Print đź–¨

The House Committee on Appropriations met on February 23 to discuss budget recommendations for the Texas Higher Education Coordinating Board, Health and Human Services, the Teacher Retirement System, the Employees Retirement System, the Texas Department of Transportation, and other budgetary matters. See here for presentations and materials submitted to the committee from each agency.

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Teacher Retirement System of Texas

Brian Guthrie, TRS

  • Mission is to provide retirement & health care benefits to 1.6 million members, managing 3 separate funds: pension trust fund @$176 billion, TRS-Care funded through appropriations bill, TRS-ActiveCare
  • TRS-ActiveCare is unique, funded through school finance formula
  • Provides overview of TRS, defined benefit plan with guaranteed annuity based on age, salary, etc., with a retirement multiplier
  • Covers teachers and other eligible members of school systems
  • Last session, came up with a plan to finance program increases over a period of years, scaling up to 8.25% over a period of years; appreciates legislature putting amounts to cover this in the base budget
  • Due to funding form the prior session, TRS is actuarially sound, is able to pay out benefits within 27 years
  • One of the reasons last session’s activities were successful is by lowering expected return assumption to 7.25%, TRS is conducting experience studies to review this every 4 years to match legislative cycle
  • Coming up on actuarial valuation around Feb. 28, fund has performed well since the end of the last fiscal year, updated valuation could have a lower payout period than 27 years, possibly 26 or 25
  • During COVID, markets went down, trust fund went to a low of $145 billion, but has recovered since then
  • Goal to reach investment return of 7.25% was missed by a little this last year
  • Corpus of the TRS fund is approx. 63% investment returns, similar to what you see with most pension systems of the size and age of TRS
  • Rep. Alex Dominguez – If retirees wanted a COLA increase, could we do that this session?
    • 2 criteria to provide a benefit enhancement, first is to be actuarially sound which we are; next hurdle is that the enhancement would need to be authorized by the legislature
    • Cost of a COLA check this session similar to last session would be $634 million upfront or financed through the finance plan would be amortized over a period of 30 years
    • Second option would cause
  • Dominguez – Could we benefit the members receiving a lower annuity?
    • We haven’t done it this way, but it is possible; number of ways we can slice & dice the benefit
    • Generally, you just pick a point in time and all retirees before that point receive the benefit
  • Dominguez – If we amortize over a 30 year period, where does that leave you
    • If you fund it up front, we’re doing fine
    • If you do a permanent benefit, lump sum cost would be $2.8 billion, amortized over a period of 30 years this is $17 billion
  • Rep. Steve Toth – Originally we did not offer COLA increases, but we did promise that TRS-Care would be sound
    • There were reforms in 2017, made benefits changes, premiums were changed
  • Toth – But the quality of care has gone down
    • Benefit has changed over time and may not be as good as it once was, but better than private market
  • Toth – Point is if it eats into the TRS check, then it doesn’t seem like you kept faith
    • Over time, increased costs do eat into this
  • Toth – Is this right in context of the agreement we made with teachers?
    • Not familiar with that agreement, we manage the funds and do everything we can to keep up with costs
    • Tough decisions were made in 2017 regarding the benefits, coverage for dependents suffered in 2017, lost many members
  • Toth – Right, they dropped out of the system
  • Toth – What would it take financially to bring it up to par
  • Chair Greg Bonnen notes that presentation on TRS-Care is coming after presentation on TRS
  • Toth – What was the thinking behind the Indeed Tower?
    • Decision was based on ownership stake in the building, thought that the best decision was to lease space in the Indeed Tower
    • Was not the right decision, are trying to sublease the space; working towards goal of getting all employees in a building we own
  • Toth – It would make sense though for TRS to not tie overhead cost to investment return; you had an investment return on Indeed Tower; this was premium space, did you receive a deal?
    • No, we received a market rate deal
  • Rep. Gene Wu – Last session we put additional FTEs into the budget for TRS to hire in-house investors to bypass broker fees and other fees; how is this going? Are we getting a good investment? If we have a hiring freeze, are we ultimately paying more in fees than we would have to hire these investors?
    • Based upon on the authority last session, we hired 42 additional in house staff investors at a cost of $6 million
    • As a result of these FTEs, we saved approx. $190 million
    • Request for the upcoming biennium is to have 21 additional FTEs to continue this goal
    • We did freeze hiring, but the timing was such that there wasn’t a lot of deal flow at that time; have started to bring last tranche of investors onboard now to keep pace with trading
  • Wu – 42 hired last session were hired before the freeze; the exceptional item would complete the hire from last cycle or is this an addition?
    • This is in addition, previous FTEs were already annualized and included in bade budget
  • Wu – There is an investment bonus for performance?
    • Correct
  • Wu – In light of TRS overperforming, can you tell us how many bonuses have been paid out?
    • Bonuses last year were close to $10 million for investment professionals
  • Rep. Jarvis Johnson – Would like to make sure TRS is actuarially sound and we can do all we can for retired teachers; pay is not the best, but benefits should be predictive and able to keep up with lifestyles; asks for number to provide COLA to certain populations
    • Happy to do this, provided a 2013 COLA for members who retired prior to 2003
  • Rep. Carl Sherman – $190 million in savings is phenomenal; would like to see what these savings look like compared to fees saved versus member cost savings, as well as what member services look like in context of additional 21 FTE request
    • Can provide this
    • $190 million and 42 FTEs are all in investment division, so not outward facing
    • Also enhanced benefit services department last session, so can show you improvements to counseling, etc.
    • Could be additional requests or riders associated with Sunset to add additional resources for customer service
  • Sherman – You project we will be matching member contributions at 8% by 2024
    • Yes, actually 8.25% for members and 8.25% for the state at 2024
  • Sherman – Do you have further projections?
    • Actuarial projections show that we will get there given all things are equal, e.g. investment return remains stable, teachers retire in the same timeline, etc.
  • Rep. Cecil Bell – How does retiree hiring play into conversation of actuarial soundness?
    • There is a current set of laws for return to work, closed some loopholes in 2015
