Texas Public Employees Association

January 2005 Advocacy Alert

•Budget Writing Committees Appointed

•Comptroller Issues Revenue Estimate

•Appropriations Bills Introduced in House and Senate

•Other Issues And News

•Legislation of Interest to State Employees

LBB Performance Review Recommendations Released

The Legislative Budget Board released its Performance Review recommendations on Tuesday, January 18. The state has undertaken performance reviews to assess ways to save money and increase efficiency since 1991. This responsibility had been with the Comptroller’s office until last summer when the legislature moved this function to the Legislative Budget Board (LBB). You can download the full report at teh following link, however please be advised the full report is a large PDF file and you shouldn’t try to download this without high speed internet access. Click here to download full report.The section of the report regarding state employees is the Employee Benefits section.

The LBB was charged with finding $3 billion in potential savings. The report claims to recommend $3.2 billion in possible savings. TPEA supports some of the report’s recommendations, but analysis suggests that a number of recommendations don’t truly save money but would instead shift potentially hundreds of millions of dollars to state employees and retirees. As a result of the $10 billion budget shortfall the last legislature faced, state employees and retirees saw increases in copays, deductibles and other costs that, on average, cost every state employee $900 more in out-of-pocket costs annually. Given the state’s improved fiscal condition, TPEA does not believe that it would be appropriate to shift additional costs to employees or retirees and TPEA will advocate against any LBB recommendations that propose to do so.

The recommendations that TPEA believes represent true savings include:

• Creating an incentive for employees who have alternative health coverage to opt out of the state program. In particular, employees who can use federal TRICARE coverage with a supplemental “wrap around” policy paid for by ERS would receive coverage at lower cost to them and save state funds. HB 417 by Rep. Delisi would authorize such a benefit. TPEA supports Rep. Delisi’s legislation.

• Pursuing potential savings from prescription drug importation and other drug bulk purchasing methods. The introduced budgets fund a $250,000 study of drug importation by ERS with contributions from the 20 largest state agencies. TPEA supports this recommendation.

• Utilize the new federal subsidy for prescription drug costs for Medicare-eligible retirees under ERS and TRS. ERS retirees already pay for 40 percent of drug costs through out-of-pocket cost sharing. With the approximately 30 percent subsidy Texas would receive for ERS retiree drug costs, the state would only be contributing 30 percent of the total retiree drug costs, a reasonable cost to bear to maintain this benefit that has been promised to retirees. The federal subsidy is included as a method of finance in the introduced versions of the budget. TPEA supports this recommendation, but not the other options listed in the report that would eliminate state drug coverage.

LBB recommendations that TPEA opposes because they do not represent true cost savings but rather inappropriately shift costs to employees and retirees include:

• Eliminating the current 50 percent state contribution for retirees’ dependent health insurance premiums. This would shift over $100 million in premium costs to state retirees and could result in adverse selection in the state plan.

• Reducing state contributions for employee health insurance to 90 percent. This would shift nearly $120 million in premium costs to active state employees and reduce employees’ take-home pay by approximately $30 a month. Given that state employees have only had 3 pay raises in the past dozen years and have recently absorbed, on average, $900 a year in increased out-of-pocket healthcare costs, this recommendation would have extremely adverse impacts on the state turnover and the state workforce.

• Eliminating state drug coverage for Medicare-eligible retirees and forcing them to bear additional costs under the new Medicare Part D drug program. Even under the most generous options presented, many retirees would pay significantly more under the new federal drug benefit. Given that retirees already pay for a significant portion of overall drug costs, the better option is to maintain the state coverage and utilize the federal subsidies available to the state.

• Implementing a tiered coinsurance plan for state employees who have higher than average health care costs. This would effectively remove the current $1000 annual limit on participants’ 20 percent coinsurance contributions and require participants with annual healthcare costs above $5000 to pay as much as $5000 in coinsurance contributions. Given that health status is generally not voluntary, this would place considerable financial burdens on participants with chronic health conditions or other costly health episodes.

• Requiring state retirees under the age of 65 to contribute an amount equivalent to Medicare Part B premiums. This would shift nearly $75 million in costs to state retirees and require an additional monthly $78.20 monthly contribution for retirees under 65 years of age. Given the low annuity payments many retirees receive, this would retroactively alter the terms under which participants retired.

• Discontinuing Benefit Replacement Pay and Longevity Pay for return-to-work retirees and reducing their accrual for annual leave. While TPEA believes that many agencies need the flexibility to retain experienced and knowledgeable workers by rehiring retirees, in truth this is a stop-gap necessitated by the fact that state pay is too low to allow agencies to replace departing workers with employees who are as skilled and knowledgeable. But again, TPEA believes it is inappropriate to reach back and retroactively change the terms under which employees have retired. If it addresses this issue, the legislature should make it prospective and “grandfather” current return-to-work retirees.

• Freezing longevity pay to free up funds for merit pay awards. TPEA is proposing an increase in longevity and hazardous duty pay. TPEA supports allocating funds to agencies for merit awards and other compensation increases to reward high performers, but this should not be financed by taking increases in longevity pay away from other employees. TPEA believes chronic underfunding of the state’s workforce is driving our costly turnover problem, and this proposal may exacerbate the problem. .

