House Appropriations – February 4, 2019

The House Appropriations Committee met on February 4, 2019, to hear invited testimony school finance, school safety, and the Teacher Retirement System (TRS).

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing 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.

 

• Zerwas – Announced subcommittees

 

Texas Education Agency

Mike Morath, Commissioner, TEA

• TEA has no direct statutory authority over safety
  • Local school boards or school districts have authority over safety
• Discussed responses to the Santa Fe shooting at state and local levels
• TEA worked with districts to create a plan with 4 components:
  • Self-assessment rubric to augment audit work and ensure measures have staying power
  • Technical assistance to increase campus safety
  • Coordination with schools for mental health programs, ensure existing mental health infrastructure is leveraged in schools
  • Grant initiative to “fast track” certain innovative programs already in place
• Cortez – How many districts were able to participate in TEA roundtable discussions?
  • Morath – Participation was extensive, I have frequent discussions with regional superintendents
• Johnson – How do we more effectively support metal health programs in schools?
  • Morath – Only one of the four components in our plan has to do with physical security. The Secret Service also has the “Threat Assessment Protocol”, which is as system for identifying potential metal health problems in students by building effective relationships between students, teachers, and administrators.
  • Johnson – Emphasizes that it is just as important to improve mental health as it is to ensure physical security.
• Toth – Question about membership of school safety center committees
  • Morath – Community members including parents and teachers, and school law enforcement officials if there are any. There is generally a diverse group of stakeholders on these committees.
• Question on how to work with other states on school safety
  • Morath – In Virginia they implemented the Threat Assessment Protocols after the VT shooting
• Howard – Would active shooter alarms and radios in schools be more effective than some of the physical safety measures?
  • Morath – None of these measures on their own would completely solve the problem. There is some value in almost any of these due to deterrent effect. Secret Service thinks of it as an intelligence gathering problem rather than a physical security problem.
  • Howard – Can you speak on what is being done or what can be done to improve safety?
  • Morath – There is no “magic answer”, there are a variety of solutions to be implemented.
• Toth – Explain the active shooter alarm system?
  • Morath – It is similar to a fire alarm. In many cases it is a separate lever in the same location of the fire alarm that tells people to shelter in one place.
  • Toth – Discusses new smart active shooter alarms that will track the exact location of the shooter.
• Bell – Asked for information on the success of school marshal programs
  • Morath – I do not know if we have access to information on that program, data on that program is gathered by another agency. There is not a lot of interest in the marshal or guardian program in urban districts but there is interest in rural districts.
• Turner – Should districts be doing something different in their communication of their safety plans to the TEA?
  • Morath – There would be much benefit in districts reporting that information to us.

 