    • If a member retires, they can come in a year without penalty; decreasing the year timeline could provide an incentive for people to retire sooner and have a negative impact on the fund
    • There are some issues to be addressed, e.g. penalties if members exceed hours worked limits
  • Bell – If they are rehired, do they contribute again?
    • They do make the contributions as if they were active members, sometimes districts make the contribution for them
  • Rep. Matt Schaefer – Regarding investment returns, relative to asset allocation and diversification, major markets are much higher than 7%; seems like fund has underperformed relative to overall market
    • We have a risk tolerance and a diversification plan in place that allow us to account for future events
    • Large markets did very well over last 3 years, but if they didn’t do so well we would be in bad shape
  • Schaefer – I understand that, but 80% of the portfolio is riskier than bonds and securities, seems to me like we missed some returns somewhere in the last 3 or 4 years
    • Would be happy to bring the CIO and visit with you or anyone else curious
    • Not designed to find a winner every year, portfolio is designed to realize that 7% over 30 years
  • Chair Bonnen – I remember getting weekly updates on pension trust based on anxiety in global markets; I think that slow & steady diversified ultimately prevails, right now in terms of pension trust things seem to be going relatively well
  • Chair Bonnen – You have a lot of people counting on you and counting on those assets to be there when they need them
  • Wu – Last session we tried to work on the bill to give retired teachers warning before they violated agreements; have you been able to do this given how many teachers returned to assist at schools over the pandemic
    • Have not been able to come up with a system to warn them in advance, nature of reporting means it will happen after; cannot know until after the violation occurs
    • One of the proposals we’ve been working on has been a 3 strike penalty, or a dollar-for-dollar reduction rather than losing entire monthly annuity
  • Wu – I get the timeline, but the penalty is very punitive
    • Share this frustration, needs to be something less punitive
  • Wu – Do you need legislation for the solutions you proposed?
    • Would require a statutory change
  • Rep. Terry Wilson – Regarding the Indeed Tower, understand that certain agreements can’t be disclosed, but the thought was that TRS members would benefit from leases in this building
    • Not necessarily, investment was done before & simultaneously the thought was that we could move to a building we have an ownership stake in, also that leasing space would drive value of investment from leasing other floors up
    • What we didn’t anticipate in signing the lease is the fact that we cannot disclose ownership stake, wasn’t until the discussion yesterday that this felt appropriate
  • Wilson – How is TRS finding a tenant for the sublease space?
    • Started this in March of last year knowing that long-term facilities plan will house TRS; thought we would be further along, but the real estate market took a pause
    • Projections are that Austin will recover better than some areas, believe we will be able to successfully sublease in the next few years
    • Looking at a development out of the downtown core, can sell Red River property afterwards
  • Wilson – Is there any chance that if you can’t sublease you will choose to move into the building anyways?
    • No
  • Wilson – Was the triple net included with the rent?
    • I believe so
  • Wilson – Is there an opportunity to maybe minimize member cost by leasing less space?
    • Good question, last year’s work from home caused us to reassess need, assuming now that close to 75% of all employees will be in the building; some IT could be 100% virtual
  • Wilson – Significant consideration in trust fund exposure if you have multiple leases, will be carrying burden if it’s not leased
  • Armando Walle – Overall staff retirements were down but teacher retirements are up, are these normal retirement numbers over 2019-2020
    • Expected the number to go up, but pandemic changed this; requests for retirement calculations have gone up, many are interested in retiring, but not as many are retiring
    • Too early to say in 2021, but maybe seeing same increased interest without that many actual retirements
  • Guthrie return to presentation on TRS-Care and TRS-ActiveCare
  • Funding for TRS-Care is included in appropriations, based on statutory contribution and member payroll
  • Growth in payroll is not matching the growth in cost of health care, continue to see that revenue is smaller than outlay of costs
  • However, this is the first session we have not asked for a supplemental appropriation; possibl3 that 2017 changes were successful in controlling costs, also completed a health care procurement that will save TRS-Care and TRS-ActiveCare $700 million over a period of years
  • Also saw membership declines as a result of 2017 changes, roughly 30k members
  • Current position will be changed by costs outstripping revenues
  • Chair Bonnen – This also means no increased premiums or changes in benefits?
    • Correct, 2018 benefits and premiums will remain the same
  • Rep. Erin Zwiener – The 30k lost sought other insurance plans?
    • Don’t follow member after they leave, but anecdotally they had other things lined up
    • Katrina Daniel, TRS – Not a way for us to track whether or not they’ve gotten other insurance, though generally this is what they are doing
    • Also saw agents in the marketplace marketing heavily to retirees
  • Zwiener – Have heard of people choosing to go without care
  • Toth – What’s the connection typically for members in their 60s? Is it typically TRS-Care plus Medicare?
    • Typically marketed a Medicare advantage plan or supplemental product
  • Toth – Is this in addition to TRS-Care?
    • No, wouldn’t need it, would be over-insured
  • Toth – So major TRS-Care draw is supplemental part D?
    • No, variety of benefits combined together, drug benefit, etc.
    • Guthrie, TRS – Primary cost driver is population that is not Medicare eligible
  • Toth – So it is the delta between retiree age and 65
    • Average retiree age is about 61
  • Toth – So this is where costs are outstripping revenue?
    • Daniel, TRS – Yes, general health care costs; costs are exceeding target of 3% and costs still trending to outstrip revenues
  • Toth – Is quality of care diminishing for retirees? Hearing this anecdotally
    • Comprehensive restructuring changes altered premiums and benefits, benefits were somewhat reduced, less so for Medicare eligible population
    • There was a reduction in benefits for under 65, premiums were generally higher on balance
    • Loss of 30k members was likely due to this disruption, but when you compare it to other market insurance it is still a very rich benefit plan
  • Toth – Don’t feel like we’ve sone a good job of keeping cost and benefits stable, lost a lot of ground over last 10 years with retired teachers; we were completely underwater in 2013
    • We were looking at a $1 billion shortfall going into 2017 session