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Budget Writing Committees Appointed

Speaker Tom Craddick appointed Rep. Jim Pitts of Waxahatchie Chair of the House Appropriations Committee, Rep. Vilma Luna of Corpus Christi was named Vice Chair. The other Representatives appointed to the committee are: Leo Berman of Tyler, Dan Branch of Dallas, Fred Brown of Bryan, Betty Brown of Terrell, Warren Chisum of Pampa, Myra Crownover of Lake Dallas, John Davis of Houston, Dawnna Dukes of Austin, Al Edwards of Houston, Dan Gattis of Georegetown, Ryan Guillen of San Diego, Pat Haggerty of El Paso, Peggy Hamric of Houston, Glenn Hegar of Katy, Ruben Hope of Conroe, Chuck Hopson of Jacksonville, Carl Isett of Lubbock, Tracy King of Uvalde, Lois Kolkhorst of Brenham, Armando Martinez of Weslaco, Ruth Jones McLendon of San Antonio, Jose Menendez of San Antonio, Aaron Pena of Edinburg, Joe Pickett of El Paso, Todd Smith of Bedford, Vicki Truitt of Southlake, and Sylvester Turner of Houston.

In the Texas Senate, Lt. Governor David Dewhurst named Senator Steve Ogden of Bryan Chair of the Senate Finance Committee, while Senator Judith Zaffirini of Laredo was named Vice Chair. The other Senators appointed to the Finance Committee are: Kip Averitt of Waco, Gonzalo Barrientos of Austin, Kim Brimer of Tarrant County, Bob Duell of Greenville, Robert Duncan of Lubbock, Kyle Janek of Harris County, Jane Nelson of Flower Mound, Florence Shapiro of Addison, Eliot Shapleigh of El Paso, Todd Staples of Palestine, Royce West of Dallas, John Whitmire of Houston, and Tommy Williams of the Woodlands.

The House Appropriations and Senate Finance committees are where key decisions about the LBB recommendations will be made. Concerned employees and retirees should target your communications to members of these committees.

Use these Resources to Reach Your Legislators:

The mailing address for Speaker Craddick and all members of the Texas House is:

The Honorable [Representative's Full Name]
Texas House of Representatives
P.O. Box 2910
Austin, TX 78768-2910

Phone numbers for all House members can be found online at:
http://www.house.state.tx.us/members/welcome.htm

In the Texas Senate, Lt. Governor David Dewhurst named Senator Steve Ogden of Bryan Chair of the Senate Finance Committee, while Senator Judith Zaffirini of Laredo was named Vice Chair. The other Senators appointed to the Finance Committee are: Kip Averitt of Waco, Gonzalo Barrientos of Austin, Kim Brimer of Tarrant County, Bob Duell of Greenville, Robert Duncan of Lubbock, Kyle Janek of Harris County, Jane Nelson of Flower Mound, Florence Shapiro of Addison, Eliot Shapleigh of El Paso, Todd Staples of Palestine, Royce West of Dallas, John Whitmire of Houston, and Tommy Williams of the Woodlands.
The mailing address for Lt. Governor David Dewhurst and all members of the Texas Senate is:

The Honorable [Senator's Full Name]
The Texas Senate
P.O. Box 12068-Capitol Station
Austin, TX 78711

Phone numbers for Senators can be found online at:
http://www.senate.state.tx.us/75r/senate/Members.htm

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Comptroller Issues Revenue Estimate

Texas Comptroller Carole Keeton Strayhorn issued the state's biennial revenue estimate (click to view) for 2006-2007 on Monday, January 10. Comptroller Strayhorn estimated that legislators would have $6.4 billion more in general purpose funds available for spending over the 2006-2007 biennium than was appropriated for the current two-year budget. Total projected general revenue funds for the biennium are $64.7 billion. The Comptroller also estimated that with expected federal funds and other dedicated revenues, total revenues of $130.5 billion will likely be available for use by budget writers. The Comptroller’s revenue estimate is a critical first step in beginning the budget process, and ultimately she must certify that the budget the legislature enacts is within available revenue.

Given the nearly $10 billion shortfall that legislators faced two years ago, the 2006-2007 revenue estimate is clearly not bad news. However, Strayhorn also estimated that the growth in higher education and public school enrollment as well as costs for Medicaid and other programs would consume all but $400 million of this anticipated $6.4 billion revenue growth. Strayhorn also projects that the State’s “rainy day” fund will grow to $2 billion by the end of the next biennium.

