Austin, Texas
                    FISCAL NOTE, 76th Regular Session
                              April 23, 1999
          TO:  Honorable Teel Bivins, Chair, Senate Committee on
        FROM:  John Keel, Director, Legislative Budget Board
       IN RE:  SB4  by Bivins (relating to public school finance and to
               public education), Committee Report 1st House, Substituted
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB4, Committee Report 1st House, Substituted:  negative impact of     *
*  $(2,537,985,000) 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.                                                             *
*                                                                        *
*  The Committee Substitute for House Bill 1 as passed by the Senate     *
*  includes $2.6 billion in general revenue funds intended to provide    *
*  for public schools, including the provisions contained in this        *
*  legislation.                                                          *
General Revenue-Related Funds, Five-Year Net Impact:
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2000                     $(1,128,050,000)  *
          *       2001                      (1,409,935,000)  *
          *       2002                      (1,463,540,000)  *
          *       2003                      (1,516,580,000)  *
          *       2004                      (1,570,570,000)  *
All Funds, Five-Year Impact:
*Fiscal        Probable             Probable             Probable        *
* Year    Savings/(Cost) from  Savings/(Cost) from  Savings/(Cost) from  *
*          Foundation School  General Revenue Fund   Other Educational   *
*                Fund                 0001          and General Income/  *
*                0193                                  GR-Dedicated      *
*                                                          8022          *
*  2000         $(955,000,000)       $(173,050,000)         $(4,400,000) *
*  2001        (1,212,500,000)        (197,435,000)          (4,700,000) *
*  2002        (1,262,500,000)        (201,040,000)          (5,000,000) *
*  2003        (1,312,200,000)        (204,380,000)          (5,200,000) *
*  2004        (1,362,200,000)        (208,370,000)          (5,500,000) *
Fiscal Analysis
The bill would modify a number of elements in the Foundation School
Program, the minimum teacher salary schedule.  The bill also creates new
programs within the Texas Education Agency.

By the second year of the 2000-01 fiscal biennium, the bill would
increase the Tier II guaranteed yield to $23.10, the basic allotment to
$2,435 and equalized wealth level to $300,000.  The bill creates a new
funding tier for existing school district I&S debt, with a six cent cap.
The bill creates an allotment for students enrolled in new facilities,
and extends the current law provision holding districts harmless for loss
in total revenue pursuant to the homestead exemption enacted in House
Bill 4 of the 75th Legislature.

The bill would create a master reading teacher designation and salary
supplements.  Allotments of $5,000 for each 1,000 students in average
daily attendance (ADA) is provided, with exceptions for districts with
less than 1,000  students of $5,000 per district, or between 1,000 and
2,000 students for $10,000 per district.  Each low-performing campus
would generate an additional allotment of $14,000.  Allotments would be
paid as $5,000 teacher stipends at regular campuses and $7,000 stipends
at low-performing schools.  For the 2000-01 school year, stipends may be
paid to reading specialists that complete certain training.  After that
year, the stipends would be limited to master reading teacher certificate

The bill makes several changes to the benefits provided by the Teacher
Retirement System (TRS).  It increases the multiplier used in
calculating pension benefits from 2.0% to 2.2% for current retirees,
future retirees, and members participating in the Deferred Retirement
Option Program; provides a cost-of-living increase to current retirees;
and allows retired teachers to return to work under certain
circumstances without losing any retirement benefits.
The bill would result in additional state aid to school districts through
the Foundation School Program formula due to the increases to the
guaranteed yield, basic allotment and equalized wealth level.

The fiscal impact of the new tier for existing debt is estimated to be
approximately $300 million in each year of the biennium.  This cost
assumes that the pennies of school district tax effort for debt for which
the district is currently receiving tier II state aid, as well as those
pennies which are outside of the equalized system are shifted into this
new tier up to the six cent cap.  The yield on this tier is $35 per
student in average daily attendance (ADA).

The allotment per student enrolled in a new facility, or new students in
a facility's second year of operation, takes effect for fiscal year 2001.
This allotment is capped in the bill at $50 million per year.

The bill increases the minimum teacher salary schedule by $4,000 starting
in fiscal year 2000 and requires that school districts dedicate sixty
percent of the revenue generated by the increases to the  basic
allotment, guaranteed yield and equalized wealth levels to increasing
teacher compensation.  This provision is subject to audit under Chapter
44 of the Texas Education Code.  The increase to the minimum teacher
salary schedule results in a cost to the state for the Teacher Retirement
System.   The state is required to pay the employer contribution at the
minimum salary; the increase from the old minimum teacher salary schedule
to the revised teacher salary schedule results in an increase to the
state TRS contribution of approximately $55 million per year.

The cost of full allotments under the Master Reading Teacher provision
are estimated to be $21,205,000 for fiscal year 20001, assuming 4,241
allotments in that year.  The number of allotments would increase as
school districts ADA grows.  Additional allotments for low-performing
campuses are estimated at $630,000 per year, based on 45 campuses at
$14,000 each.

Also, this estimate includes $350,000 in fiscal year 2000 to the State
Board of Educator Certification for development of Master Reading Teacher
standards and the Master Reading Teacher exam.

The combined effect of the changes to TRS benefits will increase the
unfunded liabilities of the system, and the current state contribution
rate of 6.0% is expected to be insufficient to fund those liabilities
within the 30 years required by statute.  A preliminary analysis
estimates that the state contribution rate needed to fund the liability
within the required period is 6.7%.  The additional cost to the state for
the higher contribution rate increases from $122.1 million in fiscal
year 2000 to $135.4 million in fiscal year 2004.  It should be noted that
this analysis is preliminary, pending a full actuarial analysis of the
proposed changes.

Other miscellaneous provisions are expected to have fiscal implications.
Local Government Impact
Since the school districts make the employer contribution to TRS for
salaries over the minimum salary schedule, any increase in the
contribution rate will increase the districts  costs.  These increases
will be offset to some extent by the increase in the minimum salary
schedule, which will shift the cost for contributions on salaries over
the current minimum from the districts to the state for the excess that
would now fall within the proposed minimum salary schedule.
Source Agencies:   
LBB Staff:         JK, CT, UP, SC