  • Rep. Ed Thompson – Do you have an age breakdown for those that left the system
    • Primarily over 65 population, attribute this to pretty significant marketing to this population
  • Thompson – With under 65 being the cost to the program, do you have percentages on how many in this category are participating; I assume this is the smaller population
    • We have 67k under 65, 160k above 65 in the Medicare product
  • Thompson – We’ve increased the points for a person to retire? Used to add up to 80
    • Guthrie, TRS – Still adds up to 80, but changed the reduction schedule to target age 62
  • Thompson – Have you looked at the impact on TRS-Care going forward?
    • Part of the calculation for need for funding; base on changes made previously we are seeing retirement age move up; expecting it to move up from 61 to 62
    • We are typically the sole retirement benefit
  • Wilson – question on network, did you lose providers with miscommunication?
    • Daniel, TRS– rely on vendors that have robust and well-developed networks; confusion through marketing happened where they have in network and out of network benefits but benefit in TRS care is you can go to any provider that accepts Medicare
  • Wilson – when those 30k left, does that mean they cannot come back
    • Very unlikely they will be able to come back, unusual circumstance
  • Wilson – if something happened for them to come back, what would it impact
    • When people leave TRS to go to cheaper product it was most likely healthy population so the population left will drive up cost
  • Wilson – would like to know what cost would be if they re-opened enrollment
  • Johnson – Cost of plan vs benefit?
    • Daniel and Guthrie, TRS – Premium is $135 per month and for non-Medicare population its $200 a month, Premium amount could vary it could go up or down
  • Johnson – why would we want to make it difficult to return to an insurance policy in the state, how can we make it easier to return?
    • Guthrie, TRS – folks coming back to plan typically do so because they need additional benefits so if they come back it is a drain on plan; if they could get total population to return which includes healthy individuals
    • Daniel, TRS – consideration is if people can come and go from plan without any restrictions then you would be in plan when sicker and out when you are well which would spend down plans fund balance
  • Thompson – Do you do re-insurance to help control cost? Or any sort of plans like that?
    • one of the benefits of the size of the plan is that they are saving money on things like re-insurance; re-insurance doesn’t save money it levels out volatility and TRS does not have volatility because of size of plan
  • Toth – how have deductibles changes over the years for those in TRS-Cares?
    • Yes they have changed, would need to look up, current deductible is $1500 for pre-Medicare and $500 for Medicare population but have had various plans
  • Toth – does not think folks would be dropping out if they couldn’t afford it and keep hearing from teachers they cannot afford the deductible and that it has skyrocketed over the years
    • Guthrie, TRS – Comes down to policy decision by body
  • Toth – we rely for you to tell us what you need, but tells them they are doing a good job just need them to make the case for retired teachers
    • they are limited on how much they can advocate
  • Dominguez – age of those in system, why are plans so different between retirement and health care plans
    • Guthrie, TRS – typical population is age 60 or higher, TRS Active Care serves everyone else
    • have Dallas and Ft. Worth have opted in the system, when districts participate in their plan they send the state contribution and district contribution
    • policy decisions made drove us to system we have now, retirees were supposed to have own plan and districts were on own until 2002 for health care
    • smaller to mid-size districts were hopelessly outmatched so in 2002 the decision was to pool those together so they could go get more
    • TRS active care has an affordability problem; in 2002 contributions covers about 75% of the cost and the rest fell on the member, because contributions have not changed over time the costs have flipped so members are bearing 60-70% of the cost
  • Dominguez – TRS Care for retired population, is there a count on maximum deductible and avg benefit
    • yes, annuity will be likely $3k-4k per month
  • Dominguez – request numbers or create formula for state to increase contributions
    • have done in the past and will do that again
  • Zwiener – need data point on where former members have gone and what there current status is
  • Johnson – if we could expand how does that impact product availability or rates; what if we had more product in the state
    • Daniel, TRS – Uncertain about question
  • Johnson – Losing access across the state?
    • A benefit of TRS because of size they are able to negotiate with large network carriers; able to leverage robust networks
    • Guthrie, TRS – Will always have provider issues in rural Texas but will work on it and get involved in negotiations and typically find way to provide access
  • Johnson – if we want to provide greater benefit what would you need from us?
    • Kept premium and benefits at 2018 per rider so if rider language stays then it would be an impediment
  • Chair Bonnen – providers would be structural issue; beyond scope of what TRS can do
  • Chair Bonnen – underlying factor of a structural impediment; points to desire to get control of health care cost
  • Stucky – heard from teachers premium was too high and they were told they would get more benefits and did not
    • New changes would be significant so developed a robust communication and engagement campaign, for some it could have been the right decision but thinks for most it was not due to how complex the health care system is
  • Johnson – Needs more detail on network adequacy for teachers, what is percentage of health cost of pharmaceuticals?
    • it varies by population
  • Gates – But you may be obligated to stay at $22/foot and may have to subsidize difference with sublease
    • Guthrie, TRS – This is possible, got a good deal when lease was negotiated, probably at or near market rate now with a lot of interest in the space
  • Gates – What kind of softness do you see in your portfolio?
    • Have seen impacts in real estate, industrial sector has done quite well
  • Gates – Has anyone had to take forbearance to keep up cashflow
    • Not that I’m aware of
  • Toth – Do we negotiate directly with pharmaceutical companies for Rx cost?
    • Daniel, TRS – No, we negotiate with PBMs, size allows us to have transparency and insight into discounts on various types of drugs and ask for rebate guarantees
  • Toth – Is this something we could bring in house that way we brought brokers in House?
    • We are leveraging the size of the vendors
  • Toth – There is only so much of a discount we can get and middleman takes a cut
    • Guthrie, TRS – Something we can look at long term
    • Daniel, TRS – Also work with actuarial firms, right now our deals are some fo the best in the country
  • Toth – Frustrating to see that drug costs in Mexico and Canada are a fraction of what seniors pay domestically, this is unjust

