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Below is the HillCo client report from the September 24 Senate Finance Committee hearing.

The committee met to take up invited testimony from the Legislative Budget Board (LBB) with presentations about major cost drivers for the state budget in the following areas: 

  • Public Education
  • Higher Education
  • Medicaid
  • Mental Health
  • Transportation
  • Water
  • Employee Retirement Systems
  • Teacher Retirement System

 
Overview – John McGeady, LBB Director  – LBB Presentation link – http://www.lbb.state.tx.us/Documents/Publications/Presentation/1869_Budget_Drivers_SFC_Presentation.pdf

  • Staff will provide overview of selective cost drivers
  • Defined budget driver – will influence funding increases or decreases to budget items (ie performance of the economy, populations becoming eligible for services, infrastructure need for growing population, revenue streams, etc.)
  • Debt service is also part of cost drive analysis but a whole host of items traditionally reviewed

 
Foundation School Program – LBB staff

  • Student enrollment – 80k-85k new students every 10 years
  • Sen. Nelson asked about factors towards higher spikes in enrollment
  • Primary factors include: birth rate, migration from other states and general economic conditions
  • 50-100k students every year but Nelson would like to know about average attendance rate
  • Growth in property taxes will offset state cost
  • Schools paid on various estimates and state will settle up the following year – that could be a budget driver
  • Sen. West asked about the enrichment tier
    • Enrichment tier is additional funding available to districts based on tax rate they levy
    • West stopped and asked for clarification
    • In 2006, legislation compressed property tax rate, for most at $1, related to a compression percentage
    • This relates to tier one funding and any additional taxes they choose to levy they are guaranteed to yield a certain rate
    • Golden pennies and copper pennies discussed
    • West asked how do districts get over $1 – elections
    • This is part of the area being discussed in the court case that the legislature may need to address – West asked what advice
  • Schools will be funded based on current law – some levers of school program set by legislature
    • Certain things that can be set by appropriations instead of having fix dollar amount set
    • Will take last basic allotment and carry forward for 2016-17 – this is the starting point
    • Can also run any scenarios and give options of what can be done in GA or what law to pass in order to make changes
  • Sen. West said it would be instructive to see what LBB recommended last time they were in court dilemma with school funding and what steps Legislature took last time
  • Sen. Hinojosa asked about Travis county increase in property taxes versus rest of state – impact
    • This increases yield ISDs are guaranteed to receive from the state
    • This is a benefit to the districts
  • Sen. Nelson recalls previous school litigation and notes not many have been through one of these
    • Have been putting on band-aids to address school finance and now have a cast
    • Encourages members to review what has been added on and the complex finance system
  • Sen. Schwertner want to know number of districts taxing above level of $1.04 he thinks 200
    • They think there is more – approaching 300 taxing at $1.17
  • Sen. West pointed out IFA/ADA in regards to another area to review  
  • Major formula levers reviewed (pg 8)
    • Not counting outliers would need to raise basic allotment at a cost to state by $8.5 billion to get districts at 90%

 
Higher Education Fund – LBB staff   

  • Sen. Schwertner asked about medical school information
    • 10 medical schools figure does include the two coming online
  • Public set asides were highlighted
    • Used to give grants based on financial need and other eligibility factors
    • Students who pay tuition will be paying into this with tuition rates (15%)
    • There are waivers/exemptions where certain tuition costs do not have to be paid
    • $221 million this past biennium in set asides (in state pays larger portion than non-resident)
    • Sen. Hinojosa said this sounds like a hidden tax
  • Sen. Nelson asked about measures used to value education purchase
    • GA does have outcome measures and all institutions have uniform measures
    • Historically legislature has not used those in making appropriations
  • Sen. Hinojosa asked about guidelines to qualify for financial aid
    • Staff will gather for committee
  • 6 formulas for health related institutions
  • Sen. Nelson asked about residency students and medical slots available
    • Cost of educating a medical student for 4 yr (I&O) is $181k
    • MD or DO degrees awarded are approx.. 1,565 and number of first year GME positions 1,558
    • Coordinating board says gap increases to 121 in 2017
  • Sen. Zaffirini asked about costs to have enough positions including those international – the goal the legislature discussed previously
    • Information will be given to committee
  • Sen. Zaffirini wants to know costs to get back to pre-2011 cuts
    • Information will be given to committee
  • Sen. Schwertner asked if GME funding ever been tied to certain things like I&O
    • Relatively new, legislature has never tied it to other funds
  • Sen. Huffman talks about critical need for GME slots but also has thousands of qualified applicants trying to get into medical school and need to look at a way to eventually expand educational opportunities
  • Sen. Zaffirini asked how will it affect Jr. College funding as they offer more Bachelor degrees
    • More programs that come online – increased funding
  • Tuition revenue bonds are not included in debt ceiling

