  However, for
fiscal year 2002, the Teacher Retirement System will incur costs for
designing and implementing the health insurance program.  TRS estimates
these costs could be as much as $75,000,000.  Part of this cost could be
funded with the remaining balances from the $10 annual fee assessed on
school district employees from 1993-1996, estimated to be $22,000,000.
The remaining amount is assumed to come from General Revenue.  TRS
estimates that 140 employees would be needed for administering the plan,
with 40 of those employees being placed at the 20 regional education
service centers.


It is assumed that the CHIP-lookalike program will be another tier of
coverage, offered only to the children of employees who meet the income
eligibility guidelines of the CHIP program.  The annual per child cost of
providing CHIP benefits is estimated to be $1,356 in fiscal year 2003,
increasing to $1,800 in fiscal year 2006 based on an assumed increase in
health care costs of 10% annually.  The bill requires the state to
contribute 80 percent of the cost, and there are currently an estimated
15,500 children of school district employees enrolled in the CHIP
program.  The state is currently financing 28 percent of the cost of
those CHIP enrollees, so the net cost to the state is the difference (52
percent).  If the number of enrolled children increases by five percent
each year, the resulting cost to the state will be $10,900,000 in fiscal
year 2003, increasing to $16,800,000 in fiscal year 2006, from General
Revenue.  This estimate assumes that all districts will join the
statewide plan.  To the extent that some districts do not join, the cost
will be reduced.

State Group Insurance Contributions and School Finance

For fiscal year 2002, school funding formula adjustments (we assume a
Tier 2 guaranteed yield of $26.26 and equalized wealth level of $300,000)
would result in a cost to the general revenue fund of $386.6 million.
In fiscal year 2003, the formula adjustments (we assume a Tier 2
guaranteed yield of $27.60 and equalized wealth level of $305,000)
together with hold harmless funding ensuring at least $1,500 per
employee, would result in a cost to the general revenue fund of about
$1,014.2 million. The total cost for the 2002-2003 biennium is estimated
to be  $1.4 billion for these components.

To continue the same level of hold harmless funding, and maintain the
formula adjustments applied to fiscal year 2003, for the next three
fiscal years would cost $1.047 billion in fiscal year 2004, $ 1.073
billion in fiscal year 2005, and $1.097 billion in fiscal year 2006.

For purposes of this fiscal note, we assume all school districts would
participate in the group insurance program. If some districts chose not
to participate and TEA had to implement dual school finance systems and
dual salary schedules, TEA would need two additional full-time employees
and enhancements to the Foundation School Program payment system. The
increased cost to TEA would be $750,000 in 2002 and $125,000 each year

Pension Benefit Changes and Retiree Health Account

While there will be an actuarial impact from the changes to the pension
plan provisions, there will be no significant fiscal impact.  The
redirection of 2.0 percent of the state' contribution will generate
additional funds for providing health care, ranging from $353.2 million
in fiscal year 2003 to $397.3 million in fiscal year 2006, however there
will be no net change in the state's total contribution.

TRS-Care Funding

The increase in the state's contribution to the TRS-Care retiree health
program from 0.5 to 1.0 percent is estimated to cost $95,520,621 in
fiscal year 2002, and increasing to $120,600,000 in fiscal year 2006,
based on projected payroll growth of 6.0 percent.  This analysis assumes
that the supplemental funding provided in both the Senate and House
versions of the appropriations bill, $85.5 million in  fiscal year 2002
and $166.7 million in fiscal year 2003, is left in the appropriations
Local Government Impact
Districts, service centers, and charter schools that join the statewide
plan would be required to contribute 80 percent of their current level of
expenditures for employee health insurance, and that amount must be
sufficient to fully cover the employee cost of the first tier basic plan
when combined with the state's contribution.  If the entity's current
level of effort combined with state funding exceed the cost of the first
tier plan, the excess can be spent only on benefits and employee
compensation.  Districts would be able to retain other 20% of the gain
from formula changes for purposes other than health insurance.

School districts would receive additional Foundation School Program
revenue as indicated above.
Source Agencies:   
LBB Staff:         JK, CT, PF, RN, SC