Rachel Stegall, LBB

  • Link to presentation
  • Provides overview of TRS pension, TRS-Care, and TRS-ActiveCare and highlights state versus member contributions
  • All Funds total of $6.2 billion, increase due to SB 12 rate increases and payroll growth

Employee Retirement System

Porter Wilson, ERS

  • Provides overview of ERS, administers 4 retirement systems: ERS, Law Enforcement and Correctional Officers Supplemental, and Judicial Retirement Systems I and II
  • 140k active employees in the main ERS plan, this includes 30k LEOs who receive 80% of their benefits from this plan
  • Lack of growth in member population has led to difficulties with funding
  • All pre-funded plans are running out of money
  • Currently state contributes 9.5% and state employees contribute 9.5%, short of what is needed to fund the plan by 6.63%; exceptional item request to fill this gap at $700 million GR for the biennium, just under $1 billion All Funds
  • ERS unfunded liability can be managed in a phased approach, important to put unfunded liability on a payment plan; can be phased in over several biennia
  • Assumed investment return is 7% over a long period of time, investment return expected is getting smaller over time
  • Legislature has done significant work on benefits over time, 60% of employees in ERs are under reduced benefit plans; employees incentivized to not retire until age 62
  • Everything above benefits payment maintenance threshold of roughly 13% is going towards unfunded liability in ERS
  • Have not had actuarially sound contribution rate met over the last 20 years, cost to pay off unfunded liability continues to grow
  • Unfunded liability of $15 billion is for benefits that are earned already
  • Can reach stability at 3% more, can become fully funded at 100 years at 4%, 6.3% would be needed to make fund actuarially sound per statute
  • Roughly 500k Texans get health insurance through ERS, many in higher education
  • No exceptional item for health insurance, expect to be able to continue existing on 2019 funding levels; plans have been well-managed through 3rd party administrators
  • Rep. Justin Holland – How long has ERS been a fund?
    • From the 1940s
  • Holland – I assume the state contribution and employee contributions has remained stable?
    • No, contributions were 6% for years, changed in 2015
  • Holland – How did we get to the current unfunded liability of $15 billion, is it lack of contributions, appropriations, etc.?
    • In the 90s the legislature approved a series of benefits, but contributions weren’t increased; markets were doing very well and assumed rate of return was 8%
    • Hope was that added benefits would be paid with excess returns, but in 2001-02 and 2008-09 markets did not perform well
    • Unique thing about ERS is that contribution rate is fixed and does not respond to adverse experiences
    • Effects have compounded forward
  • Holland – Do you any idea of the logic behind cap of 10%?
    • TX Constitution has several pension provisions, in addition to 10%, also states that benefits must be funded according to actuarially sound principles
    • Limits are no less than 6% or 10% of aggregate compensation, which seems to imply something different than salaries
    • Constitution also allows Governor to determine there is an emergency and exceed limits, AG guidance noted that “determine” wording gives Governor broader ability than requirement to “declare” an emergency; could be sufficient that the Gov. signs the bill
  • Mary Gonzalez – Will dig deeper in S/C, how do we compare to other states?
    • 5% employee contribution is one of the highest in the nation, average is 6.2%
    • Employees also have other contributions in addition to the 9.5%, roughly around 18.2% contributions
    • Employer side average contribution is 14.7%
  • Gonzalez – Do you do any surveys or receive feedback from members?
    • Did an employee survey last year on how benefits are meeting needs
    • 75% of employees said pension benefit is a significant reason they work for the state
  • Gonzalez – What is the average monthly annuity?
    • Just north of $1,700
  • Toth – Tried to aim toward more actuarially sound projections for fund return in 2013?
    • Benefit design changes happened in 2013, so probably was some of this discussion
  • Toth – How do Texas employees fair versus private market? Asks after assumption that state benefits will be better
    • Benefits have been substantial piece of compensation package over time, workforce has remained relatively stable and is thus working harder and doing more
    • Because of this, compensation package is important to retention; turnover has been significant in our state
  • Toth – Aren’t county governments taking up more of this?
    • Sure, Montgomery is primarily public health, TDCJ, and TxDOT, workforce is taking care of key state functions
  • Toth – Unfunded mandates are massive, not sure how we fix this beyond moving from DB to DC
    • ERS can administer whatever state chooses, but state chooses benefits and should consider how this plays into total compensation package and retention
    • DB plan can be managed
  • Toth – When you get behind its impossible to catch up, at some point it crashes
    • If you do nothing, yes; but the unfunded liability doesn’t go away, benefits earned still need to be paid, growing by a about $1 billion every biennium nothing is done
    • Can work into this over time, raising by 1 or 2% every biennium, do not need to appropriate $15 billion at once; large unfunded liability in TRS was managed
    • Unmanaged unfunded liability could damage credit rating of the state & ERS is the next piece of that; problem will continue to grow

