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
  
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*  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:
  
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*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