Leo Lopez, Chief School Finance Officer, TEA

• Discussed school finance system
  • System determines how much financing a district needs. Then looks at what a district can generate locally for the “local share”, state will make up the difference with the “state share”
  • Declining property values leads to a declining local share and vice versa
  • Discussed different tiers of funding
  • Discussed tax rates
• Schaefer – Question about recapture payments for districts with increasing property values
  • Lopez – If a district did not pay recapture in the past and now receives little or no state aid they would pay recapture back to the state. As wealth per-student increases a district will pay more in recapture
  • Schaefer – So as a districts property values increase there is not much they can do about recapture?
  • Lopez – No, not in terms of being classified as a chapter 41 district as opposed to a chapter 42 district
• Sherman – Question about local exemptions
  • Lopez – Local exemptions may or may not be run through our formulas.
• If a district qualifies as a small or mid-sized district, basic allotment is adjusted further
• Slide 8 highlights CEI history, 2.8 billion annually invested by state for the CEI
• Highlights adjustment across mid and small size schools, two different small district adjustments – HB 21 is combining these adjustments over time
• Slide 10 highlights how you get from basic allotment to adjusted allotment (basic -> adjusted through CEI, further adjustments) leads to statewide average of $65.46
• Highlights weights across programs, Tier 1 is essentially baseline, special education, compensatory education, etc. has additional weights
• Toth – Does a TEA have a dashboard for how CEI money is used across schools?
  • Lopez – Not currently, can get this info together
  • Toth – Had this information at one time, was wondering if we were still doing that
  • Lopez – Have not done so
• Provides breakdown of calculation of Chapter 42 and Chapter 41 districts
• Johnson – When you look at districts like HISD with full day Pre-K, do you count this in the weights?
  • Lopez – Texas funds for half day Pre-K, so students are counted as half day
  • Johnson – Why is this again?
  • Lopez – It is in statute
• Gives overview of Tier 2, funding above $1, based on concept of guaranteed yield per penny per student
• For first level of Tier 2, there is no recapture for 6 pennies, for pennies >$1.06 tax levies are subject to recapture
• Overview of WADA – WADA is a calculated number, abstracted; output of Tier 1 that is used to calculate Tier 2 and recapture; state average ratio of WADA to ADA is ~1.35
• Tier 2 funding will bring up districts that are not able to get the yield per penny per WADA as wealthier districts (e.g. AISD)
• For copper pennies, yield is much lower (roughly 1/3 of AISD, subject to recapture), these can be hard to sell to taxpayers due to limited returns/possibility for recapture
• $.50 test for I&S tax rate where district must prove ability to pay bonds, tax collections must be used to pay off debt service on bonds
• Instructional Facilities Allotment (IFA) – Helps support construction of instructional facilities, operates on award cycle & state will help make debt service payments on bonds; not used directly for construction purposes
• Existing Debt Allotment (EDA) – HB 21 set aside $60 million for the program & instructed TEA to increase yield up to that amount, can be used to pay for debt for instructional and non-instructional facilities
• In any given year, roughly $500 million being paid out for facilities
• Charter school funding – main difference is property tax base, state pays 100% of entitlements, charters also do not have their own CEI and no small or mid-sized adjustments
• Funding on state average; not qualified for IFA or EDA, but can qualify for New Instructional Facilities Allotment (NIFA)
• Member – When facilities funding is given to charters, do those facilities belong to the state?
  • Von Byer, TEA – Under Chapter 12 of Education Code, if state funds are used to purchase a facility it becomes a state property; state can go after the property if the charter is revoked
• Member – Regardless of percentage of investment?
  • Yes, 1 penny of state funds makes this a state facility
  • This is for spending that occurred after a certain date, slightly different rule for properties acquired before 2001
• Bell – Did you say charters are funded at $1.10?
  • Lopez– Yes, funded as if they are $1.10
  • Bell – So other district are at $1.04, so charters have $.06 more
  • Lopez – For districts funded at a $1.04
• Capriglione – Asks after recapture amounts for the current biennium

Lopez – $2.8 billion average year to year, $4.7 billion

• Capriglione – So 100% of the $4.7 billion goes back to school districts? Is any of the money considered the state’s share?
  • Lopez – All funds are required by statute to be put back into the Foundation School Program
• Capriglione – If one copper penny is converted to a gold penny, how much is recapture reduced?
  • Lopez – Don’t have exact amount, but around $2.5 billion to the next tier
• Roughly $200 per student in ADA for charter schools
• Howard – In terms of LAR, it assumes a decrease of property value?
  • Lopez – Yes, slightly
• Howard – state is requesting $3.5 billion less and expecting increase in student growth? It will cost us $2.5 billion to cover student growth
  • Lopez – Yes
  • Howard – shifting cost to local tax payer
• Howard – cost of Governor’s 2.5 plan, believes the cost would be $2.9 billion cost to the state
  • Lopez – Will confirm those numbers and get back to her
• Capriglione – 514k is the equalized wealth level, has is this set
  • Lopez – This is tied to basic allotment
  • Capriglione – price has not been adjusted for inflation
  • Lopez – Correct, there is not inflation adjustment in the formulas
• Schaefer – if 2.5% of the tax plan is implemented, would state share go up or go down
  • Lopez – It would go up and then stay consistent
  • Schaefer – it would rebalance the overall funding?
  • Lopez – Yes that is how he sees it
• Stucky – allotment per student is the same in charters no matter where the charter school is – where did that idea come from?
  • Lopez – Provided history, once funding was on residence but at one point a state average system was phased in and accelerated
  • Speculates it was to move to something easier
• Howard – during RPAF reduction, so state was off hook for the amount it owed
  • Lopez – Believe it was put in place in one-year biennium