John Posey, LBB

  • Link to presentation
  • Provides overview of ERS, administers 4 retirement systems: ERS, Law Enforcement and Correctional Officers Supplemental, and Judicial Retirement Systems I and II
  • House bill maintain current contribution structures, plus $1.4 billion in All Funds for ERS, $17.4 million for LECOS, $28.5 million for JRS II, $38.9 million for JRS I
  • Differences in all managed funds in current contribution rate and rate need for actuarial soundness
  • ERS has exceptional items for funding to prevent depletion of funds: $952.5 million for ERS, $89.4 million for LECOS, and $16.1 million for JRS I&II
  • ERS is required to maintain reserves to cover group insurance health benefits for an average 60 day period, reserve fund is projected to be fully depleted by 2027 due mainly to increased health care cost; no exceptional item
  • $27.6 million AF for Public Safety Death Benefits
  • $27.5 million AF for Retiree Death Benefits
  • Holland – If contribution gets to 26.3% the fund is sound?
    • Yes, according to the agency, prevents depletion
  • Holland – And this can be split by the member and state in any way?
    • Yes
  • Holland – Do you need this rate plus the exceptional items, or are they included?
    • Exceptional items are state contributions needed to reach soundness
  • Holland – So the rate or the exceptional items are either/or options?
    • Not sure if they are entirely either/or, exceptional items are based on increasing state contribution
  • Holland – But you could increase state and member contribution and work together to reach that rate and lower exceptional item?
    • Yes
  • Gonzalez – I think a good model is how we fixed TRS with the state funding and also increasing contributions on both ends
  • Toth – In private sectors, employers must abide by ERISA guidelines and provide benefits promised; why aren’t we adjusting what we’re paying out for employees as they come into the system; benefits are the biggest reason we are not actuarially sound
    • Wilson, ERS – You could change benefits prospectively, this needs a bill; these would need to be significant and apply to virtually all the workforce, not just prospective employees
    • If unfunded liability is taken care of then state and employee contribution could be 7% each; should only really cost 14% and everything above is really to address unfunded liability which has grown due to unresponsive contribution system
  • Gonzalez – Even if we were to change funding, we’d still have unfunded liability; heard a small conversation in Senate Finance for using federal funds
    • Posey, LBB – Don’t recall
  • Chair Bonnen – there were discussion of using federal funds to dampen liability, but wouldn’t fix plan

