Interim hearings focus on TRS, state budgeting concerns

ThinkstockPhotos-187006771-USCapOn Wednesday, March 30, four legislative committees held hearings in Austin: the Senate Finance Committee, the House Committee on Pensions, the House Insurance Committee, and the Joint Interim Committee to Study TRS Health Benefit Plans. Each committee discussed a variety of topics, but a common thread in yesterday’s meetings was the Teacher Retirement System (TRS).

At the meeting of the Joint Interim Committee to Study TRS Health Benefit Plans, ATPE was invited to testify on a panel of public education association representatives to discuss the sustainability of TRS-Care, the health insurance program offered to public education retirees. It is currently projected that going into the 2017 legislative session TRS-Care will have a shortfall of approximately $1.5 billion. This is after the 2015 legislative session where lawmakers infused the program with $768 million to keep the program alive for two years. The fundamental problem facing TRS-Care — aside from the growth in health care costs simply outpacing that of income — is that the funding stream dedicated to the program is tied to aggregate active employee payroll, and it in no way reflects the cost drivers facing retiree health insurance. Further, the state portion of TRS-Care funding was cut in half for a year in 2012.

Simply put, funding has been relatively low and insufficient to sustain the TRS-Care program. ATPE explained to the committee the difficulties of requiring active employees or retirees to contribute more to Care. Active employees are currently paying health insurance premiums that exceed that of their private sector counterparts and have not had an increase in the state contribution toward employee health insurance since 2002. Also, TRS retirees largely do not receive Social Security benefits and receive an average pension of $2,000 per month. Ultimately, we are confident that working alongside House and Senate leaders we will find a workable solution to ensure that all current and future public education retirees receive quality, affordable health care.

Earlier in the day during a discussion on state and local debt, the TRS deputy executive director explained to the Senate Finance Committee that even though the pension trust fund has an unfunded liability, largely because of changes made in 2013, there is a plan in place to pay it off, and overall the trust fund is considered to be healthy. The status of the fund’s health didn’t stop Sens. Charles Schwertner (R–Georgetown) and Paul Bettencourt (R–Houston) from questioning TRS about the Board of Trustee’s adopted rate of return assumption of 8% on TRS investments. Sens. Schwertner and Bettencourt believe that the 8% rate is too high and should be reduced. The problem with their position is twofold: One, an evaluation of TRS investment return data shows that over the last 30 years (the period of time in which data is available) the rate of return experienced by TRS is above 8%; and two, an arbitrary reduction of the return assumption would result in multiple, severe negative affects to the pension trust fund. The fund would be weakened and would require additional funding from the state, active employees, or both in order to avoid a reduction in retiree benefits. Or, as Sen. Bettencourt made evident, it would open the door to eliminating the current defined-benefit pension guaranteed to public education employees who pay into the plan in order for a  401(k)-like defined-contribution plan to be put in its place. ATPE has long fought the idea that a 401(k) would be more beneficial to the state or to employees, and we will continue fighting any attempt to reduce public education employee benefits. Sens. Joan Huffman (R–Houston) and Royce West (D–Dallas) rightfully pointed out that TRS is being operated responsibly and that the data simply do not support the assertion that the rate of return should be reduced.

There was also a discussion on how to further phase out the franchise tax, a review of the state sales tax holiday, as well as a lengthy conversation on how the legislature builds the two-year state budget every legislative session and how that process could potentially be improved. The issue that public education supporters should be concerned with in regards to the franchise tax is that a portion of the revenue collected from the franchise tax goes to make up for the public education revenue lost resulting from the property tax cuts in 2006. In short, any further reduction or phase-out of the franchise tax must be replaced with revenue from a separate revenue source; otherwise a significant funding stream dedicated to public education is eliminated. There are many interesting and relevant aspects of the discussion to alter the way Texas constructs the state budget. Changes from the way the process is conducted to budgetary limitations and instructions given to state agencies during the budget process all have serious implications on how each budget priority, including public education, is funded. We will post a more extensive review of this topic at a later date. Please stay tuned to Teachthevote.org for updates.

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2 thoughts on “Interim hearings focus on TRS, state budgeting concerns

  1. Pingback: Teach the Vote’s Week in Review: April 1, 2016 | Teach the Vote

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