Category Archives: Funding

TRS Annual Review

Each year the Teacher Retirement System of Texas (TRS) puts out an annual review of both the TRS Pension Fund and the TRS health care systems / trust funds which they present to the TRS Board members.

The TRS health care update this year is focused on an in-depth analysis of the changes from the 2017 Care and ActiveCare plans to those going into effect during the 2018 plan year, as a result of legislative action during 85th regular and special sessions. ATPE has reported a number of times on the TRS-Care and ActiveCare changes as they have unfolded. The changes to TRS are set to take effect Jan 1, 2018.

TRS has produced two helpful videos to help explain the new insurance program, one for participants who are Medicare eligible and another for participants who are non-Medicare.

You can click the link here to view the full TRS health care document produced by TRS.

The Board also received its annual review on the health of the TRS pension trust fund, including a preview of some major actions the staff intends to undertake in the coming year. The review of the pension fund was a much rosier conversation in the recent past than the health care discussion, but the board is planning to undergo an experience study in early 2018 that could present some new long term challenges if it results in lowering the assumed return of the fund.

The headline from the pension report is the TRS Trust Fund earned a return of 12.9% and ended the 2017 fiscal year at a market value of $147 billion compared to a market value of $134 billion for the fiscal year ending 8/31/16.

Results of the 8/31/17 valuation and comparisons to the 8/31/16 valuation are summarized below:

The strength of the previous year raises the fund’s 10-year return to over 8%, and the fund’s returns since inception (approximately thirty years) continue to exceed 8% as well.

Despite TRS’s exceeding the assumed rate of return during both of these time frames, there is a strong expectation that external consultants who will perform the experience study in early 2018 will come back with a strong recommendation to lower the assumed rate of return for the fund from 8% to somewhere in the neighborhood of 7.5%. The result of such a move, in isolation, is to dramatically increase the unfunded liability of the fund on paper, which also increases the number of years required to fully fund the pension. Under the state’s definition of actuarial soundness, the funding window must be less than 30 years to consider the fund actuarially sound for purposes of increasing retiree benefits, such as by providing retirees with a cost of living adjustment (COLA).

Should TRS ultimately lower the assumed rate of return, it will be incumbent upon the agency, active and retired teachers, and those groups that represent them to impress upon the legislature the absolute necessity of increasing TRS funding to make up for the assumed loss of investment income. The amount of new funding needed to offset a decrease in the assumed rate from 8% to 7.5% will be approximately $800 million per biennium.

You can click the link here to view the full TRS Pensions document produced by TRS.

Teach the Vote’s Week in Review: Dec. 1, 2017

The weekend is here, and it’s time for your wrap-up of education news from ATPE:


The U.S. House of Representatives Committee on Ways and Means Chairman Kevin Brady (R-TX) provided a guest post this week on the Windfall Elimination Provision (WEP). He calls the WEP “unfair to public servants in Texas and across the nation” and says it is time for a fix.

ATPE has worked for decades to repeal the WEP, an arbitrary formula that affects the retirement earnings of some public employees who are eligible for both Social Security and government pensions (such as TRS). More information from ATPE on the WEP as it currently exists can be found here. In recent years, ATPE has joined with a coalition of active and retired public employee groups from Texas and across the country to bolster our work specific to this issue, working closely with Chairman Brady and his staff in order to repeal the WEP and replace it with a fairer formula for affected active and retired public employees.

Chairman Brady’s guest post addresses his thoughts on the current WEP and his vision for a new approach.

 


The Permanent School Fund (PSF), an endowment used to help fund public education in Texas in a variety of ways, has hit a record value: $41.44 billion as of August 31. The Texas Education Agency and the State Board of Education (SBOE), which manages the majority of the fund, announced the milestone this week, adding that a projected $2.5 billion from the PSF is expected to be distributed to Texas schools during the 2018-2019 biennium. For more on the announcement, the fund’s purpose, and the a brief history of the fund, check out this post from ATPE Lobbyist Mark Wiggins.

 


Texas school endowment hits record value

The Texas Education Agency (TEA) announced Tuesday that the endowment used to help fund public education in Texas hit a milestone achievement. The Permanent School Fund (PSF) reached its highest-ever value of $41.44 billion as of August 31, up $4.16 over the previous year.