Texas Higher Education Coordinating Board

Commissioner Harrison Keller, THECB

  • Past 12 months have caused significant challenges for higher ed in the state
  • Highlights 60x30TX and goal to increase educational attainment to have 60% of population with some kind of postsecondary credential by 2030; have made good progress on most goals, but not on track to hit goal of 60% by 30
  • Need to review and update goals of 60x30TX, undertaken this with steering committee and seeking input from stakeholders
  • Need to prioritize new skilled workforce, reskilling older workforce, and high value skillsets; need to be more visibly committed to equity & ensure all Texans have access to economic recovery
  • Highlights safety and response operations over COVID and the severe weather event last week; online learning and research has helped combat these two crises
  • Hearing from colleges and universities that mitigation strategies have been successful & seeing far fewer infections than last Fall
  • Investments in higher education are even more important today due to COVID, will lead into economic recovery; key example of efforts to support higher ed is the >$100 million in GEER funds to higher education
  • TX is one of only a handful of states that have allocated federal dollars to higher ed; incl. financial aid support, reskill and upskill
  • We need to do a better job in educating Texans, but this doesn’t just mean credentials; Tri-Agency Workforce Commission has examined the issue, COVID has accelerated changes already in place and tech adaptations, many jobs will not come back or will not come back quickly
  • Many companies are moving to or expanding operations into Texas, but also seeing increasing distance between skills required and skills displaced Texans have; need focus on high value credentials
  • Higher ed system doesn’t reflect differing student needs or safety nets needed that the public health system does, important to recognize these; public health crisis is not over
  • Schaefer – A lot of money is flowing in or has been requested, but no one is asking why higher education is so expensive; higher education costs have increased dramatically, wondering when we’re going to address these high costs, when we’re going to have a panel investigate
  • Schaefer – Every university leader shows me a chart of how other universities are doing, but no one asks why costs are so high; do you think any university or college should raise tuition or fees in the next biennium?
    • Short answer would be that tuition and fees will go up
  • Schaefer – That’s what will happen, I have a bill to freeze tuition and fees until Fall after the 88th Session, fees raising this session is not the answer
    • A lot of the defaults on student loans are driven more by what has happened with private institutions
    • Important to point out that this is a policy issue, there has been a policy decision to shift costs to students and families from the state; appropriations have declined and tuition has increased, resulting in an average net positive, but mostly what we see is a swap in funding
    • Costs need to be framed in terms of value to students, public universities in Texas are some of the best deals in Texas
  • Schaefer – Not sure what we do, but we need a large solution; the discussion doesn’t change, always asked for more money for higher education which drives tuition and debt
    • There is conversation on finance about alternatives to debt, Purdue has been a pioneer
  • Rep. Donna Howard – State paid roughly 80% of cost of my education, UT now is 15% state covered; deregulation impacted this and shifted cost to students and families
  • Howard – Need the workforce to support recovery, very concerned about 9% reduction in community college enrollment generally
  • Howard – In the upcoming biennium, my understanding is that 5% cuts went to tuition assistance, nursing shortage reduction programs, GME programs; is there something that can be used to defray cuts?
    • GEER funds can be used again to offset cuts in the short-term, maintenance of programs is around $57 million
    • However, demand for financial aid programs has increased sharply and fewer students are able to take advantage of these, to cover gap it is roughly $150 million on top of the $57 million
    • Federal funds are also one-time funds being used for something that is an ongoing cost
    • Enrollments have been maintained through investments in need-based aid, so worrying what happens if we pull back on this
  • Howard – Asks after workforce needs
    • Have been very good in working on talent pipeline, will need more work to ensure workforce for the future
  • Howard – Amount per student in grant programs has gone down while tuitions have gone up
    • Types of guarantees universities have been able to put in place for low-income families are because of shared responsibility between institution and state, dependent on investment in need-based aid
  • J Johnson – Can you give me a breakdown of how GEER funds have been spent
  • J Johnson – Commends effort on 60x30TX; HBCUs on average receive less support than other universities, Prairie View and Texas Southern also spend more on scholarships, asking HBCUs to do more with less
  • J Johnson – If we want to make sure that disparity is addressed, we need to do more to support these types of universities; why are they getting less money?
    • We’ve had a much more concerted policy discussion in public school finance on cost drivers for students with different types of needs; in the higher education space we make no adjustments for these categories, costs are shifted to institution or the student
    • This is an issue that will take several sessions to address, a lot of work is needed to strengthen higher education finance system and recognize support needed for students with different needs
  • J Johnson – This is my point then, why aren’t we supporting these institutions to make sure these populations are served adequately? Need to look at how we’re equitably giving the money and ensure every institution is able to give adequate educational opportunity, need to look at state’s role in this
  • Toth – Where is the strategic plan for 60x30TX?
    • The plan we have now was adopted in 2015, we have a process to update the plan; written material just highlights goals being worked on with stakeholders
  • Toth – Is there a how to?
    • One of the reasons we went forward with updating the plan is to address this
  • Toth – Tuitions and fees have outstripped ability of students and families; don’t understand why we’re not looking at institutions like Lone Star college which has been very successful in keeping costs down
    • Lone Star are partners in a Houston pilot that hopefully can be scaled statewide, have supported some of their workforce education programs
    • Incentives in statute don’t support pathways between community colleges and universities, less likely to receive grants
  • Toth – Why aren’t we giving community colleges the opportunity to offer more 4-year programs?
    • Costs for different degrees will be dramatically different, engineering or nursing degrees are higher cost to produce and offer
  • Toth – Lone Star offers nursing for a small fraction of the cost as UT; frustrating that we’ve got something that works for so many and we don’t expand it statewide because we don’t want to compete with UT & A&M
    • UT and A&M aren’t concerned about this competition
  • Toth – Why aren’t we expanding this?
    • Particularly impressed by the 2+2 programs Lone Star and UoH, but institutions lose out on these partnerships generally
  • Toth – Have you looked into working on higher ed finance legislation?
    • Have had conversations started, will not be a single session solution and there’s a lot more work to do
  • Toth – Would love to see the 60x30TX plan and work on this with you
  • Ed Thompson – In regards to the two year college 8% hours loss, how much of this is in dual credit?
    • Similar, seeing about 8%; varies dramatically across colleges in how much dual credit makes up lost credit hours
  • Thompson – Concerned about transferability
    • Because of SB 25 related to transfer, all institutions have to have recommended degree completion routes
    • Developed a new framework for a Texas Associates Degree for transfer in concert with colleges and universities
  • Bell – Opportunities exist to continue to work closely with the Texas Military Department for degree completion for service members, references 3601 program recently begun which does not need to use GI benefits; will be important to meet THECB goals
    • Want to work with institutions to make sure these programs are available
  • Rep. Toni Rose – Regarding stated goal of equal access to education tools, statistics for African Americans are much worse than other demographics and number has not improved; do you know what the barriers for this group are?
    • Need to have a more intentional focus on ensuring everyone has access and opportunity, includes shining a light on what is happening in these demographics
    • There are a number of areas we have not made a lot of progress; will take multiple kinds of policy initiatives, financial aid will be an important piece, but this isn’t the entire answer
    • If we want to progress as a state we need to commit ourselves to educating more Texans, particularly from populations we have not done a great job
  • Rose – We know the issue exists, what is hindering us from making the improvements
    • We need to make sure financial aid resources are there for students to access, make it more predictable and transparent; many first generation students look only at the tuition price
  • Gonzalez – There are a lack of incentives for institutions to recruit a lot of underrepresented populations; have you been thinking about ways to strategically include students with disabilities in 60x30TX?
    • Have a lot of finer grain data on public education side on student needs
    • Funding issues create a lot of headwind for institutions, need to have conversations on goals and with institutions on resources needed
  • Gonzalez – Would like to have a conversation about resources needed to institutionalize this
  • Lynn Stucky – Stresses importance of good high school counselors leading students to transferable credits without unused credits that just lead to more debt
    • Two Tri-Agency initiatives is to ensure student success through grade levels and improved counseling
  • Holland – We know a lot of the resources that work for some demographics, but resources in FTEs and funding are needed to implement a lot of the guidance for students
    • Appreciate this, knows problems won’t be solved with boutique solutions; solutions are very complicated and need to pull together different strategies
    • Have good examples at Texas colleges and universities that are held up on a national level
  • Gates – Asks after completion data for African American, Hispanic demographics
    • Need to focus on graduation rates, e.g. how many students are enrolling versus how many are graduating
    • Overall degree productivity is lower than what you’d expecting to see
  • Gates – Of the 52% graduating high school and going to college, 63% going to a university receive a degree within 6 years, so 30-35% of those in high school receive a post-secondary degree?
    • On average, probably; but snapshot of low-income students will be a lot less
  • Gates – How many are in a field that needed that degree?
    • This is much harder to answer, would need to be broken out based on degrees and certificates tailored to particular jobs
    • Not sure you will get good data, employer hiring practices don’t always match the assumption
  • Gates – There are some individuals who get a degree in a field that was not needed
    • There will be some, but difficult to connect degrees and fields and employer expectations are constantly changing