 
Medicaid – LBB staff

  • Caseload and cost are primary budget drivers
  • Sen. Nelson asked how caseload growth compares to population
    • Medicaid caseload growth has been a bit higher than population growth
    • Sen. Schewertner even without expansion of ACA still increase in caseload growth – he asked what this growth means in regards to revise FMAP
      • Staff is still reviewing and will get to committee
  • Sen. Nelson said this is squeezing out everything else, education, prison, was at one time just 11% and now a third of the budget and going, it will keep growing if something is not done
  • Sen. Nichols asked about growth rates again and would like staff to get a copy of chart back to early 2000’s
  • Sen. Lucio asked how renewal of 1115 waiver will be impacted by not covering childless adults
    • LBB staff said they do not know at this time –  HHSC is pulling items together for renewal process, many unknowns at this time
    • Lucio said he believes federal officials said integrating best practices into health plans will be a factor in 1115 renewal – one factor will be consumer services and help patients navigate HMO systems and get past barriers
    • LBB has not done research on this – defers to HHSC to answer the question but notes HHSC has its own ombudsmen plan
    • Lucio asked LBB to help with further information on this issue
  • Sen. Schwertner inquires about caseload increase of 720k by end of 2017 even without expansion – 17% uptick – asked LBB for insight on dealing with caseload increase and FMAP
    • LBB in process of updating forecast and will have numbers
  • FMAP not set until November
    • 1% change in FMAP equates to $250 million
  • Care for children in Medicaid is usually cheaper than for adults
  • Sen. Hinojosa makes comment that in light of cost containment – trying to change behavior, prevention – gives example of South Texas/higher education working towards that goal

 
Mental Health – LBB staff

  • $3.3 billion in AF, Sen. Nelson asked for breakdown
    • Don’t have data on all client services but of note there was a transfer from DSHS to HHSC per legislation from last session and is included in $3 billion  
    • Staff will get breakdown of the data
  • Sen. Nelson said mental health spending expands over 15 agencies which highlights need for better coordination and Sunset is really going to address this
  • No waitlist currently – “That’s huge members” said Nelson, need to make sure we are spending smart going forward
  • Members inquire about cost savings data and asked for more details to be given when available
  • Typo pointed out – slide 25 should say $808 million not $799 for FY 14-15
  • Sen. West asked about NorthStar utilization and if evaluation is being done
    • There have been a few GEER reports done but does not have that data
    • West asked for a copy of that information
    • Nelson said NorthStar has come up in Sunset in regards to looking at efficiencies
    • West agreed that is information he wants to review
  • Sen. Nelson said she thinks Sunset has spent a lot of time on mental health and expects members to be really excited about recommendations

 
Transportation – LBB staff

  • Sen. Nichols noted the higher inflation of cost of material goods inflation in regards to Sen. Nelson asking about construction costs
  • Sen. Nichols discussed funding for new capacity projects less than funding for debt services
  • Sen. Nichols talked about TERP/Clean Air accounts and wants to know appropriate location to appropriate
    • Texas Mobility Fund about 10 years ago had change where TERP funding was put into Mobility Fund as a revenue stream and then funds were leveraged 
    • Argued that $100 million every year is being taken from the highway fund and given to clean air fund but it is not appropriated – but interference in the funding may cause issues with bonding
    • Nichols asked for help from members as he continues to look into the matter
    • Sen. Nelson said he was a committee of one to look into this issue and resolve/present solution during the 84th
  • Sen. Whitmire argued for paying down debt service – use some of Rainy Day Fund (RDF)
    • Nichols said Prop 1 is putting in process where special committee will establish sufficient balance that ought to be in the fund and if member wants to propose a different balance, they can put in a resolution on that and open discussion
    • West said any adjustments would then go where…..
      • Nichols said it doesn’t touch the fund but a calculation is made
    • Members agreed that they don’t want to pay down debt and then allow it to build back up – members discuss what changes are needed
  • Sen. Nichols said until enough funding to preserve system and add capacity is addressed then lines are crossed and hard votes will be needed in order to address transportation funding
  • Sen. Huffman said this transportation issue needs to be addressed if we want to keep growing as a state  
  • Sen. Whitmire said he would caution anyone who wants to do away with 2/3 rule – it won’t just punish Democrats but would impact rural areas and don’t just want an urban transportation funding plan – need a body that looks at each and every part of state and could expand that to other topics taken today (ie most of funding to go to urban school districts)
  • Sen. Nelson asked in regards to paying down debt – does that count against the cap?
    • LBB said it does count against the spending limit
    • Rainy day, a certain portion, spending will affect the spending limit  
  • Sen. West asked about construction needs in Texas
    • LBB staff said $5 billion shortfall and $1 billion for energy sector needs
    • If voters approve Prop 1 then transfer will be made into fund and that funding will be made available
  • Sen. Nichols said there is a $4 billion shortfall to maintain transportation needs and then an extra $1 billion for energy sector (TTI arrived at that calculation)
  • Sen. Birdwell asked about increase biennium average of increase
    • LBB staff stated the information is not readily available – it has been substantial
    • Birdwell said based on state’s economic activity if Prop 1 is approved then growth rate of RDF will be slower
    • Yes, approximately ½ the growth will be taken
    • Birdwell cautioned members taking funding from RDF because of slower growth and cautiously anticipating oil and gas revenues
  • Sen. Whitmire noted when it was created the legislature anticipated using the RDF more for natural disasters and emergencies; have not recently had a debate about what is a reasonable reserve; it was never anticipated that the fund would grow to billions of dollars
  • Sen. Garcia asked if the assumption was made that Prop 1 would pass when putting numbers together
    • No
  • Sen. Garcia asked what growth rate was being used for Prop 1 money going into transportation
    • Growth rates were determined by the Comptroller
  • Sen. West asked about unused current capacity; have never seen any type of policy that would encourage using existing infrastructure more widely where there has been no development
    • Nichols noted capacity is not being expanded on roads that are not being used very much
  • Sen. West noted he was just emphasizing that before spending more money, existing infrastructure should be used more wisely
  • Sen. Nichols noted that those types of projects are being discussed; the toll roads east of I-35 are being considered to address truck traffic on I-35; can reduce tolls for trucks to move them to different highways
  • Sen. Nichols said not until 1987 that Fund 6 monies were used
  • Sen. Nelson asked more detail about various diversions – are all transportation related
  • Sen. Zaffirini at the end of LBB presentation noted this points out why it is essential to fund requests  