The nation’s largest educational endowment today, the PSF was created in 1854 with a $2 million appropriation by the Texas Legislature. The Constitution of 1876 added certain public lands and all proceeds from the sales of those lands to the fund, and the Submerged Lands Act passed by the U.S. Congress in 1953 gave the fund control of mineral rights extending off the Texas coast into the Gulf of Mexico.

The majority of the fund, worth $32.73 billion, is managed by the State Board of Education (SBOE). The remaining $8.7 billion is managed by the General Land Office (GLO) through the School Land Board. The fund is invested in a diverse portfolio of assets and undergoes regular audits and performance reviews. Investment decisions often come before the board’s Committee on School Finance and the Permanent School Fund.

“The Permanent School Fund is the gift that keeps on giving to Texas schools,” State Board of Education Chair Donna Bahorich said in a statement provided by the TEA. “With the board’s careful oversight and the continued strong day-to-day administration of the Fund by the Permanent School Fund staff, the Fund will continue to support Texas schools for generations to come.”

“During the 2018-2019 biennium, the Permanent School Fund is projected to distribute $2.5 billion to Texas schools,” SBOE member David Bradley, who chairs the PSF committee, told the TEA. “This is the largest distribution in the Fund’s 163-year history and is $400 million higher than the distribution made in the 2016-2017 biennium.”

The PSF is also used to guarantee bonds by leveraging the fund’s AAA credit rating. Since 1983, the Bond Guarantee Program (BGP) has guaranteed more than $166 billion in bonds without default. In 2011, the Texas Legislature allowed charters to access the BGP. Despite the danger posed by risking taxpayer funds to guarantee loans to charters, which have shown a greater likelihood of financial trouble or default than school districts, the Texas Legislature passed legislation in 2017 to expand the amount of capacity available to charters.

Election Update: Analyzing Nov. 2017 results around the state

Yesterday, Nov. 7, 2017, Texans went to the polls, wrapping up a little more than two weeks of voting by passing all seven of the state constitutional amendments on the ballot.

In addition to yesterday’s constitutional election, Texans from 58 districts scattered all across the state also voted on ISD bond proposals totaling approximately $7.7 billion. Of those 58 districts, 19 of them asked their voters to approve bond packages greater than $100 million, accounting for roughly $7 billion of the $7.7 billion total. Seventeen of those 19 bond proposals, totaling $6.6 billion, passed, most by a significant margin, while only two, Ector County ISD and Victoria ISD, failed.

While it is only one metric, the overwhelming passage rate of ISD bond proposals is a good indicator that Texans overwhelming support their local public schools and are willing to voluntarily dedicate their tax dollars to see them prosper to the benefit of local students. Texans by and large are a fiscally conservative bunch and are not prone to approving what they view to be wasteful or excessive spending. We at ATPE hope that state lawmakers will take this strong show of support by local taxpaying voters that the state’s citizenry supports public schools and public school funding as encouragement to make similar decisions on school funding at the state level.

You can view all ISD bonds on the November 2017 ballot at the Texas Comptroller’s website.

Dallas County and City of Houston voters weighed in on a couple of significant measures not related to ISD bonds.

Dallas County voted to close down a countywide taxing entity known as Dallas County Schools, which was separate from the traditional ISDs that educate area students. Over the years Dallas County Schools, an intermediate educational agency, had largely become the provider of school bus services to local districts including Dallas ISD. Once Dallas County Schools fully closes down, area districts will need to either pull those services, including bus transportation, in-house or contract them out to private providers.

The City of Houston passed a $1 billion pension revenue bond package by a wide margin. While these bonds will NOT impact educators or the Teacher Retirement System of Texas (TRS), it is a good sign that the state’s largest city is overwhelmingly supportive of maintaining a healthy defined-benefit pension system for its local public employees who are not covered under state plans.

Summary of third-quarter TRS board meeting

TRS logoThe Teacher Retirement System (TRS) of Texas held its quarterly board meeting this week in Austin on Thursday, Sept. 21, and Friday, Sept. 22, 2017. You can watch video of the board meeting here, as well as review the board agenda and board book.

The TRS board received its final update on the TEAM project prior to the upcoming go live date. As we have reported previously on our blog, TEAM is the agency’s ongoing project to update its computer infrastructure and data systems. TRS Executive Director Brian Guthrie reported that everything continues to be a go for the transition to the new system, which is scheduled to go live on Oct. 2. At the next meeting, the board will receive a report on the transition from the legacy system to the new system and the transition from working on phase one of the TEAM project to working on phase two.