 

Teacher Retirement System

Brian Guthrie, Teacher Retirement System

• Presented overview of system – state contributes 6.8% and school districts that do not participate in social security contribute 1.5%
• VanDeaver – there is a statute trigger what is it? No increase since 2004
  • Guthrie – 31 years or less, would trigger the ability for legislature to consider a benefit increase. Process to provide increase is a twostep process
  • There was a benefit enhancement for ¾ retirees in 2003 who got a cost of living adjustment
  • That is correct but there was extra check for retirees from 2004-2007
• Stucky – what would make it finically sound?
  • Guthrie – $800 million per year
  • You could phase it in over time
• Capriglione – how much is retirees’ pension per month?
  • Guthrie – About $2k per month, when just looking at classroom teacher the amount is about $4k so they have cafeteria and bus drivers so avg is $2k
• Capriglione – how much visibility is there in the fees?
  • Guthrie – Fees vary by asset class, etc. Insight is in annual CAFR
• Capriglione – asked about bonuses
  • Guthrie – Asking for staff increases but want to look at reducing management fees in investment area. Believes could save over a billion in fees while maintaining or exceeding performance
• Stucky – Where does Texas rank in funding the TRS system?
  • Guthrie – Points to chart in appendix
• Cortez – when was the last time TRS care increase, look forward to continued discussion
  • Guthrie – Last session that was increased to 1 ¼ increase. Based on active member payroll. Been in a situation last several years to come to legislature to request increase
• Toth – shifting burden to retired teachers?
  • Guthrie – Decision made before that we would raise premiums and increase out of pockets expenses
• Toth – could we get a running total on how shift is trending and teacher vs state split?
  • Guthrie – Absolutely can provide that on a biennium basis
• For the shortfall in the last biennium the state provided additional funding to ensure we were whole
• Stucky – What is needed to make the TRS care sustainable?
  • Guthrie – A significant influx of capital, “well north” of $12b-$15b.
• Howard – What was the number of the participants who left the program during the last couple years?
  • Guthrie – Approximately 30,000 left.
  • Howard – Have you had further losses?
  • Guthrie – We have, but we have also had new members enter the system. We believe enrollment has stabilized.
  • Howard – Is enrollment still skewed toward pre-65 people?
  • Guthrie – Yes average age is just below 61.
  • Howard – Question about funding of the program
  • Guthrie – The supplemental funding of $231m is enough to get us through the next biennium with the same benefits and the same enrollment.
  • Howard – You mentioned $12-$15b to create a corpus for sustainable money, is that the amount you would need or is there a way to start that sooner?
  • Guthrie – We would welcome any additional capital, but for TRS to create a corpus big enough we would need to invest, realize returns, etc. and it would take several years to get that fully up and running
• Bonnen –opting out of the program question
  • Guthrie – Last session there was a proposal to give districts with less than 1,000 employees a one-time opportunity to opt-in or opt-out, after which they would be locked in to their choice. That proposal did not get much traction.
• Toth – What does TRS care cost the average teacher?
  • Guthrie – $200 monthly premium per member for retirees without Medicare, it is more with dependents
  • Toth – How much of that was given up in the 85^th legislative session?
  • Guthrie – There would have been no offsetting impact for the retirees without Medicare.
• In general member premiums have increased with the cost of healthcare increasing
  • 70/30 state/employer split when the program started, has flipped to now 30/70 state/employer split
• Stucky – Based on numbers in your report members of the retired employee have only about $1,000 to live on?
  • Guthrie – Yes and that is why we saw a significant number leave the program.
• Guthrie – If we had flexibility in FTE cap we would be able to provide better customer service.