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Appropriations Bills Introduced in House and Senate

The Chairmen of the budget-writing committees in the Texas House and Senate introduced identical versions of the General Appropriations Act, HB 1 and SB 1, on Friday, January 14. These bills represent an agreed starting point for budget deliberations among the State’s leadership. Total appropriations under the bills are slightly in excess of $134 billion for the 2006-2007 biennium, including $63.5 billion in general revenue. This means that $1.2 billion of general revenue contained in the Comptroller’s biennial revenue estimate is unspent and still available for other uses. The introduced versions of the bills contain new funds to account for enrollment growth at higher education institutions and public schools as well as in Medicaid. They also include funds to restore some of the benefit reductions under CHIP and Medicaid made last session. Under the introduced versions of SB 1 and HB 1 as many as 100 state agencies have funding reductions from current appropriation levels and some agencies would have staffing reductions. The introduced budget bills also continue current contribution levels for employee retirement of 6 percent of payroll both by the employee and the state.

Funding for state group health insurance is probably the key challenge this session, along with efforts to fund adequate state employee pay raises. The introduced budget bills increase funding for health insurance by about 6.5 percent and maintain the state’s current policy of contributing 100 percent of the premium cost for employees and retirees, and 50 percent of the cost for spouse and dependent coverage. SKIP coverage is also maintained. However, in its legislative appropriations request (LAR), ERS had requested additional funding based on an assumption of 13 percent annual increases in healthcare costs. While TPEA believes that ERS’ healthcare cost trend is probably lower than 13 percent, the 6.5 percent funding increase in HB1 and SB 1 is by itself insufficient to maintain current healthcare benefits over the 2006-2007 biennium. ERS has recently awarded new three-year contracts to Blue Cross Blue Shield, to administer the state’s medical benefit plan, and to Medco, as pharmacy benefits manager, and significant savings resulting from these contracts should help to reduce the amount that ERS will need to maintain current health benefits. TPEA will advocate for ERS to receive sufficient funding to maintain current health insurance benefits without having to utilize any of the healthcare cost shifting proposals contained in the LBB Performance Review Report.

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Other Issues And News

Retirement Eligibility
There continues to be legislative discussion of whether changes are needed in basic retirement eligibility rules, such as changing to the “Rule of 85” from the current “Rule of 80”. Legislative leaders, particularly in the Texas Senate, question whether such changes are needed to strengthen the retirement funds at ERS and TRS. ERS is in excellent condition, at close to 98 percent funding according to the most recent valuation. TPEA believes another year or two of above average investment returns will restore ERS to being fully funded. By contrast, TRS is in much worse condition. TPEA does not believe it is appropriate to change basic retirement eligibility standards at ERS because of problems at TRS. Thus far, no legislation has been introduced that would change the “rule of 80” or other retirement eligibility rules.

ERS Awards Drug and Health Contracts
The Board of Trustees and staff at ERS have now completed the procurement process for pharmacy benefits manager (PBM), and for third party administrator (TPA) for HealthSelect, the primary health insurance plan for state employees and other groups. Under the leadership of ERS Board Chairman Owen Whitworth, ERS will achieve significant cost savings over the three-year terms of the contracts. Medco Health Solutions will continue as PBM for ERS with projected cost savings of $48 million. Blue Cross Blue Shield of Texas will continue as administrator for the state’s self-funded health plan with projected cost savings of $79 million. TPEA commends Board Chairman Owen Whitworth and ERS Executive Director Ann Fuelberg and her staff for successful completion of this difficult task.

Owen Whitworth Announces for Reelection to ERS Board
Current ERS Board Chairman Owen Whitworth has announced that he will seek reelection for another 6-year term on the Board of Trustees. Voting will begin on March 16 and extend through April 20. For the first time, eligible voters will be able to vote online on the ERS website using your social security number and password. Voters are being asked to vote online, if possible, as a cost saving measure. Eligible voters are ERS members, both contributing and non-contributing, and retirees.

Save Tuesday, March 15 On Your Calendar
TPEA is encouraging all state employees and retirees to consider participating in TPEA Day at the Capitol on Tuesday, March 15. TPEA will provide materials to employees and retirees who wish to communicate with legislators about pay raises, maintaining health insurance, and other issues of importance. TPEA is planning on hosting a celebration for state employees and retirees at historic Scholz’s Garten from 5 to 7 pm that afternoon. While still in the planning stages, we hope to have complimentary beverages and snacks, a fun band, and door prizes. The event will be open to all state employees and retirees, as well as legislators and legislative staff.

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Legislation of Interest to State Employees

• HB 1, Rep. Pitts, the General Appropriations Act or state budget bill.

• HB 6, Rep. Hupp, Omnibus bill to reform protective services.

• HB 314, Rep. Dukes, changes to statute on Council on Competitive Government to require more fair cost comparisons when considering outsourcing, and requiring State Auditor review to insure vendors are complying with contracts.

• HB 417, Rep. Delisi, allows ERS members who are eligible for federal TRICARE health coverage to receive supplemental coverage paid for by ERS.

• HB 566, Rep. Fred Brown, repeals the 90 day wait for health insurance coverage for the University of Texas and Texas A&M.

• SB 1, Sen. Ogden, General Appropriations Act.

• SB 63, Sen. Staples, $200 per month pay raise for state employees.

• SB 70, Sen. Shapleigh, creates a preference for vendors who provide health insurance to their employees for contracts with the state and local school districts.

Back to Table of Contents or To TPEA.ORG for more Information