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Legislature adopts proposals worth more than $1.3 billion
E-Texas: education, excellence, efficiency, effectiveness

Comptroller Carole Keeton Strayhorn's e-Texas performance review released an unprecedented two reports for the 2003 Legislature. The first, Limited Government, Unlimited Opportunity, appeared in January 2003 and offered 64 major proposals. A follow-up report in April added 27 more. These 91 recommendations were designed to protect the state's fiscal solvency while maintaining and improving essential state services.

The reports offered $5.7 billion in potential revenue gains and savings for state government, including nearly $3.5 billion in general revenue over the next two years.

"In the regular session, the Legislature enacted 61 e-Texas proposals worth a combined $1.3 billion in general revenue savings and gains," Comptroller Strayhorn said. "But lawmakers left $2.1 billion more in general revenue on the table. The proposals not enacted would have created new economic engines for our state while reducing homeowners' property taxes and would have provided new education dollars for our most precious resource, our children. And they would have helped address the needs of our most vulnerable Texans--the frail elderly, Texans with disabilities and children who need health care.

"I'd rather spend $500 immunizing a child than $6,700 hospitalizing that child," said Strayhorn. "Texas is great, but we can do better."

Education
The 2003 e-Texas reports provided 24 proposals to improve the state's finances and the administration of public schools and institutions of higher education. The Legislature acted on 11 of these, garnering $167 million in additional general revenue for the next biennium.

One proposal that has become law requires the commissioner of education to "reconstitute" any public school rated by the Texas Education Agency (TEA) as low-performing for two consecutive years due to low test scores. Reconstitution requires school administrators and teachers to resign and reapply for their jobs, a necessary step that allows districts to make sweeping changes quickly. E-Texas cites many occasions when reconstitution improved student performance at troubled campuses.

E-Texas also recommended measures to give Texas' colleges and universities greater budget flexibility to adapt to changing economic circumstances and compete for talented students and faculty and outside funding. The Legislature responded by deregulating in-state tuition rates. Texas public colleges and universities will be able to set their own pricing strategies, varying tuition charges to reflect factors such as program quality and demand for courses.

Another new bill inspired by e-Texas will improve financial incentives already offered to Texas high school students to graduate from high school within 36 months. Early Graduation Scholarships previously offered $1,000 in college tuition to eligible students; that amount will increase to $2,000, and school districts will receive payments of $250 to $1,000 for each participating student. These changes should increase participation, thus reducing the state's payments toward these students' educations and saving $2.9 million over the biennium.

Two other successful proposals concern the administration of the state's Permanent School Fund (PSF), which provides some state funding for public education. One calls for no longer contracting with external fund managers to manage the PSF. Transferring most of these responsibilities to TEA managers should save the state $30.3 million over the next biennium. Another would shift management of the PSF to a so-called total return basis, which should allow the fund to generate nearly $83.1 million in additional revenue during the next two years.

General Government
The 2003 e-Texas reports offered 43 proposals affecting general governmental functions, most of them offering significant improvements in efficiency. The Legislature adopted 28, gaining general revenue savings and other gains of about $524 million for the next biennium.

Prominent among these was the Legislature's decision to consolidate 12 of the state's health and human services agencies into five, producing a $9.1 million savings for the biennium. Similarly, lawmakers abolished the Texas Department of Economic Development, transferring its duties to the Office of the Governor. This move should save $3.6 million over 2004-05. A line-item governor's veto in the appropriations bill eliminated the State Aircraft Pooling Board. The sale of the board's 11 aircraft could bring in $7.5 million.

State government owns millions of acres of land. Most of this land generates income that supports Texas' Permanent School Fund and Permanent University Fund, but state agencies also own sizeable tracts. The General Land Office says tens of thousands of acres of such agency lands are underused or not used at all.

Many agencies, moreover, have been slow in finalizing sales of underused property, even though some of these sales were approved by the Governor's Office as long ago as 1995. In 2004-05, several state agencies must complete all pending real property sales. Their budgets for those two years will be reduced by the estimated value of the transactions, which will save the state nearly $42.8 million in general revenue.

Several successful e-Texas proposals targeted state employment. One required state agencies to reach a 1:11 manager/staff ratio by 2007. This should save the state nearly $8.4 million over 2004-05.

E-Texas also recommended requiring larger state agencies to adjust human resources staffing to a 1:100 ratio. The Legislature passed the bill requiring a 1:85 ratio instead. The new law should save an additional $4.6 million.

A new cash bonus encourages state employees to retire within their first month of eligibility. The state can offer lower salaries when refilling the vacated positions, resulting in savings of $21.1 million over the next biennium.

The Legislature also addressed state employee health insurance. Employee co-payments for doctor's office visits and visits to specialists will rise, and new state workers will have to wait 90 days from the date of employment to receive health insurance benefits. In all, these changes will save $121.1 million.

Another dollar-saver will delay Employees Retirement System (ERS) contributions for newly hired state workers for their first three months of employment, a move that will save the state $5.9 million in general revenue. And e-Texas recommended that volunteers who serve on state boards and commissions no longer receive state-paid insurance, as did about 500 prior to the new law. This change will save the state $3.1 million over the biennium.

One unique recommendation will allow Texas to join a multistate lottery. Nationwide lotteries, such as "Mega Millions" and "Powerball," build to enormous jackpots and are among the most popular modern games. Participation in a multistate lottery should raise $101 million in additional general revenue in the next two years.

Health and Human Services
Health and human services (HHS) represented Texas' single largest expense in 2001, accounting for more than a third of all state spending. HHS accounted for 24 e-Texas proposals. The Legislature enacted 22 of these, which will generate $658 million in additional general revenue for the biennium.

One huge HHS expenditure is Medicaid, the joint state-federal program that provides health care services for low-income Americans.

Federal law allows states to provide continuous Medicaid coverage for children for up to 12 months even if their parents' income rises above Medicaid eligibility levels. Texas currently provides such coverage for six months and had intended to begin covering the full 12 months by June 2003. Delaying this extension until the beginning of fiscal 2006, however, will save the state $282.3 million over the next two years.

The cost of drugs covered by Texas Medicaid has been rising 15 to 19 percent annually since 1999. Another successful e-Texas proposal will put into place a series of measures to control the upward spiral of this expense. Techniques such as the use of a pharmacy benefit manager to control state drug purchases, greater use of generic drugs and cost-effective brand-name products and a broader requirement for prior authorization for some expensive medicines covered by Medicaid, ERS and the Teacher Retirement System should help Texas save $146.8 million.

Disease management, or DM, is the umbrella term for a variety of health care assistance techniques and services that help people with chronic disease maintain and improve their health while reducing the frequency of hospitalizations and emergency room visits. E-Texas proposed using DM programs to help Medicaid patients with conditions such as heart disease, diabetes and respiratory illness; the new law should save the state about $8.6 million in general revenue over the biennium.

Medicaid also provides eligible Texans with nursing-home services. Although many nursing homes provide excellent service, present state and federal regulations have failed to prevent some substandard facilities from receiving Medicaid dollars. Now the state will prepare minimum quality standards that nursing homes must meet before facilities can contract with Medicaid.

Another state-federal program, the Children's Health Insurance Program (CHIP), pays for health insurance for children whose parents do not qualify for Medicaid and cannot afford private insurance. States may provide continuous coverage for CHIP kids for up to 12 months even if their parents no longer meet eligibility requirements. Shortening Texas' continuous eligibility period to six months will save the state another $76.1 million over the next biennium.

E-Texas also proposed a change to the Texas Insurance Code that could benefit the state's small businesses and employees. Thousands of small Texas employers cannot afford to purchase health insurance coverage for their workers. A new amendment to the code will encourage small employers to band together into alliances to purchase employee insurance at a manageable price and reduce the cost of state and local health care for the uninsured.

E-Texas Proposals Adopted by the 2003 Legislature in the Regular Session

The state budget adopted by the 2003 Legislature closed a spending gap estimated at $9.9 billion for the 2004-05 biennium without raising state taxes. The following 35 e-Texas proposals, of the 61 the Legislature enacted in the regular session, contributed more than $1.3 billion in general revenue to the final budget package.

Issue Estimated Gain to General Revenue, 2004-05
Education:
Increase incentives for students and schools to participate in the Early Graduation Scholarship Program. $2,884,000
Increase the efficiency of the Permanent School Fund; increase distributions to the Available School Fund. $83,090,000
Give public universities increased budget and funding flexibility. ($25,930,000)
Eliminate external managers for the Permanent School Fund. $30,307,000
Increase the flexibility of higher education funding. $76,201,000
Subtotal $166,552,000
General Government:
Reorganize energy and communications regulatory functions. $102,000
Consolidate health and human services agencies to reduce costs and improve service delivery. $9,105,000
Abolish the Texas Department of Economic Development. $3,632,000
Reduce the costs of state employee health insurance. $121,068,000
Reduce management costs in state government. $8,363,343
Reduce human resource management costs. $4,622,000
Use call centers to determine eligibility for human services programs; consider an Internet-based, combined application for human services programs. $20,705,000
Provide retirement incentives for state employees to reduce costs. $21,137,000
Use innovative asset management techniques for state real property. $42,750,000
Increase usage of online government services. $216,000
Increase lottery revenues. $101,500,000
Improve tax compliance and delinquent revenue collections with additional enforcement coverage. $83,416,000
Establish an amnesty program for all taxes administered by the Texas Comptroller of Public Accounts. $50,000,000
Increase tax compliance and state revenue through additional audit coverage. $23,000,000
Improve the efficiency of the state tax system. $20,000,000
Eliminate state-paid insurance for board and commission members. $3,100,000
Delay ERS eligibility for new hires. $5,932,000
Increase revenues from surplus property. $5,549,000
Subtotal $524,197,343
Health and Human Services:
Contract for quality nursing home care. $25,027,000
Use transportation brokers to improve the state's Medical Transportation Program. $4,299,000
Implement a disease management program for Medicaid patients. $8,583,000
Maintain the current period of Medicaid eligibility for children; postpone the implementation of expanded eligibility until fiscal 2006. $282,331,000
Improve purchasing of prescription drugs. $146,818,000
Increase third-party liability reimbursements for Medicaid. $18,927,000
Achieve greater savings in Medicaid managed care. $15,230,000
Ensure Texas' neediest children keep health insurance. $76,147,000
Prorate the state's supplement for new public school employees. $38,600,000
Require a probationary period for the state health insurance contribution for new university employees. $16,800,000
Require mandatory generic prescription substitution in the Employees Retirement System. $4,300,000
Enforce requirements that welfare recipients attempt to find work. $21,047,000
Subtotal $658,109,000
TOTAL FISCAL IMPACT, 2004-05 $1,348,858,343

NOTE: Numbers in parentheses represent costs.
SOURCE: Texas Comptroller of Public Accounts.

Bruce Wright