The Senate Committee on Finance met on Monday April 19th, 2021. This report covers SB 1118, SB 321, SB 1449, and SB 653. A video of this meeting can be found here.
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.
Vote Outs:
SB 296 CS (Perry) Ayes-14 Nays-0
SB 321 CS (Huffman) Ayes- 13 Nays-0
SB 483 CS (Schwertner) Ayes-14 Nays-0
SB 1204 CS (Schwertner) Ayes- 14 Nays-0
HB 1118 CS (Paxton) Ayes-14 Nays-0
- West has an amendment that he and Paxton agreed and turned into a CS: Locking employees out of system until they reach compliance
HB 1658 (Murphy) Ayes-14 Nays-0
HB 917 (Hernandez) Ayes- 14 Nays- 0
Companion to SB 620
SB 1105 CS (Hughes) Ayes-13 Nays-0 (1 PNV)
SB 1827 CS (Huffman) Ayes-12 Nays- 0
- CS does not have release claim language. Does create opioid abatement account. Will continue to work on language.
- Does not intend this to be the final version
SB 1449 (Bettencourt) Ayes-14 Nays-0
Bills on Agenda:
HB 1118 (Capriglione) Relating to state agency and local government compliance with cybersecurity training requirements.
- Paxton – Passed something very similar last session about cyber security awareness training
- Employees should be more aware of actions that can affect cyber security and malware
- Cyber security needs a measure of compliance
- Current board at local and state do not match
- Includes exemptions for those on military leave, those on medical leave, those on workers comp all of whom don’t have access to a computer
- Select cyber security program through DIR so no need to create in house
HB 1118 left pending
SB 321 (Huffman) Relating to the state contribution to the Employees Retirement System of Texas.
- CS laid out
- Huffman – State has faced issues with ERS and TRS
- Current liability is at 14 Billion; state liability will grow 1.58 per biennium & state’s credit rating is taking a hit
- Implementing strategies that limit state’s liability going forward
- Employees would contribute 6% as opposed to current 9.21%- making paychecks larger
- Would be guaranteed 4% interest but could earn additional interest on gain sharing
- At time of retirement, account value is matched
- Provide enhanced benefits for LECO employees
- LECO must contribute an additional 2% but get a 300% match on retirement
- Annual amortization payments are only applicable to current liability
- Amortize liability by 2023, $510 million a year, but state would save over $5 billion in interest
- Employees who leave state employment and then come back will be handled on case by case
- Nelson- Wanted to give more attention to ERS this session, and wanted to give thanks to Huffman for working so hard
- Bettencourt- While it’s a $500 million expenditure, how much does it save through 2052?
- $53 billion in interest
- Bettencourt- CS is not complete yet?
- I will lay it out on the floor
- The goal is to pay the debt as quickly as possible and can do that because there is reform at front
- Schwertner- One concern is legacy payment of $510 million a year. Return has only been about 6% in the last 10 years; the pension has failed to return the presumed rate of return. The group 4 and gain sharing are good ideas in theory,
- There is no risk under 4%
- In the projected 5 years there is no reason where it would be under 4%
Joseph Newton, GRS Consulting- Resource
- Human Capitol risks would come up
- This program provides minimal benefit that’s appropriate so in case the returns are lower in future there is less liability
- Schwertner- The 4% that you speak of is annual adjustment
- A cash balance is going to look similar to a bank account
- Employee would put money in and get a return on that of 4% or max of 7% because the company can take it out and invest it
- Schwertner- How does it compare compared to current situation?
- If all expectations are met, the cost is not too much different than what it would now for the new/future employees
- Liability is would be 10-15% higher if not implemented
- Gain sharing compared to zero would look like no downside, but we build in the 1.5%
- Retirees would represent 70-75% of risk
- West- Asked about how plan would compare to existing plan and what cash balance is
- The benefit would be defined as cash, similar to a 401k.
- Every year there is interest added and half the interest over 4%, up to 7%, is cash balance
- Chances for increase at retirement
- West- Asked again how this plan does would compare to existing plan
- Current program rolls value down to people who make it their whole career
- 12% of people only really get value out of this plan
- The current rate of about 9% is the value taken away
- In the current program if someone leaves working for the state after a few years, the state would penalize them, in this new plan they would not be and would be valued with inflation
- West- What about savings?
- The longer you pay something out the more expensive
- Paying more in less time will save more than $40 billion
- Based on interest rate
- West- In terms of interest rate, do we go on the market to finance
- That is an option not proposal
- West- We go to market and get a rate of return on investments and pensions are based upon expected rate of return
- Based on about 7%; sometimes we make, it sometimes we don’t
- Cash balance levels out where it won’t be as harmful if 7% is not achieved
- Perry- wanted to clarify that $500 million would be put in, but we don’t have an option. Above 7% does that stay with ERS?
- The maximum return is 7, but you would have to get 10 to get 7%
- Perry- if he is an investment manager, and the state is guaranteeing 4%, would that change anything?
- No
- Perry- As we develop terms and such, we need to remind people that they should not depend solely on this
- I agree but these programs need to increase
- Perry- have you run models on
- Thinks upfronted liability would almost cease
- 8 years until it would go down
- Schwertner- if someone starts working at 18 and works until 38, they could retire and pull-out pension at 38?
- Yes, but it’s based off of life expectancy
- People are incentivized to leave it and let it grow
- West- In terms of employees what effect have they had
- Huffman- This does not affect current employees; in fact, it would ensure that current employees have their money.
- This would be a big deal and mean more to the people who earn very little
Bill is Left Pending
SB 1449 (Bettencourt) Relating to the exemption from ad valorem taxation of income-producing tangible personal property having a value of less than a certain amount.
- Bettencourt – Cost of appraising is a wash compared to revenue
- People should get a break for their time and their finances
- Tax exemption for tangible personal property of less than $2,500; Fiscal note of $759,000
Marya Crigler, Travis Central Appraisal District- For
- Typically, small businesses are affected by this
- Business models effected tend to be very static, not change much
- Businesses also frequently forget to fill out paperwork that they went out of business
- About 5000 business would be exempt in Travis County
- Would save appraisal alone about 60,000
Dale Craymer, Texas Taxpayers and Resereach Association- For
- 17 different rendition forms
- On values of $2,500 or less generates about $50 of tax
- Asks for favorable consideration
SB 1449 left pending
SB 653 (Springer) Relating to the payment of franchise taxes by taxable entity that employs or contracts with a professional athlete.
- Most taxable entities must file state tax
- Bill looking to close loophole in calculating cost of goods sold
- Bill has positive fiscal note of $14 million
- This bill brings fairness
- Nelson- When did these organizations start claiming COGS deduction
- About 14 years ago
- Classified themselves as broadcasters
- Nelson- All major sports did this?
- Almost yes
- Anyone who makes over $300,000 was included in that
- Created in conference in about 2005, not in original bill
SB 653 left pending