In a subsequent agenda item, Guthrie laid out several of his policy goals for the upcoming year. Included in those Guthrie would like to look into significantly streamlining the retire/rehire rules for educators. There are always pros and cons to any changes made to the retire/rehire rules, and advocacy groups including ATPE will stay closely involved during the process to ensure that the rules produce the best results possible for individual educators while also ensuring the overall health of the retirement fund. Additionally, TRS is set to undertake the process of completing an updated experience study, a process utilizing a third-party vendor to analyze the assumptions TRS uses to determine its actuarial numbers. TRS staff expects to complete the study by February and present findings to the TRS board for discussion at the February board retreat.

ThinkstockPhotos-465016790_moneyConducting an experience study and reconsidering the TRS assumptions, including the assumed rate of return, is a significant action for the TRS board and agency. The assumptions combined with the actual assets on hand are what TRS uses to determine the funding window and overall actuarial soundness of the pension fund. Lowering the assumed rate of return without increasing the contribution rate will significantly increase the funding window, or number of years required to fully cover pension liabilities. Under law the fund cannot be considered actuarially sound if the window is greater than 30 years. Currently the fund is just over the 30 year mark but is trending in the right direction. Lowering the assumed rate of return even slightly will add years, as many as five to 10, to the funding window. TRS’s current assumed rate of return is 8 percent. Despite the fact that TRS has a one-year rate of return at 12.9 percent, a five-year rate of return at 8.9 percent, and a 26-year rate of return at 8.7 percent, there is significant pressure, including political and peer pressure, to lower the investment return assumption. ERS recently underwent a similar process that resulted in that fund’s rate of return being lowered from 8 percent down to 7.5 percent.

Any degradation of TRS’s actuarial soundness will undoubtedly result in new calls from some advocates and state lawmakers who oppose government-funded pensions for TRS to be converted from a defined-benefit pension system into a defined-contribution 401(k)-style plan.

In addition to the meeting of the full TRS board, various sub-committees also met this week. Of particular note, the TRS policy committee made changes to a number of TRS rules, many in response to legislative changes from the 85th legislative session that just went into effect on Sept. 1, 2017. You can review the list of rules affected on the Policy Committee Agenda or take a closer look at the rules in the Policy Committee Book.

Other committees that met this week included the following with links to their materials:

  • TRS Investment Management Committee – Agenda and Book;
  • TRS Risk Management Committee – Agenda and Book;
  • TRS Compensation Committee – Agenda and Book; and
  • TRS Audit Committee – Agenda and Book

The next TRS board meeting will be a one-day meeting on October 27, 2017. Stay tuned to Teach the Vote for updates.

SBOE wraps quiet September meeting

The State Board of Education met Friday to conclude its September meeting in Austin. After recognizing the 2017 Heroes for Children award recipients, the board heard public comments and took up the agenda.

The board swiftly moved though items from the Committee on Instruction that removed duplicative rules regarding certain science classes and an amendment changing the amount of credit offered for extended practicum in fashion design. Members approved a measure from the Committee on School Finance/Permanent School Fund to update the rule to comply with the Texas Tax Code regarding the definitions used for tax collections to calculate state aid under the Texas Education Code.

The board approved an item from the Committee on School Initiatives that would expand the commissioner’s ability to dismiss or decline to recertify hearing examiners, as well as an item that clarifies policies regarding late renewals of educator certifications. The board took no action on an item that would make adjustments to the qualifications for educators whose degree was earned outside the United States.

Member Barbara Cargill (R-The Woodlands) updated the board on the first meeting of the Long-Range Plan Steering Committee, which Cargill chairs. The 18-member committee met Tuesday for what Cargill described as a “great meeting,” in which attendees received a presentation by the state demographer. Cargill noted that according to the demographer, 86 percent of the state’s population lives along the I-35 corridor or east of it. After brainstorming ideas for main topics on which to focus, the committee is now working to narrow its list down to four items.

Before the board adjourned, member Georgina Perez (D-El Paso) thanked Texas Education Agency (TEA) staff for creating a Spanish language support group in response to the myriad issues facing bilingual speakers in the public school system.