Health and Human Services

Julie Lindsey, LBB

  • Link to presentation, provides overview of Medicaid, HHSC, federal requirements, and administration of services under differing state agencies
  • Waivers under TX for certain Medicaid provisions: Section 1115 demonstrations do not require statewideness, comparability, or freedom of choice of provider; and 1915(c) waivers allow states to provide long-term-care services in home and community-based settings and may be implemented in limited geographic areas with comparability of services with non-waiver enrollees not required
  • Main budget drivers for Medicaid are primarily cost and caseload, COVID impact has driven full-benefit caseload up over the course of the pandemic, FMAP is contingent on providing continuous coverage for this population
  • Cost growth is due to rate changes, medical inflation, utilization, and health of participants
  • 2% FMAP increase is currently available through June of 2021, currently House budget does not assume continuing FMAP past this point into next biennium
  • $74.2 billion in AF for Medicaid, overall decrease, but includes an increase of $1.8 billion in GR
  • Howard – President Biden has said that FMAP would continue through the calendar year
  • The Committee recessed from 1:50 PM to 3:00 PM
  • Howard – Is the entirety of Medicaid spending in the budget?
    • No, waiver programs, etc. fall outside of the bill pattern @$25 billion
  • Howard – Asks after FMAP
    • Within Art. II, increased FMAP has allowed for freeing up of GR in Medicaid and foster care; LBB assuming that GR will stay in HHSC to cover supplemental needs & no supplemental will be needed if nothing else changes
  • Howard – My understanding is that FMAP will continue through this calendar year?
    • Yes, tied to public health emergency & current understanding is likely through end of year
  • Howard – Medicaid FMAP less than the CHIP? Children could get a more favorable match?
    • There is an enhanced federal match available
  • Howard – Could you create an 1115 waiver that consolidates all these programs?
    • Possible given CMS approval
  • Howard – Important to note that not all Medicaid dollars are reflected here, in other programs like Healthy Texas Women, etc.; plus some dollars come from local jurisdictions

Executive Commissioner Cecily Young, HHSC

  • Provides an overview of HHSC funding percentages and programs, including client services, SSLCs, admin costs, ombudsman, etc.
  • Medicaid & CHIP provided coverage for 4.3 million prior to COVID, 15% of state’s population is on Medicaid or CHIP, 53% of births are covered by Medicaid

Michael Ghasemi, HHSC

  • No cap on federal funding received for Medicaid, Texas generally has a 60/40 state/federal split for FMAP
  • COVID relief provided a temporary 6.2% increase to FMAP for the duration of the public health emergency at least through June 2021; cannot disenroll clients during this time which has resulted in significant caseload growth
  • With the COVID relief addition, FY2021 FMAP is 66.9%
  • CHIP is subject to cap on federal funding, but Texas consistently remains under allotment; CHIP has a higher enhanced FMAP @73.27% for FY2021, COVID relief policies to maintain enrollment do not apply to CHIP
  • For Medicaid caseloads are projected to decrease in FY 2022-23, due to public health emergency ending projected towards end of FY2021
  • CHIP cases are expected to increase over biennium, CHIP caseload declined over period of public health emergency partially due to children receiving services under Medicaid
  • Cost per client growth is projected to increase by 7% each year of the biennium
  • Total cost growth over biennium is expected to be relatively flat @.1% per year
  • COVID policies have cause significant increased caseload growth over a typical year, 6.2% FMAP offset has covered this so far, but if this continues will reach a point where funding the COVID FMAP will become a cost driver
  • Total dollars in Medicaid have grown higher than cost/client, biggest driver is caseload growth
  • CHIP growth is more volatile than Medicaid due to programmatic changes and smaller population
  • Age and disability cases drive majority of cost in client services, but not the largest number of cases
  • COVID fiscal impact has been a net gain of $1.5 billion, primarily from freed up GR due to FMAP
  • Dominguez – Base budget assumes loss of the 6.2% FMAP increase?
    • Lindsey, LBB – Correct, it is assumed that increase is only continued to the end of the current FY
  • Dominguez – Thought that Biden admin sent letter with assurances that FMAP would continue until March 2022
    • Young, HHSC – There was a Biden letter telling us it would be extended
    • Lindsey, LBB – Was unclear if this was calendar year or federal fiscal year; came in after House recommendations were finalized
  • Dominguez – Regarding eligibility & enrollment, base budget reduces this division
    • Young, HHSC – Can get specifics to you
  • Dominguez – Do you have any comment on FMAP and potential 5% FMAP increase for non-expansion states
    • Yes, aware of this

Behavioral Health

Julie Lindsey, LBB

  • Link to presentation
  • $4.2 billion in AF, $3.3 billion in GR related
  • HHSC recommendations @$1.4 billion in AF for community mental health services, incl. $795.7 million AF for adult services, $187.9 million AF for children’s services, and $145 million for community grants
  • Decrease of $453 million AF and increase of $21.5 million GR; vast majority of decrease in funding at HHSC is due to expiry of one-time construction funding, also $37.8 million in federal funds for community mental health not needed in the current biennium, and $1.4 million COVID relief not carried to current biennium
  • Provides overview of 85th Session requirement for HHSC to submit plan to expand patient bed capacity using $300 million from ESF
  • 86th Session saw additional $445.5 million from ESF for construction at Rusk and Austin State Hospitals
  • No ESF funds in current budget, but exceptional item does include requests to complete construction and staffing
  • Summary of construction items is on slide 10 of the presentation
  • Howard – In Austin I know we don’t have beds because they were basically torn down in previous phases; without funds where do we find beds?
    • When funding was provided previously it was known that funding would only begin construction and would not complete without funding in the 87th
  • Howard – In terms of funding like FMAP used to replace GR; in the previous budget assumptions were built into funding for programs like Health Texas Women with contingency to fund with GR if not, could we not do something like this in this budget?
    • Always on the table, work with Comptroller’s Office on cost outs to identify areas where more revenue might be available; can always exchange non-state funding with state funding
  • Howard – Is it possible to put this into the current state budget document like we did in previous sessions?
    • Yes, this has historically been done
  • Bell – We’re talking about all of the forensic hospitals?
    • Will need to get back to you, some are the maximum security and some not
  • Bell – Would like to have aggregated budgets for these projects to determine the final cost for these

