Honorable Joe Straus, Speaker of the House, House of Representatives
FROM:
John S. O'Brien, Director, Legislative Budget Board
IN RE:
HB3452 by Gattis (Relating to the establishment of the Texas Armed Services Scholarship.), As Passed 2nd House
Estimated Two-year Net Impact to General Revenue Related Funds for HB3452, As Passed 2nd House: a negative impact of ($1,100,168) through the biennium ending August 31, 2011.
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2010
($101,292)
2011
($998,876)
2012
($1,922,023)
2013
($2,857,022)
2014
($3,799,052)
Fiscal Year
Probable Savings/(Cost) from General Revenue Fund 1
2010
($101,292)
2011
($998,876)
2012
($1,922,023)
2013
($2,857,022)
2014
($3,799,052)
Fiscal Year
Change in Number of State Employees from FY 2009
2010
1.0
2011
1.0
2012
1.0
2013
1.0
2014
1.0
Fiscal Analysis
The bill establishes the Texas Armed Service Scholarship Program. The new program would be adminstered by the Higher Education Coordinating Board. Under provisions of the bill, a qualified student could receive an annual conditional scholarship grants of up to $5,000, available for use at any Texas public or private institution of higher education having a Reserve Officer Training Corps (R.O.T.C.) program, conditioned on certain obligations.
The Governor, the Lieutenant Governor, the members of the Texas Senate, and the members of the Texas House of Representative each individually have the power annually to appoint one recipient of Armed Service scholarships who possess the requisite qualifications for the scholarship. In order to qualify for an Armed Services Scholarship, a student must meet minimum college entrance requirements at a Texas public university; and attend, meet and maintain the satisfactory academic progress requirements of the student's Texas public university. In order to fulfill the student's commitments to the Armed Services Scholarship program, the student must: (1) complete four years of ROTC training, and graduate within five years; (2) upon graduation, enter into either a four year commitment to be a member of the Texas Army or Air Force National Guard, or a contract to serve as a commissioned officer with any branch of the armed services of the United States; and (3) meet the physical examination requirements and all other pre-screening requirements off the Texas Army or Air Force Nation Guard, or of the branch of the armed services with which the student enters into a contract. Under provisions of the bill, a recipient of the scholarship who either fails to maintain satisfactory academic progress, withdraws from the scholarship program, or fails to fulfill the student's commitment, for any reason other than a physical inability to meet any of these commitments, all funds advanced to the recipient to that point would become a debt due to the state. The Higher Education Coordinating Board would begin awarding scholarships beginning with the 2010-11 academic year (fiscal year 2011).
Methodology
Since the student will have to meet several requirements to satisfy the conditions of the scholarship program, the amount distributed to the student will be considered a loan for the time period covered by the fiscal note. For purposes of this fiscal note, the Higher Education Coordinating Board assumed that the Governor, Lieutenant Governor would appoint 2 receipients and the members of the Texas Senate, and the members of the House of Representatives will each appoint one recipients. This means that a total of 185 recipients will be selected in fiscal year 2010, and an additional 185 new recipients will be added to the previous year’s cohort each year. Based on these assumptions and the maximum award of $5,000, the total cost for the scholarships is $925,000 in fiscal year 2011 with increased awards in the subsequent years as new cohorts are added to the program.
There would be a one-time technology cost for customized programming of $101,292 in fiscal year 2010 to set up the new program. The remaining costs include an account representative, court filing fees, and loan servicing costs. The Higher Education Coordinating Board indicated that although the industry standard for estimating costs of servicing for student loans is 2% of the loan principal, their estimate is based on a lower servicing percentage, 1% because of the large amount of each award, $5,000, which is not normally the case for a student’s annual student loans. For standard student loans, the majority of borrowers fulfill their agreements by repaying their loans on time and the servicing costs are mostly for producing and mailing monthly billing statements, processing payments, and maintaining the data base. However, additional servicing costs are incurred (1) for the borrowers who need assistance in the form of special payment or deferment arrangements, (2) for loans that are delinquent, and (3) for loans that are in default. Based on these assumptions the servicing costs associated with the program would be $9,250 in fiscal year 2010 and $18,500 in fiscal year 2011 increasing in the subsequent years as the amount of loans increase.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies:
720 The University of Texas System Administration, 758 Texas State University System, 769 University of North Texas System Administration, 781 Higher Education Coordinating Board