Just Who or What is Paying for HB21 and HB30?

18th Aug 2017

The Special Session of the Legislature passed two related pieces of legislation with big price tags. HB21 seeks to address a number of issues in public education and teacher health care by creating a grant program for fiscal years 2018 and 2019 to provide transition aid for school district financial hardship. Under the bill, grant awards would be provided according to a specified formula to districts and charters meeting certain eligibility criteria.  It further addresses shortfalls in the Teacher Retirement System.

Specifically, the bill provides:

  • Beginning in fiscal year 2019, the bill provides additional state aid to charter schools with an acceptable performance rating equal to the guaranteed level of state and local funds per cent of tax effort under Section 46.032(a) of the Education Code multiplied by a rate equal to the lesser of the state average interest and sinking fund tax rate imposed by school districts or the rate that would result in total entitlement of $60 million per year.
  • Beginning in fiscal year 2019, the bill would increase the guaranteed yield for the FSP Existing Debt Allotment for school districts each year to the lesser of $40 or the amount that would result in a $60 million increase in state aid from the level of state aid provided by a yield of $35.
  • An amendment to the small district adjustment applied to the basic allotment for districts with boundaries encompassing less than 300 square miles. Beginning in fiscal year 2019, the bill increases the small district adjustment for these districts each year through fiscal year 2024 until the adjustment is equal to the level currently provided for small districts encompassing 300 or more square miles. The adjustment’s effect on charter school funding would be limited to the level provided in FY18.
  • The creation of two programs: one to provide grants for innovative services to students with autism and a second to provide innovative services to students with dyslexia.
  • Funding to the Teacher Retirement System of Texas (TRS) to be used to provide support to participants in the Texas Public School Employees Group Insurance Program (TRS-Care) by:

1) reducing costs for participants, including premiums, deductibles, and prescription drugs, during the 2018 and 2019 plan years; and

2) reducing the premium and maximum out-of-pocket cost for an enrolled adult child with a mental disability or a physical incapacity during the 2018 and 2019 plan years.

To pay for this, the bill would transfer from the Health and Human Services Commission (HHSC) $351 million in General Revenue appropriations made by Senate Bill 1, Eighty-fifth Legislature, Regular Session, for the 2018-19 biennium to the Texas Education Agency.  This amount would be dispersed as follows:

  • $150 million to fund financial hardship grants
  • $60 million to fund payments to open enrollment charter schools
  • $60 million to support the existing debt allotment
  • $41 million to fund the increase in the small district adjustment
  • $40 million to fund the grant programs for services to students with autism and dyslexia.

The bill provides the strong implication that funding for this section would come from deferring payment in 2018 to managed care organizations, to 2019.  It further specifies that in the event that the transfer is accomplished by delaying payments that are due to managed care organizations in August 2019, the bill would require the Commission to provide those payments as soon as possible from available appropriations in the following biennium.

The bill would further transfer from the Health and Human Services Commission $212 million in General Revenue appropriations made by Senate Bill 1, 85th Legislature, Regular Session, for the 2018-19 biennium to the Teacher Retirement System of Texas (TRS) for the purposes described above.

Under this section, “HHSC is granted authority with respect to the strategies and programs from which the funds would be transferred, and depending on the approach adopted by HHSC to execute the transfer, there could be an additional cost to supplemental appropriations in fiscal year 2019 and certain other methods of finance, including Federal Funds, could be affected.”

The Legislative Budget Board (LBB) reports that under this provision also, there could be an additional General Revenue cost to supplemental appropriations in fiscal year 2019 and certain other methods of finance, including Federal Funds, could be affected depending on the approach adopted by the Health and Human Services Commission to execute the transfer as directed in the legislation.

While the bill breaks out the two sections, they show the full $563,000,000 coming from general revenue at HHSC.

Again, the bill would require the Commission to provide those payments as soon as possible from available appropriations in the following biennium.  As soon as possible is not defined anywhere.  It is highly conceivable that the funding would be available September 1, 2019 which would be the first day of the following biennium.

With regard to HB30, it is instruction on the method of finance used in HB21.  The bill confirms the transfers from the Health and Human Services Commission (HHSC) specified in HB21.

It is not explicitly stated where the funding for HB21 is coming from but the assumption can be made that the full $563 million would be coming from Medicaid.  This is because of the language the LBB uses in their fiscal notes suggests the loss of matching federal funds.  In addition, an amount of this magnitude has few other funding options.  LBB also assumes the real possibility that a supplemental appropriation will be made available to fund both sections of the bill.

The hit to Medicaid by the Legislature is already close to $8 billion in all funds when you include these bills.  If CHIP reauthorization does not go well in Washington then that could balloon to $9 billion as the Legislature assumed a very favorable matching rate for CHIP that may not be realized.

This is the largest shortfall in Medicaid history…ever.  The language in the bill is clear that HHSC will foot the bill for HB21, use of Medicaid or not, this leaves a giant hole in appropriations to HHSC.  It will take a significant change in the path state revenue is currently taking, at this point (significant increase in sales tax collections and other sources), to cover this great a “hot check”.  The Comptroller reports that right now revenue is slightly improved over this time last year but what is unsaid is that revenue really needs to continue on this path if there will be sufficient to cover the supplemental need already established and the future needs of the appropriations bill for 2019-2020.  If revenues are not sufficient then the state will be looking at tough choices that will have to include reducing services to fit the available revenue in 2019-20.

Texas Insight will be carefully tracking expenditures at HHS.  But in addition, we will also be tracking the revenue situation because there are two sides to this equation that must balance…  And right now things are seriously out of whack.

Thomas Valentine

Texas Insight