Transportation and Infrastructure Funding

Thomas Galvan, LBB

  • Link to presentation
  • $34 billion in AF for TxDOT, incl. $24 billion for highway construction, $2.2. billion for debt services, $2 billion for other transportation modes
  • Funding from $19.6 billion estimated from State Highway Fund, $9.8 billion in federal funds, and $.9 billion in Texas Mobility Funds
  • Provides overview of State Highway Fund and history of transfers to the fund, 75% of O&G production tax collections split between SHF and ESF, as well as some amounts from sales & use taxes and motor vehicle sales & rental taxes

Darren Albrecht, LBB

  • Link to presentation, provides overview of Flood Infrastructure Fund and Texas Infrastructure Resiliency Fund
  • Provides overview of SB 500 from the 86th Session, projects and initial outlay funding
  • House budget incl. $110.6 million in AF for continued implementation of the funds, $105.5 million for TIRF and %5.1 million for FIF
  • John Raney – Asks after debt service
    • $2.2. billion debt service exists primarily in 3 bonds; Prop 12, Prop 14
  • Walle – Regarding FIF and TIRF, initially used more than $1 billion from SB 500, these haven’t all been obligated, right?
    • No, used to start the fund
  • Walle – But they’ve already begun obligating?
    • Yes
  • Walle – And they’re trying to get more dollars into that from the base bill?
    • Yes
  • Walle – So not all the funds have been expended?
    • Right, agency is also allowed to reuse loan funds paid back
  • Walle – And these are statewide?
    • Yes
  • Zwiener – Is the SHF or other transportation funding receiving federal COVID aid
    • Yes, TxDOT expects $967 million

James Bass, TxDOT

  • Have a campaign ongoing to help end road deaths in TX, working in partnership with law enforcement, asking legislature to help spread this message
  • Provides overview of traditional funding, e.g. state motor fuels tax; federal funding mechanism is reimbursement based
  • Provides overview of nontraditional funding incl. transfers to the SHF and related subaccounts coming from comprehensive development agreements or P3s
  • Motor fuels tax was shown to be the most reliable tax revenue, O&G tax is the most volatile, informs handling of nontraditional funding transfers to SHF; highlights history of these transfers into the SHF
  • Depending on funding source, usage of funding can be highly specified
  • Highlights educational material produced on TxDOT/transportation funding
  • TxDOT looks for opportunities to refinance debt service
  • On the SHF last payment is 2034, Prop 12 debt is 2046, Mobility Fund last payment 2045
  • Stucky – Other than yearly registration of vehicles, how do electric vehicles pay for roads?
    • Currently they do not, have heard discussion from various members looking at a fee for electric vehicles
  • Schaefer – Got in trouble in Smith County due to weather, TxDOT has been very successful in the area to help clear roads, etc.
  • Schaefer – Was aggravated last Summer when TxDOT offered hazard pay during COVID & we did not offer same opportunities to other workers, etc.; not an issue with TxDOT

Audits Affecting the Budget

Lisa Collier, State Auditor’s Office

  • SAO audit staff will be providing detailed audit findings in the S/Cs, providing an overview of SAO operations generally
  • Highlights 88 reports done by the SAO; majority of audits are performance, also complete financial and federal audits
  • Non-audit services include classification services & guides
  • SAO does a lot of review of contracting practices, continues to be a high-risk area with continuing issues; created a live report on contracting that gets updated with new findings
  • Also look at IT systems supporting processes that are audited, also look at cybersecurity; often find issues with logical access, lack of process for changes, and data errors
  • Have been issuing more confidential IT reports due to risk to state operations; details are available to state legislators and staff
  • Also rate agency operations on contracting, ratings are shared with Comptroller’s Office; last round saw 5 agencies with additional monitoring
  • Highlights reviews in passed last session such as audit of correctional managed health care & occupational license requirements for individuals with prior convictions
  • Howard – Do we still not have a State Auditor?
    • No, have been in this position since 2016
  • Schaefer – Do you have an unexpended balance?
    • Around $31 million
  • Schaefer – Does that carry over?
    • Yes
  • Schaefer – Why is this not put back into the treasury?
    • Only at the direction of the legislature
  • Schaefer – A lot of money to be carrying over session to session, legislature needs to look at this
  • Walle – Has an audit been done at PUC on performance contracting?
    • Yes, but not sure of the topic
  • Walle – Can you audit ERCOT?
    • Yes
  • Toth – So one has been done of ERCOT?
    • Yes, many years ago

Sunset Recommendations Affecting the Budget

Executive Director Jennifer Jones, Sunset Commission

  • Sunset staff will be in the S/Cs with specific recommendations
  • Provided an overview of the 19 agencies under review this cycle and modified operations under COVID, Sunset adopted >250 recommendations and these will be in Sunset bills this session
  • Will have staff at S/C meetings to dive into recommendations, fiscal impacts from all recommendations basically cancel out, lead to small increase in funding needed but also with increased efficiency
  • Fiscal impacts are in two main areas, deregulation and increasing efficiencies; recommending eliminating 31 license types this session & fiscal impact comes from lack of fees
  • Other recommendations include abolishing State Anatomical Board, moving Texas Racing Commission to Comptroller’s Office, and reviewing law enforcement regulations
  • Holland – Wondering why you chose Texas A&M veterinary school?
    • Looked who had capabilities to do the testing and full array of tests
  • Bell – When you looked at moving the Anatomical Board to the Funeral Service Commission, have heard complaints about delays at the agency, now adding more work so is there anything in the budget making sure we don’t create problems with agency function?
    • Yes, made recommendations on things like death certificate provision
    • Funeral Service Commission said it will need 1 FTE to do the work of the Anatomical Board