Delay Teacher Retirement System Contributions

The Legislature should delay the state s last quarterly payment to the Teacher Retirement System in fiscal 1995.


Background
In 1989, the Legislature enacted H.B. 1279, which made various one-time bookkeeping changes to create a revenue gain at the end of fiscal 1991. Included was a delay in the state s quarterly payment to the Teacher Retirement System (TRS). However, the payment was not delayed since the state s financial situation improved, eliminating the need for the measure.

Again in 1991, the state faced a demand for funds that exceeded available revenues. The Legislature, based on TPR s Breaking the Mold recommendation, enacted another accounting measure delaying a quarterly TRS payment. 1 The state is scheduled to repay TRS $234.9 million in fiscal 1994 for this delay.


Recommendation
The Legislature should delay the last quarterly payment to the Teacher Retirement System for fiscal 1995.

Repayment should be made in fiscal 1996; 8 percent interest on lost income that would have otherwise been earned by the system should be paid in fiscal 1995.


Implications
Delaying fiscal 1995 contributions to TRS will result in a direct gain to the General Revenue Fund, freeing up state resources for other critical programs. TRS will not be affected because the state will reimburse the system for lost investment earnings re sulting from the delay.


Fiscal Impact
This estimate assumes a TRS contribution rate of 8 percent, based on current law. If the contribution rate is reduced to 7.25 percent (as recommended elsewhere in this report), the gain in fiscal 1995 would be $252.3 million, less interest payments of $1.9 million that would have otherwise been earned by the system.

Fiscal Gain/(Loss) to the Change
Year General Revenue Fund 001 in FTEs

1994 0 0
1995 $ 277,100,000 0
1996 (279,200,000) 0
1997 0 0
1998 0 0



Endnotes
1 Texas Performance Review, Breaking the Mold: New Ways to Govern Texas, Volume II, Part II (Austin, Texas, July 1991), p. CG199.