Sine Die? Budget Approved, But Special Session Still Necessary

The 140-day Regular Session of the 82nd Legislature adjourned Sine Die on Monday, May 30.  Although the legislature approved a $172.3 billion budget for the 2012-2013 biennium, the failure to approve other important fiscal bills caused Governor Perry to immediately call the legislature back into Special Session.

Legislators used a variety of mechanisms to mitigate the impact of many of the budget cuts that were proposed in the introduced version of HB 1. As it was sent to the Governor, HB 1 relies on over $2 billion in budget deferrals, it achieves significant cost efficiencies in many areas, and spending for Medicaid could exceed budgeted amounts by over $4 billion since it is an entitlement program. The fastest growing areas of state spending have been public education and Medicaid, both of which were largely exempt from the budget reductions ordered by state leaders beginning in January of last year. Aside from transportation funding, public education and Medicaid were the only broad areas of state funding to receive increases in general revenue funding in HB 1.

Governor Perry called the special session after the “fiscal matters bill”, SB 1811, was filibustered in the closing hours of the session. SB 1811 freed up over $4 billion that is necessary to help balance the budget, and it included new formulas to distribute state education funding to school districts. The failure of SB 1811 also invalidated the $34 billion appropriation for public education funding, leaving school districts without a reliable estimate of state aid for next school year.

The First Called Session of the 82nd Legislature convened on Tuesday, May 31 and will attempt to resolve these fiscal issues, as well as Congressional redistricting and any other items added to the call by Governor Perry.

Impact of the Session on State Employees and Retirees

State employees and retirees faced an unprecedented number of proposals to cut our pay and benefits during the recently concluded session. TPEA fought hard against these proposals, most notably:

• Legislation that would have fundamentally changed the nature of the ERS retirement system;

• Attempts to abolish longevity pay;

• Efforts in both chambers to enact salary reductions for state government and university employees; and

• Hiring freezes and mandatory furloughs were also contemplated.

The most critical challenge facing TPEA was our effort to maintain affordable health care benefits for state employees, retirees and their dependents.

TPEA is proud to report that none of the punitive legislation cutting pay or reducing benefits was enacted.

Most importantly, TPEA was able to work with key legislative leaders to preserve affordable health benefits. The state will continue to pay the full cost of health coverage for qualifying employees and retirees and half the cost of dependent coverage.

State agencies and employees will share in the sacrifices necessary to produce a balanced budget. As introduced, HB 1 could have resulted in over 9000 FTE reductions. This was lowered in the final version of the bill, where most state agencies experienced significant budget reductions and the legislature reduced the size of the state workforce by 4,000 – 5,000 positions.

Maintaining Affordable Health Benefits

The most difficult challenge of the 82nd Regular Session for TPEA was preserving affordable health care benefits for employees, retirees and their dependents.

What Could Have Been
At the beginning of the session, ERS had projected a $591 million gap between funding levels for ERS health benefits in HB 1 and SB 1 and the amount necessary to maintain current benefits. ERS further estimated that this funding gap would require either significant increases in insurance premium contributions or the imposition of very large deductibles for medical services.

ERS participants could have seen state contribution levels decrease from 100 percent for the employee or retiree to 80 percent, and contributions for dependent coverage decline from 50 percent to 40 percent. This could have increased contributions for full family coverage by over $190 a month. Alternatively, ERS participants could have been subject to annual medical services deductibles of $2400 to $3400 per plan participant.

Crisis Averted
Either of these cost-shifting approaches would have made the ERS health plan unaffordable to many employees and retirees. Thankfully, we were able to work with state leaders to avert these devastating changes to our benefits.

The agreement adopted in HB 1 preserves the affordability of the ERS health plan by maintaining the current premium contribution policy where the state contributes the full premium cost for employees and retirees and half the cost of dependent coverage.

On the Senate side, TPEA deeply appreciates the leadership of Senator Robert Duncan and the strong support of Senators Steve Ogden and Tommy Williams. In the House, Representatives John Otto and Jim Pitts led efforts to reach agreement with the Senate and deserve our gratitude.

