LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session February 6, 2001 TO: Honorable Paul Sadler, Chair, House Committee on Teacher Health Insurance, Select FROM: John Keel, Director, Legislative Budget Board IN RE: HJR54 by Junell (Proposing a constitutional amendment relating to the use of income and appreciation of the permanent school fund.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HJR54, As Introduced: positive impact of $735,064,000 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 $358,266,000 * * 2003 376,798,000 * * 2004 365,468,000 * * 2005 365,182,000 * * 2006 363,149,000 * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Revenue Probable Revenue Probable * * Year Gain/(Loss) from Gain/(Loss) from New Savings/(Cost) from * * Available School General Revenue General Revenue Fund * * Fund Related 0001 * * 0002 * * 2002 $127,766,000 $216,000,000 $14,500,000 * * 2003 134,298,000 228,000,000 14,500,000 * * 2004 116,133,000 234,400,000 14,935,000 * * 2005 106,799,000 243,000,000 15,383,000 * * 2006 96,304,000 251,000,000 15,845,000 * ************************************************************************** Fiscal Analysis The joint resolution proposes an amendment to the Texas Constitution's provisions relating to the Permanent School Fund (PSF). The amendment addresses the definition of the PSF and the distribution of the PSF's return. It further creates a new fund into which some of the returns to the PSF are to be deposited. Currently, interest and dividends alone from the PSF are to be disbursed to the Available School Fund to pay certain costs associated with the investment of the PSF and to support the Foundation School Program and the state Textbook Fund. The resolution amends the Texas Constitution to provide that distributions from the PSF be the lesser of five percent (5%) of the average of the market value of the PSF on the first day of the fiscal year; the market value of the PSF on the first day of the two proceeding fiscal years; or a portion of the total return on all investment assets of the PSF such that the portion of the total return retained by the PSF was sufficient, as determined by the Comptroller, to preserve the purchasing power of the PSF for the current fiscal year and the next nine fiscal years. After such a determination is made, 80% of the total distribution would be deposited to the Available School Fund and 20% to the newly created (under HB 1020) Public School Employee Health Insurance Fund (PSEHIF). The resolution does not stipulate the use of funds deposited to the credit of the PSEHIF. Currently, expenses associated with managing most of the PSF are paid out of the ASF, while the costs associated with managing PSF land holdings are the responsibility of the General Land Office. The resolution would require that both classes of expense be borne by the PSF. The proposed amendment to the Texas Constitution would be submitted to voters on November 6, 2001. The legislation creating the PSEHIF takes effect on September 1, 2002 assuming HJR 54 is approved by the voters. Therefore, it appears that there is a one-year gap between the effect of the constitutional amendment and the creation of the PSEHIF. Methodology The Permanent School Fund is valued at approximately $21 billion. An annual growth rate of 8.4% is used to project the value of the fund at up to $26 billion in 2006. The revenue gain to the ASF indicated above is an estimate of the relative gain to the fund of depositing 80% of the return as calculated in the amendment versus the return that would occur under current law. The revenue gain to the PSEHIF represents 20% of the return again as calculated under the amendment. The total return to the PSF may at or may below the rate of inflation. Under those circumstances, the payout to both the ASF and the PSEHIF could be zero. Local Government Impact Local school districts currently expend an estimated $790 million per year on employee health benefits. Source Agencies: 323 Teacher Retirement System, 701 Texas Education Agency, 304 Comptroller of Public Accounts LBB Staff: JK, CT, PF, UP