Eliminate Partial Per Diem Allowances

The state should eliminate partial per diem allowances for employees traveling on state business.


Background
In Breaking the Mold, the Texas Performance Review (TPR) recommended that the state s Travel Act be amended to prohibit the payment of partial per diem. 1 Currently, state agencies have discretion under the Travel Regulations Act of 1959 to reimburse employees for their meal expenses if an employee travels away from his or her designated headquarters for at least six consecutive hours, even when the travel is not overnight; such reimbursements are known as partial per diem. 2

TPR recommended elimin ating partial per diem because of a recent Internal Revenue Service (IRS) requirement that such payments be considered gross income. This means that partial per diem payments are subject to income tax withholding, Social Security (FICA) contributions and F ICA matching payments by the state. In addition, the IRS has begun assessing penalties for non-compliance with this requirement.

Although TPR s original recommendation was not enacted by the Legislature, many agencies have voluntarily adopted policies to reduce partial per diem payments and thus limit their administrative expenses. The following agencies accounted for more than 15 percent of total state partial per diem spending in 1990, but just 2 percent in 1992. These agencies reduced their partial per diem expenditures by 90 percent over the two-year period.

Agency FY 1990 FY 1992

Comptroller s Office $ 88,000 $ 6,000
General Land Office 67,700 115
Commission for the Blind 29,300 35
Rehabilitation Commission 83,200 22,500
Department of Banking 82,300 20
Department of Licensing and Regulation 30,200 900
Department of Insurance 35,400 3,200
Agriculture Extension Service 59,300 58
Water Commission 89,600 12,800
TDCJ-BD Pardons and Paroles Division 140,300 26,000
Texas Education Agency 25,000 7,300
Texas State Technical College 27,200 0

Total $ 757,500 $ 78,928

However, other agencies either have increased or only marginally reduced partial per diem payments. In all, the state s expenditures for partial per diem totalled $3.6 million in fiscal 1992, down from $5 million in fiscal 1990. 3

The Attorney General, Department of Human Services, