LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 82ND LEGISLATIVE REGULAR SESSION April 26, 2011 TO: Honorable Bill Callegari, Chair, House Committee on Government Efficiency & Reform FROM: John S O'Brien, Director, Legislative Budget Board IN RE:HB2954 by Cain (Relating to eliminating longevity pay for state employees and judicial officers and authorizing merit pay for certain state employees.), As Introduced Estimated Two-year Net Impact to General Revenue Related Funds for HB2954, As Introduced: a positive impact of $202,222,048 through the biennium ending August 31, 2013. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 82ND LEGISLATIVE REGULAR SESSION
April 26, 2011
TO: Honorable Bill Callegari, Chair, House Committee on Government Efficiency & Reform FROM: John S O'Brien, Director, Legislative Budget Board IN RE:HB2954 by Cain (Relating to eliminating longevity pay for state employees and judicial officers and authorizing merit pay for certain state employees.), As Introduced
TO: Honorable Bill Callegari, Chair, House Committee on Government Efficiency & Reform
FROM: John S O'Brien, Director, Legislative Budget Board
IN RE: HB2954 by Cain (Relating to eliminating longevity pay for state employees and judicial officers and authorizing merit pay for certain state employees.), As Introduced
Honorable Bill Callegari, Chair, House Committee on Government Efficiency & Reform
Honorable Bill Callegari, Chair, House Committee on Government Efficiency & Reform
John S O'Brien, Director, Legislative Budget Board
John S O'Brien, Director, Legislative Budget Board
HB2954 by Cain (Relating to eliminating longevity pay for state employees and judicial officers and authorizing merit pay for certain state employees.), As Introduced
HB2954 by Cain (Relating to eliminating longevity pay for state employees and judicial officers and authorizing merit pay for certain state employees.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB2954, As Introduced: a positive impact of $202,222,048 through the biennium ending August 31, 2013. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
Estimated Two-year Net Impact to General Revenue Related Funds for HB2954, As Introduced: a positive impact of $202,222,048 through the biennium ending August 31, 2013.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
General Revenue-Related Funds, Five-Year Impact: Fiscal Year Probable Net Positive/(Negative) Impact to General Revenue Related Funds 2012 $101,111,024 2013 $101,111,024 2014 $101,111,024 2015 $101,111,024 2016 $101,111,024
2012 $101,111,024
2013 $101,111,024
2014 $101,111,024
2015 $101,111,024
2016 $101,111,024
All Funds, Five-Year Impact: Fiscal Year Probable Savings/(Cost) fromGeneral Revenue Fund1 Probable Savings/(Cost) fromGR Dedicated Accounts994 Probable Savings/(Cost) fromFederal Funds555 Probable Savings/(Cost) fromOther Funds997 2012 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2013 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2014 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2015 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2016 $101,111,024 $12,457,594 $16,700,545 $19,224,495
Fiscal Year Probable Savings/(Cost) fromGeneral Revenue Fund1 Probable Savings/(Cost) fromGR Dedicated Accounts994 Probable Savings/(Cost) fromFederal Funds555 Probable Savings/(Cost) fromOther Funds997 2012 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2013 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2014 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2015 $101,111,024 $12,457,594 $16,700,545 $19,224,495 2016 $101,111,024 $12,457,594 $16,700,545 $19,224,495
2012 $101,111,024 $12,457,594 $16,700,545 $19,224,495
2013 $101,111,024 $12,457,594 $16,700,545 $19,224,495
2014 $101,111,024 $12,457,594 $16,700,545 $19,224,495
2015 $101,111,024 $12,457,594 $16,700,545 $19,224,495
2016 $101,111,024 $12,457,594 $16,700,545 $19,224,495
Fiscal Analysis
The bill would eliminate longevity pay for state employees and create a second merit pay program. The bill would require each state agency to adopt a merit pay policy and restrict appropriations for merit pay to not more than an amount equal to $200 times the number of full-time employees authorized in the General Appropriations Act. The bill provides for the distribution of merit pay within a state agency and repeals provisions related to longevity pay for state judges and justices. The provisions of the bill would apply beginning with the first full pay period on or after September 1, 2011.
The bill would eliminate longevity pay for state employees and create a second merit pay program. The bill would require each state agency to adopt a merit pay policy and restrict appropriations for merit pay to not more than an amount equal to $200 times the number of full-time employees authorized in the General Appropriations Act. The bill provides for the distribution of merit pay within a state agency and repeals provisions related to longevity pay for state judges and justices.
The provisions of the bill would apply beginning with the first full pay period on or after September 1, 2011.