TRS adopts retiree healthcare changes, considers 403(b) provider rules

TRS logoATPE lobbyist Monty Exter attended a TRS Board meeting in Austin today. Today’s meeting was rescheduled from last week when it had to be delayed due to Hurricane Harvey. The agenda and board materials for the meeting can be found on the TRS website.

After preliminary housekeeping issues, the board took public comments. TRTA Executive Director Tim Lee engaged the board on the implementation and issus needing to be addressed due to recent legislation which made significant changes to TRS-Care.

After Mr. Lee, multiple industry professionals came to give their comments on TRS’s proposed rule change regarding 403(b) programs. All but one of those offering comments had strong concerns about the effect of the rules on the future availability of a robust cohort of providers for educators to choose. One witness thought the number of companies and products currently in the space was excessive and presented Texas educators with an overly complex and excessively expensive set of options. The board will further consider these rules during an agenda item later today on which we will report afterward for Teach the Vote.

After public comments, the board recognized Howard Goldman for his 24 years of service as TRS Communications Director.

Next the board received an update on the TEAM program. TEAM is the name given to TRS’s work toward updating the agency’s considerable computer infrastructures and data systems. Go live on phase one of the TEAM upgrades is set for October 2, 2017. There are some contingencies based on delays caused by Hurricane Harvey, as the storm may affect as many as 321,705 TRS members.

After the TEAM discussion, Brian Guthrie, TRS Executive Director, gave the board a special session update, including reporting on the passage of House Bill (HB) 21, which included an appropriation of $212 million for TRS-Care. The money appropriated will be used to soften the blow of the increased premiums and deductibles. The board returned to the issue of TRS-Care when it reviewed and adopted the premiums and plan design for TRS-Care, the retiree health benefits program, including the standard plan, the fully insured Medicare Advantage Plans, and the Medicare Part D Plans.

The attached document from TRS staff provides details of the now adopted TRS-Care plan design, how the new plan compares to the current TRS-Care plans, and what the plan would have looked like had HB 21 not passed during the special session. Changes to TRS-Care will not go into effect until Jan 1, 2018.

Following Guthrie’s comments, the board took up the certification of the contributions TRS will receive to fund TRS-ActiveCare. The board voted to certify to the State Comptroller the estimated amount of state contributions to be received by TRS-Active Care for fiscal year 2018. The certification amount totals $795,729,797 which includes $401,129,797 to meet the state contribution rate; $182,600,000 in supplemental funding passed during the regular session; and $212 million passed during the special session via HB 21. The state contribution rate has increased from 1.0% to 1.25% due to the passage of HB 3976 relating to changes for TRS-Care during the regular legislative session earlier this year.

TRS had initially scheduled a Policy Committee meeting to happen concurrently with today’s full board meeting, but that meeting had to be canceled as a result of a lack of quorum of those committee members due to Hurricane Harvey.

Proposed TRS meeting dates for 2018 are Feb. 14-16, April 19-20, June 14-15, July 27, Sept. 20-21, Oct 19, and Dec 13-14

The Board’s next regularly scheduled meeting will be September 21-22.

TRS to vote on changes to retiree healthcare plan next week

Drugs and MoneyIf you are a retired educator or someone planning to retire soon from the profession, you’ll be interested in next week’s meeting of the Teacher Retirement System (TRS) Board of Trustees. The board will meet Friday, Aug. 25, to discuss and adopt modifications to the TRS-Care healthcare program for retirees.

As we reported on Teach the Vote back in June, TRS recently announced several changes to the design of its healthcare plans after the legislature failed to completely fill a funding shortfall during the regular session. But in response to outcries from educators, legislators convinced Gov. Greg Abbott to add retiree healthcare costs to his call for the special session that ended Tuesday. The legislature passed House Bill 21 by Rep. Dan Huberty during special session that will funnel $212 million in additional money to TRS for healthcare.

TRS logoThe attached document from TRS staff provides details on plan changes that TRS board members are expected to adopt next week. Changes to TRS-Care will go into effect on Jan 1, 2018.

From The Texas Tribune: Hey, Texplainer: Does the Texas lottery fully fund public education?

A Texas Lottery display in Austin on April 3, 2017. Photo by John Jordan

A Texas Lottery display in Austin on April 3, 2017.
Photo by John Jordan

Today’s Texplainer is inspired by a question from Texas Tribune reader Lynne Springer. Send us your questions about Texas politics and policy by emailing texplainer@texastribune.org or through texastribune.org/texplainer. 

