LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
April 22, 2001
TO: Honorable Teel Bivins, Chair, Senate Committee on
Education
FROM: John Keel, Director, Legislative Budget Board
IN RE: SB10 by Bivins (Relating to benefits, including group
benefits coverage, for certain participants of the
Teacher Retirement System of Texas and employees of
certain charter schools.), As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* SB10, As Introduced: negative impact of $(1,606,673,480) 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. *
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General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(508,521,621) *
* 2003 (1,098,151,859) *
* 2004 (1,128,900,000) *
* 2005 (1,162,400,000) *
* 2006 (1,191,400,000) *
****************************************************
All Funds, Five-Year Impact:
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*Fiscal Probable Probable Probable Change in *
* Year Savings/(Cost) Savings/(Cost) Savings/(Cost) Number of State *
* from General from Foundation from Other Employees from *
* Revenue Fund School Fund Funds FY 2001 *
* 0001 0193 0997 *
* 2002 $(148,521,621) $(360,000,000) $(22,000,000) 140.0 *
* 2003 (112,151,859) (986,000,000) 0 140.0 *
* 2004 (119,900,000) (1,009,000,000) 0 140.0 *
* 2005 (128,400,000) (1,034,000,000) 0 140.0 *
* 2006 (137,400,000) (1,054,000,000) 0 140.0 *
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Fiscal Analysis
The bill 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,
other than the changes in the pension benefits, is contingent upon
passage of constitutional amendments related to the distribution of funds
from the Permanent School Fund and 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 the availability of 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 only to provide group insurance coverage as specified in the
bill. Participating school districts that receive insufficient revenue
through the two formula adjustments mentioned above would be provided
enough revenue to reach the per employee amount specified in the General
Appropriations Act for each fiscal year.
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.
Methodology
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 rest 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.
CHIP
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.
State Group Insurance Contributions and School Finance
For fiscal year 2002, a combined Tier 2 yield of $26.26 and an Equalized
Wealth Level of $300,000 would result in a cost to the general revenue
fund of about $360 million; in fiscal year 2003, a Tier 2 yield of $27.17
and an Equalized Wealth Level of $305,000, together with pass through
funding ensuring at least $1,200 per employee, would result in a cost to
the general revenue fund of about $986 million. The total cost for the
2002-2003 biennium is estimated to be about $1.35 billion for these
components.
To continue the fiscal year 2003 level of per employee funding, for the
same "insufficient revenue" entities, added to the formula adjustments
referenced above, would cost $1.009 billion in fiscal year 2004, $ 1.034
billion in fiscal year 2005, and $1.054 billion in fiscal year 2006.
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
bill.
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: 701 Texas Education Agency, 304 Comptroller of
Public Accounts
LBB Staff: JK, CT, SC, RN