LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                              March 12, 2001
  
  
          TO:  Honorable Teel Bivins, Chair, Senate Committee on
               Education
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB1317  by Staples (Relating to allowing certain retirees
               of the Teacher Retirement System of Texas to be employed
               without losing  retirement benefits.), As Introduced
  
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*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB1317, As Introduced:  negative impact of $(464,800,000) 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                       $(228,200,000)  *
          *       2003                        (236,600,000)  *
          *       2004                        (245,400,000)  *
          *       2005                        (253,500,000)  *
          *       2006                        (262,000,000)  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
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*Fiscal        Probable             Probable             Probable        *
* Year    Savings/(Cost) from  Savings/(Cost) from  Savings/(Cost) from  *
*        General Revenue Fund    Estimated Other    Teacher Retirement   *
*                0001            Educational and   System Trust Account  *
*                                General Income            Fund          *
*                                   Account/               0960          *
*                                 GR-Dedicated                           *
*                                     0770                               *
*  2002         $(228,200,000)         $(8,600,000)           $(175,000) *
*  2003          (236,600,000)          (9,300,000)            (175,000) *
*  2004          (245,400,000)         (10,000,000)            (178,000) *
*  2005          (253,500,000)         (10,800,000)            (182,000) *
*  2006          (262,000,000)         (11,700,000)            (185,000) *
**************************************************************************
  
Fiscal Analysis
  
The bill allows public school employees eligible to retire under the
Teacher Retirement System (TRS) without a reduction for early age to
retire and then return to work after two months without a loss in
benefits.  The bill has the effect of encouraging active, but
retirement-eligible employees to officially retire, and to increase the
number of retirees covered by the TRS-Care health insurance program for
retired, school district employees.
  
  
Methodology
  
According to TRS, approximately 90% of public school employees do not
work a full twelve month schedule.  As a result, the requirement to
"retire" for two months is not expected to present a hardship.  The TRS
actuary therefore assumes that 90% of school district employees eligible
to retire will choose to do so, then return to work after two months.
The higher retirement rates increase the normal cost of the plan to
13.44% from the current 12.16%, and would result in an unfunded accrued
actuarial liability of eight million dollars.  At the current state
contribution rate of 6.0%, this liability could not be amortized within
the legally required 30 years.  The state's contribution rate would have
to increase to 7.11% in order to meet legal requirements.

At a 7.11% contribution rate, the additional cost to the state would
total $227,000,000 in fiscal year 2002, increasing to $264,000,000 by
fiscal year 2006 due to payroll growth.

The projected increase in the number of TRS members classified as retired
will increase the number of members enrolled in the TRS-Care health
insurance program.  TRS estimates that the additional TRS-Care enrollees
will cost approximately ten million dollars a year.
  
  
Local Government Impact
  
Independent school districts are required to make the retirement
contributions on any salaries that exceed the minimum salary schedule.
The higher contribution rate would cost school districts an estimated
$16.6 million in fiscal year 2002, increasing to $21.7 million by fiscal
year 2006.  On the other hand, districts would save an undetermined
amount of money in health insurance costs, since the re-hired employees
would be covered under the TRS-Care program, not the districts' plans.
  
  
Source Agencies:   323   Teacher Retirement System
LBB Staff:         JK, CT, SC