 
Water – LBB staff

  • Water Resources Planning and State Water Plan quickly reviewed
  • TWDB project financing quickly reviewed
  • Bonding and finance programs drawing general revenue were highlighted
    • EDAP – bonding requires general revenue (slide 44 provides more detail)
    • SPP and WIF are self-supporting
    • There are general revenues that go to the Drinking Water State Revolving fund in order to draw down federal funds
    • Rural water – there can be GR appropriations made but not for debt service
  • $6 billion in bonding authority granted to TWDB does not count toward debt limit
    • Further discussion on what bonding authority would count towards debt limit
  • Sen. Hancock asked if SWIFT/SWIRFT could be used to help with federal draw down
    • LBB will look into it and get details back to the committee
  • Sen. Nichols asked for more details on the Texas Treasury Safekeeping Trust Company
    • State operated and under the Comptroller
  • LBB provides more detail on SWIFT/SWIRFT program
  • First leveraging of SWIFT by Summer 2015
  • Sen. Hinojosa said it took a drought for action to be taken on funding the state water plan

 
ERS – LBB Staff

  • ERS retirement expenditures and appropriations are reviewed
  • Sen. Zaffirini asked how long they expect ERS to remain sound
    • Until 2052
  • Sen. Schwertner asked about wellness and HSA’s in plan
    • Not really – but there is a tobacco surcharge
  • Sen. Nelson asked if audit system in place to look for group insurance
    • Agency does audits
    • Sen. Nelson recalled problem with University calculating number of employees
    • Sen. Hinojosa said they changed from BCBS to United and there was difference in payments
  • Sen. Zaffirini noted that United said over 4 years they would cost less and achieved savings, asked if they have been realized
    • Yes – and not in benefit reductions
    • LBB staff will get report to committee on these savings and how they were achieved
  • Sen. Schwertner argued that compound medications is costing thousands of dollars to state and he intends to introduced legislation this session to address this issue
  • Sen. Nelson asked if anything could be done to better contain cost growth to ERS
    • Staff noted ERS is pro-active for example when they saw increase cost in compound drugs, they took action

 
Higher Education Employee Group Insurance – LBB Staff

  • Governor did veto appropriations for contributions and it was later reinstated during the supplemental bill
  • SB 1812 from the 83rd set the contribution rate of 50% in statute
  • Appropriation calculations are based on self-reported data not formal audit process at this time

 
Teacher Retirement System – LBB Staff

  • 6.8% percent is contribution rate
  • 2014-15 GR appropriation $3.3 billion
  • New district contribution rate of 1.5 percent
    • Sen. Hinojosa argued that more students mean more teachers are being hired and how is that growth rate in comparison to those who are retiring
    • LBB will get that detail back to the committee
  • Sen. Nelson asked for health care grow cost for the active care participants
    • LBB will get that detail back to the committee
  • Gap of $326 million in FY 2016 and $874 million in FY 2017 is highlighted
  • Sen. Nichols said it is tough to live on teachers retirement – if school district opts to start accounting for social security will the district be harmed for doing so
    • Nichols would like LBB to further investigate on how much it would cost district and the state if social security were offered
  • Sen. Schwertner asked about increase in expenditures on TRS Care
    • LBB staff will need to get details from agency and then report back to committee – not sure it is related to federal spend-  compounded drug issue is also an issue for TRS as well as other items that could be contributing to cost increases

 
Next hearing is tentatively set for October 29 and will cover state revenue and taxes.