Hey, Texplainer: The lottery is supposed to fund education — that was stated at the get-go. Why is lottery money being used for other things?

When they were trying to sell the lottery to voters more than 25 years ago, political candidates left many Texans with the impression that 100 percent of the money earned from the lottery would go toward education and that the lottery might generate enough money to pay for all public education.

Neither is true.

Through a constitutional amendment, voters approved the creation of the Texas Lottery in November 1991. Between 1992 and 1997, $4 million from lottery ticket sales and unclaimed prizes went toward the state’s general revenue fund — meaning it could be used for any state expense.

It wasn’t until after 1997 that Texas schools became a specific beneficiary of the money.

The breakdown of how that money is distributed now looks like this, according to the Texas Lottery Commission website:

  • 63 percent is paid to lottery winners
  • 27.1 percent funds Texas education through the Foundation School Fund
  • 5.4 percent goes toward retailer commissions
  • 4 percent goes to the lottery for administrative costs
  • The remainder, about 0.4 percent, funds the Veterans Assistance Program and other state programs

The commission announced in September 2016 that it had earned more than $5 billion in sales for the 2016-17 fiscal year.

“This is the first time in our history that we have generated more than $5 billion in sales,” Gary Grief, the lottery’s executive director, said in a news release. “We are excited to celebrate the extraordinary growth we have achieved and proud to make our largest contributions ever to both Texas public schools and veterans’ programs.”

Of that $5 billion, roughly $1.3 billion was allotted to the Foundation School Fund, which is administered by the Texas Education Agency. The money is used for expenses such as teacher salaries, bilingual education and special education. TEA officials said the Foundation School Program should be thought of “as a huge pot of money” with lottery revenue being just one contributor to the pot.

In 2015, the Legislature budgeted $48.4 billion in state funds for public education over two years, which included $2.4 billion that the lottery contributed to the state’s foundation school account.

According to the Texas Lottery’s website, the lottery has contributed $20 billion to the Foundation School Fund since 1997. But TEA officials say there’s no telling which Texas school districts receive lottery funding.

The bottom line: The money earned by the Texas Lottery has never been fully dedicated to Texas education. Since 1997, a percentage of lottery revenue has gone toward funding the state’s public schools, but not all of it.

This article originally appeared in The Texas Tribune at https://www.texastribune.org/2017/07/07/hey-texplainer-does-lottery-fully-fund-public-education/.

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SBOE reviews bills related to permanent school fund

The State Board of Education (SBOE) broke into committees Thursday, and the Committee on School Finance/Permanent School Fund took a look at legislation passed by the 85th Texas Legislature.

State Board of Education Committee on School Finance/PSF meeting June 22, 2017.

State Board of Education Committee on School Finance/PSF meeting June 22, 2017.

Effective September 1, 2017, House Bill (HB) 89 prohibits state agency contracts with and investments in companies that boycott Israel. The state comptroller is currently compiling a list of companies that could fall under this category. Agencies would be required to submit a report by January 1 of each year to the legislature and the office of attorney general. This affects the SBOE due to the board’s role in overseeing investments of the Permanent School Fund (PSF).

Committee chair David Bradley (R-Beaumont) asked whether HB 89 would require the board to scrub hedge fund portfolios. Staff advised that in such cases, the board may not necessarily be required to divest. Staff suggested the board may not be required to comply with HB 89 in the event that doing so would violate the board’s fiduciary responsibility.

Similarly, Senate Bill (SB) 253 relates to companies that engage in business in Sudan or Iran or with terrorist organizations. This legislation does not specifically name SBOE or the PSF, so staff advised that the board is likely unaffected.

SB 1480 phases in a higher capacity for charter schools to access the Bond Guarantee Program (BGP), which guarantees bonds for public and charter schools by backing them with the PSF. This enables public and charter schools to access better interest rates. The total capacity available to charters was $1 billion on January 1, 2017. SB 1480 will increase the total capacity to $5.4 billion over five years, increasing by about 20 percent, roughly $800 million, each year. The SBOE will have to determine the exact percentage of increase each year, beginning in September.

The committee also approved changing the definition of tax collections used to calculate state aid for ad valorem tax credits. Texas Education Agency (TEA) staff recommended the change to conform the rules to align with statute. Instead of the current process in which a refund is issued after taxes are collected, the tax credit will be excluded from collection.

The board will conclude its June meeting on Friday.