LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session April 7, 1999 TO: Honorable Teel Bivins, Chair, Senate Committee on Education FROM: John Keel, Director, Legislative Budget Board IN RE: SB4 by Bivins (Relating to public school finance and to public education), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB4, As Introduced: negative impact of $(2,307,055,487) through * * the biennium ending August 31, 2001. * * * * 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 * * 2000 $(1,006,097,053) * * 2001 (1,300,958,434) * * 2002 (1,643,011,273) * * 2003 (1,679,742,724) * * 2004 (1,715,362,861) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Savings/(Cost) from Probable Savings/(Cost) from * * Year General Revenue Fund Foundation School Fund * * 0001 0193 * * 2000 $(385,373,399) $(620,723,654) * * 2001 (591,750,679) (709,207,755) * * 2002 (608,074,046) (1,034,937,227) * * 2003 (624,805,497) (1,054,937,227) * * 2004 (640,425,634) (1,074,937,227) * *************************************************************************** Fiscal Analysis The bill would modify a number of elements in the Foundation School Program and in the Teacher Retirement System. The bill would increase the Tier II guaranteed yield to $23.80 and the Instructional Facilities Allotment yield to $31.65. The equalized wealth level is increased to $300,000. The hold harmless level of property wealth for school districts subject to Chapter 41 is institutionalized, and is increased in proportion to the increase in the equalized wealth level. The bill resets the limit on the amount of tax effort for which school districts can receive state aid in the 1999-2000 and 2000-01 school years, by requiring that tax effort only be recognized to the point of maintaining the same revenue as was available to the district in the 1998-99 school year. The legislation also modifies the calculation of the rollback limit in the Tax Code. The bill would require the state to pay the member's contribution to the Teacher Retirement System (TRS) retirement program of 6.4% of payroll up to the minimum salary for teachers and librarians employed by the local school districts. As a result, the state's contribution rate for these employees would be 12.4% instead of the current 6.0%. The provision would take effect January 1, 2000, contingent upon passage of Senate Joint Resolution 38. The factor used in calculating TRS retirement annuities is increased to 2.1. Methodology Several provisions in this bill would have cost implications. The change in the equalized wealth level and the indexing of the hold harmless wealth level to that change will result in less revenue from the purchase of attendance credits. It is estimated that this reduction in recapture revenue is approximately $309 million for the 2000-01 biennium. The increase in the Tier II guaranteed yield to $23.80 coupled with the provision that limits access to additional state aid by referencing the maintenance revenues available to the district in 1998-99 is anticipated to increase state aid by slightly more than $1 billion for the 2000-01 biennium. For subsequent years, this estimate assumes districts would earn additional funding under the guaranteed yield at increased tax effort. Information provided by the Texas Education Agency and used in this estimate assumes that school districts would take full advantage of the eight cent rollback provision, resulting in higher tax effort and therefore increased state aid in 2002. To the extent that school districts do not increase tax effort to the maximum allowable under the legislation, state aid would be less than indicated in the table above. The estimate of the cost for TRS contributions is based on projected 1999 payroll levels, assumed to grow 2.5% annually as a result of increases in the number of employees, but no increase in the minimum salary schedule. The estimate is based on TRS contribution data. Local Government Impact The legislation holds school districts revenue neutral for the 2000-01 biennium. Increases in state aid for Chapter 42 districts and a reduction in recapture for Chapter 41 districts translates into lower tax rates and therefore no net revenue gain for the 2000-01 biennium. In future years, districts would be able to realize net revenue increases pursuant to these provisions. The provisions relating to member contributions to TRS do not require that school districts pick up the member contributions on salaries over the minimum salary schedule. Currently, school districts are responsible for making the employer contribution on salaries that exceed the minimum schedule. There will also be some local implications to the TRS change. It is unclear how this effect can be quantified until final rules for the administration of the benefit are available. Source Agencies: LBB Staff: JK, CT, RN, UP, SC