Methodology
It is estimated that replacing longevity pay with the merit pay program created in the bill would result in a savings of $149.5 million in All Funds each year, including employee benefits. Under current statute, certain full-time state and higher education employees are eligible for longevity pay based on years of service. Eligible employees receive $20 a month in longevity pay once they reach two years of service with the state and the amount increases by $20 every two years, up to a maximum of $420 a month at 42 years of state service. In fiscal year 2010, the states longevity pay expenditure was $163.2 million in All Funds. State agencies subject to the provisions of the bill paid an average of $9.2 million a month for longevity pay in the first half of fiscal year 2011, and the annual expenditure for state agency longevity pay for fiscal year 2011 is estimated to be $110.7 million. The bill would cap the fiscal year appropriation for merit pay each agency receives at $200 times the number of full-time employees (FTE) authorized in the General Appropriations Act (GAA). Based on FTE caps in the GAA in fiscal year 2011, state agency appropriations for merit pay would have been $31.7 million. For state agencies, the difference between the longevity pay estimated to be expended in fiscal year 2011 and the amount of merit pay that would have been authorized by the provisions of the bill is $79.0 million in All Funds each year. Institutions of higher education would no longer have the authority to pay longevity pay to eligible employees; however, it is unclear if employees at institutions of higher education who receive longevity pay would become eligible for the merit pay created by the bill. This analysis assumes that institutions of higher education would not receive an appropriation for the merit pay created by the bill; therefore, the reduction in longevity pay to employees at institutions of higher education is estimated to be $52.5 million in All Funds each year. The total reduction in pay to state employees currently receiving longevity pay would vary based on salary and years of service. The average state employee earns $39,265 per year in salary and $960 per year in longevity pay. Eliminating longevity pay would result in a 2.4 percent reduction in pay to the average employee. However, 22.1 percent of employees would experience between a 5 and 10 percent reduction in pay and 3.8 percent of employees would experience more than a 10 percent reduction in pay. Some eligible employees may receive future merit increases provided for in the bill to offset the reduction in pay. The bills provisions may also limit agencies authority to make merit payments already established in Government Code, Section 659.255, Merit Salary Increases; One-Time Merit Payments. Longevity pay is paid from each agencys budget for salary and is not a separate appropriation. It is assumed that state agencies and institutions of higher education would retain the funds currently used to pay longevity pay. The bill would retroactively remove longevity pay from the annuity calculation for Employee Retirement System (ERS) retirees, even though prior state and member contributions to ERS have included longevity pay as part of base pay. Active employees who are currently eligible to retire may choose to retire before the provisions of the bill take effect to avoid a reduction in their retirement annuities. An increase in retirements would cause an immediate actuarial impact to the fund, estimated to be a loss of $160 million. In the long run, some of the costs could be mitigated by savings from lower retirement annuities, but such savings would not be recognized by the fund until at least the next experience study.
It is estimated that replacing longevity pay with the merit pay program created in the bill would result in a savings of $149.5 million in All Funds each year, including employee benefits. Under current statute, certain full-time state and higher education employees are eligible for longevity pay based on years of service. Eligible employees receive $20 a month in longevity pay once they reach two years of service with the state and the amount increases by $20 every two years, up to a maximum of $420 a month at 42 years of state service. In fiscal year 2010, the states longevity pay expenditure was $163.2 million in All Funds.
State agencies subject to the provisions of the bill paid an average of $9.2 million a month for longevity pay in the first half of fiscal year 2011, and the annual expenditure for state agency longevity pay for fiscal year 2011 is estimated to be $110.7 million. The bill would cap the fiscal year appropriation for merit pay each agency receives at $200 times the number of full-time employees (FTE) authorized in the General Appropriations Act (GAA). Based on FTE caps in the GAA in fiscal year 2011, state agency appropriations for merit pay would have been $31.7 million. For state agencies, the difference between the longevity pay estimated to be expended in fiscal year 2011 and the amount of merit pay that would have been authorized by the provisions of the bill is $79.0 million in All Funds each year.
Institutions of higher education would no longer have the authority to pay longevity pay to eligible employees; however, it is unclear if employees at institutions of higher education who receive longevity pay would become eligible for the merit pay created by the bill. This analysis assumes that institutions of higher education would not receive an appropriation for the merit pay created by the bill; therefore, the reduction in longevity pay to employees at institutions of higher education is estimated to be $52.5 million in All Funds each year.
The total reduction in pay to state employees currently receiving longevity pay would vary based on salary and years of service. The average state employee earns $39,265 per year in salary and $960 per year in longevity pay. Eliminating longevity pay would result in a 2.4 percent reduction in pay to the average employee. However, 22.1 percent of employees would experience between a 5 and 10 percent reduction in pay and 3.8 percent of employees would experience more than a 10 percent reduction in pay. Some eligible employees may receive future merit increases provided for in the bill to offset the reduction in pay. The bills provisions may also limit agencies authority to make merit payments already established in Government Code, Section 659.255, Merit Salary Increases; One-Time Merit Payments.
Longevity pay is paid from each agencys budget for salary and is not a separate appropriation. It is assumed that state agencies and institutions of higher education would retain the funds currently used to pay longevity pay. The bill would retroactively remove longevity pay from the annuity calculation for Employee Retirement System (ERS) retirees, even though prior state and member contributions to ERS have included longevity pay as part of base pay. Active employees who are currently eligible to retire may choose to retire before the provisions of the bill take effect to avoid a reduction in their retirement annuities. An increase in retirements would cause an immediate actuarial impact to the fund, estimated to be a loss of $160 million. In the long run, some of the costs could be mitigated by savings from lower retirement annuities, but such savings would not be recognized by the fund until at least the next experience study.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies: 304 Comptroller of Public Accounts, 327 Employees Retirement System, 308 State Auditor's Office, 320 Texas Workforce Commission, 601 Department of Transportation, 771 School for the Blind and Visually Impaired, 772 School for the Deaf, 781 Higher Education Coordinating Board
304 Comptroller of Public Accounts, 327 Employees Retirement System, 308 State Auditor's Office, 320 Texas Workforce Commission, 601 Department of Transportation, 771 School for the Blind and Visually Impaired, 772 School for the Deaf, 781 Higher Education Coordinating Board
LBB Staff: JOB, KM, SD, DH, JI, KY
JOB, KM, SD, DH, JI, KY