How They Did It
It’s also important to point out that Senator Duncan and lawmakers didn’t close the funding gap to maintain affordable health benefits solely by appropriating more funds. Instead they utilized three distinct approaches:

• Working with ERS to identify cost savings that lowered the health care cost trend from 9.1 percent per year to 7 percent;

• Authorizing two new fees to help support the plan, a tobacco user premium differential which will require regular tobacco user to contribute $30 a month to offset health costs associated with tobacco use, and a new employer enrollment fee which will require participating employers to contribute one percent of base payroll to support the ERS health plan; and

• Budget conferees agreed to contribute an additional $215 million to help preserve the affordability of the plan.

Maintaining a Strong ERS Retirement Fund

Legislators also took steps in HB 1 and SB 1664 to continue strengthening the ERS retirement fund by maintaining enhanced contributions by employees and working to maintain state retirement contribution levels. Employees will be asked to continue contributing at the maximum 6.5 percent rate in both years of the next biennium, while the state will contribute at the minimum level of 6 percent in 2012, but will increase its rate to 6.5 percent in 2013.

TPEA supported these efforts to strengthen the actuarial condition of the ERS retirement fund so that it can reach actuarial soundness and provide benefit enhancements for our deserving state retirees.

Two bills were introduced in the Texas House that would have required all new employees to participate in a 401(k) retirement plan and prevented them from joining the traditional defined benefit retirement plan ERS administers. Both HB 1974 by Rep. Sheets and HB 2506 by Rep. Chisum would have undermined the current ERS retirement system and, by cutting off new contributing members to ERS, would have left current members “high and dry” with virtually no chance to ever receive benefit increases. Neither of these bills made it out of committee. Nevertheless, there is a provision in the Appropriations Bill to require ERS and TRS to study possible alternatives for state retirement systems.

Legislators also made some efforts to address concerns about return to work retirement. HB 1303 by Rep. Sheets and HB 3081 by Rep. Isaac would have changed state law governing eligibility for ERS retirees to receive annuity payments after returning to state employment, but neither bill was heard in committee. The Senate version of HB 1 included a provision that would have prohibited the expenditure of any appropriated funds to pay for an employee who retired after January 1, 2011. This provision was removed from the final version of HB 1, so ultimately there was no change in law governing return to work retirement, although it remains controversial.

Efforts to Reduce Employee Pay

There were efforts in both the House and the Senate to abolish or suspend longevity pay.

• HB 2954 by Rep. Cain was a single subject bill that abolished longevity pay and added language for a new merit pay program;

• HB 3168 by Rep. Callegari was an omnibus bill to achieve a variety of cost saving proposals, including the same provisions to abolish longevity pay that were contained in HB 2954. (The language regarding longevity pay was eventually removed from HB 3168, but language regarding employee furloughs was added.); and

• An amendment to SB 1811 offered by Senator Nelson would have suspended longevity pay for the next biennium.

There were other efforts in the House and the Senate to impose salary reductions on state employees. In the House, an amendment by Rep. Paxton to reduce pay by 5 percent for employees earning more than $60,000 was withdrawn after Rep. Larry Gonzales led efforts to oppose this provision. In the Senate, two amendments were offered to SB 1811 that would have required salary reductions for more highly paid employees. These amendments by Senator Nelson and Senator Patrick were both voted down.

TPEA was so concerned about the potential impact of reductions in pay and other benefits that we carried out a large-scale survey to determine how employees might respond. Respondents made it clear that many would retire or otherwise leave state jobs if certain reductions were made. TPEA used these results and accompanying press reports to provide a strong cautionary note to legislators that such cuts, singly or cumulatively, could create large actuarial costs for the retirement fund or cause a large exodus of experienced employees.

Potential Threats Remain During Special Session

TPEA is continuing to monitor developments during the current Special Session. HB 1 treats state employees and retirees fairly and avoids the punitive approaches that TPEA opposed, but there may be other attempts to revisit these issues.

ERS Board Election and Proposed Insurance Rates

TPEA congratulates Brian Ragland for his election to the ERS Board of Trustees, which was certified on May 3. Brian carried over 50 percent of the votes, although no runoff would have been required under new ERS rules. ERS has also posted preliminary insurance premium rates for HealthSelect and participating HMOs, as well as rates for optional coverages.

Continue to Stay Informed by Signing Up Now

Due to legislative restrictions, TPEA cannot send full advocacy information to state email addresses. In order to continue to stay up to date about the latest developments in legislation affecting state employees and retirees during the 2011 session, go to http://www.tpea.org and sign up with your home email address now, if you haven't already. You can also follow our twitter feed.

Follow this link to submit your home email address to TPEA.