LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session Revision 1 March 5, 2001 TO: Honorable Teel Bivins, Chair, Senate Committee on Education FROM: John Keel, Director, Legislative Budget Board IN RE: SB127 by Staples (Relating to a statewide group insurance program for employees and retirees of school districts.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB127, As Introduced: negative impact of $(277,730,000) 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. * ************************************************************************** This fiscal note differs from the note provided on the House companion (HB 326) in that it includes $22 million in Other Funds as a financing source in fiscal year 2002 that was not included in the HB 326 fiscal note. General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(53,000,000) * * 2003 (224,730,000) * * 2004 (444,680,000) * * 2005 (503,720,000) * * 2006 (562,020,000) * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Probable Change in Number of * * Year Savings/(Cost) from Savings/(Cost) from State Employees from * * General Revenue Fund Other Funds FY 2001 * * 0001 0997 * * 2002 $(53,000,000) $(22,000,000) 100.0 * * 2003 (224,730,000) 0 100.0 * * 2004 (444,680,000) 0 100.0 * * 2005 (503,720,000) 0 100.0 * * 2006 (562,020,000) 0 100.0 * ************************************************************************** Fiscal Analysis The bill amends current statutes relating to the statewide group insurance program for employees and retirees of the independent school districts. The program would be administered by the Teacher Retirement System (TRS) and provide the same level of benefits as the Uniform Group Insurance Program provides to state employees. The state would be required to fund 35% of the cost of coverage for active employees, with the school districts paying the other 65%. The current statutory provisions requiring the state to contribute 0.5% of active employee payroll in order to help fund coverage for retirees are continued. Neither the state nor the school districts would be required to pay for dependent coverage. Participation by the school districts in the statewide plan would be optional. Program coverage would begin with the 2002-2003 school year (state fiscal year 2003). Methodology The bill assumes program participation to begin, effective September 1, 2002, with the 2002-2003 school year (state fiscal year 2003), following program start-up in fiscal year 2002. For fiscal year 2002, TRS estimates that the start-up costs will be $75,000,000. Based on a similar program in another state, TRS estimates that it would need approximately 100 full-time equivalent employees. Total costs for fiscal year 2002 are in addition to the $181,035,657 currently in the General Appropriations Act, as introduced, for TRS-Care, the existing program for retirees. Fiscal year 2002 costs can be partly funded with balances remaining from the $10 annual fee on active employees collected from 1993-1996. TRS estimates that the total cost for fiscal year 2003 will be $1.980 billion, with the state funding $493 million from general revenue funds. Because of the funding requirements and optional school district participation, TRS assumes that 426,654 employees/retirees, or 57 percent, would be covered in fiscal year 2003. TRS estimates that the average per employee/retiree cost to the state for fiscal year 2003 would be $1,155. The $493 million cost is partially offset by the $267,912,922 already in the General Appropriations Act, as introduced, for TRS-Care. The per employee/retiree cost to the state is projected to increase to $1,450 by fiscal year 2006. Cost increases for health care costs are estimated to range from 6%-8% for medical claims, and 12%-20% for prescription drug claims. Program participation is projected to grow to 470,360 by fiscal year 2006. TRS estimates that the number of active employees will increase by 3% percent annually, and the number of retirees will increase by 4.4% percent annually. Local Government Impact TRS estimates that school districts are currently paying $850 million a year for health insurance coverage. The bill would allow school districts to choose whether to join the plan. Districts that do participate would be required to pay for 65% of the costs of active employee coverage. The estimated cost for participating districts under this bill is projected to be $591 million in fiscal year 2003, increasing to $851 million in fiscal year 2006. Source Agencies: 701 Texas Education Agency, 323 Teacher Retirement System LBB Staff: JK, CT, SC