Tag Archives: article III

House Appropriations hears from TEA and TRS

The House Committee on Appropriations met Monday to hear from the Texas Education Agency (TEA) and Teacher Retirement System (TRS) on the issues of school safety, school finance, the teacher pension system, and active and retiree educator health insurance. Before delving into the meat of the hearing, Cmomittee Chairman John Zerwas (R-Fulsher) also announced membership of the subcommittees that will be overseeing separate subject areas of the budget.

The subcommittee on Article III that oversees public education funding will be chaired by Rep. Greg Bonnen, and include Vice-chair Armando Walle and Reps. Mary Gonzalez, Donna Howard, Matt Schaefer, Carl Sherman, Lynn Stucky, and Gary VanDeaver.

House Appropriations Committee meeting Feb. 4, 2019

Other subcommittees include: the subcommittee on Articles I, IV, V; the subcommittee on Article II; the subcommittee on Articles VI, VII, VIII; and a new subcommittee on  Infrastructure, Resiliency, and Investment.

The committee heard first from Texas Education  Commissioner Mike Morath on the topic of school safety, including physical precautions such as metal detectors and alarms. Morath noted there is no single investment in school safety that will address all current weaknesses and that the agency isn’t and hasn’t traditionally been tasked or resourced to help districts with regard to mental health components of school safety.

TEA’s Chief School Finance Officer Leo Lopez followed with a high-level overview of how public schools are funded. Lopez explained how the basics of tax rates, weights, allotments, and adjustments work to together to create a districts M&O entitlement; facilities funding; charter funding; and recapture. Also mentioned during the discussion were statutory quirks and system complexities like the fact that the basic allotment is set in statute, but legislators each session have the option of funding at higher levels through the appropriations bill. The committee also discussed how in 2011 the legislature created a mechanism called the Regular Program Adjustment Factor that allows lawmakers to decrease the entire Foundation School Program (FSP) entitlement for every district with a single adjustment.

TR) Executive Director Brian Guthrie walked committee members through pension fund operations. Guthrie explained the TRS board’s decision to lower the assumed rate of return last summer to 7.25 percent down from 8 percent, which came as a result of market forecasts and input from the fund’s actuary. This caused the funding period for pension fund liabilities to extend from 32 years up to 87 years. Under state law, the TRS fund cannot offer a cost of living adjustment (COLA) to retirees unless the amortization period noted above is within 31 years.

Guthrie noted that the agency is requesting a 1.8 percent increase in the contribution rate in order to achieve a 30-year amortization period, which would allow for the possibility of a future increase in benefits, such as a COLA. This would cost $1.6 billion for the biennium from all funds.

Responding to a question from Rep. Giovanni Capriglione, Guthrie estimated the average pension payment for a TRS annuitant to be about $2,000 per month. This average figure covers all classes of public education employees, including auxiliary staff, such as bus drivers and custodial staff. For classroom teachers who have worked in Texas schools for 30 years, that amount is closer to $4,000 per month.

Guthrie then explained the healthcare programs under the agency’s umbrella: TRS-Care for retired educators and TRS-ActiveCare for active educators. Healthcare costs have skyrocketed in Texas, despite rising at a level slightly below the national average. This resulted in a $1 billion shortfall for TRS-Care heading into the previous legislative session, which was addressed by a temporary infusion of additional state funding, coupled with a significant increase in fees and reduction in benefits. The fund continues to run at a deficit.

Rep. Schaefer asked what impact a pay increase would have on the pension fund. Guthrie indicated that if all teachers saw a raise, there would be a negative short-term impact for TRS as a result of higher salary calculations for retiring members without the benefit of higher contributions. Guthrie suggested this could be mitigated by phasing in the salary increases’ impact on the calculation of a member’s highest five years of earnings. Guthrie suggested the short-term impact on TRS-Care would be positive.

Asked by Rep. Stucky how much it would cost to make TRS-Care sustainable, Guthrie suggested it would take more than $12-15 billion to create a corpus sufficient to produce funding as a result of investment returns. Even then, that process would take some time to get up and running. The deteriorating value of TRS-Care has led many retirees to leave the program, which exacerbates the financial stresses facing it. Guthrie added that the population was beginning to stabilize.

TRS-ActiveCare, which allows smaller and mid-size school districts to enjoy the benefits of group coverage through a combined risk pool, also faces affordability challenges due to statutory restrictions on how that program is funded. Five percent of districts – primarily the state’s largest districts, such as Austin and Houston – have opted out of TRS-ActiveCare. Last session, legislation was considered to allow districts a one-time opportunity to opt in or opt out, but such a bill was not passed ultimately.

ATPE testifies on educator healthcare

The House Appropriations Subcommittee on Article III, which oversees the public education budget, met Wednesday at the Texas Capitol to discuss interim charges related to TRS-Care. Chairman Trent Ashby (R-Lufkin) began by noting the roughly $1 billion shortfall facing the system heading into the 2017 legislative session, which lawmakers only partially filled. Without those funds, the system would have been insolvent. The program faces another shortfall heading into the 2019 session, which begins in January.

ATPE Lobbyist Monty Exter testifies before House Appropriations Article III Subcommittee September 5, 2018.

Teacher Retirement System (TRS) of Texas Executive Director Brian Guthrie estimated that the fiscal year ending in 2021 will face a roughly $410 million shortfall, which is down from previous projections. Guthrie explained that TRS-Care is funded as a percentage of payroll, which is not growing at the same rate as health care costs. This is the fundamental reason why TRS-Care has begun to face repeated shortfalls. Retirees have born additional costs as a result of the underfunding, and roughly 30,000 have chosen to leave the program because they can no longer afford to participate.

Guthrie suggested that the best case scenario for TRS-Care would be for the legislature to appropriate an amount more than is needed to simply keep the fund solvent, the excess of which could become the corpus of an investment fund that would be able to provide long-term funding stability, similar to the TRS pension trust fund.

ATPE Lobbyist Monty Exter credited the House and Chairman Ashby in particular for preventing the collapse of TRS-Care last session. Exter suggested allocating additional dollars to the base funding formulas for TRS-Care, as opposed to providing supplemental funding each biennium. Exter shared a story from a retiree whose incontinence medication shot up to $500 after the most recent TRS-Care changes. To that end, Exter suggested expanding the list of free and near-free medications, particularly in maintenance drug categories. In addition, allowing retirees access to café plans or health savings accounts (HSA) would allow retirees to allocate tax-deferred dollars on the front to help with budgeting towards their annual deductible. Finally, Exter noted that preventing retirees from leaving TRS-Care or banning them from returning after testing other private plans violates free market principles and harms consumers.

Beyond TRS-Care, Exter warned of problems associated with TRS-ActiveCare and the pain experienced by active educators who are seeing health care costs rise more quickly than their paychecks. The 86th Texas Legislature will also be faced with issues relating to the TRS pension fund. Both will vie with TRS-Care for attention and resources.

Chairman Ashby indicated that the changes to TRS-Care have generated enormous attention, and voiced optimism that this will lead to positive outcomes for both active and retired educators’ health care next session.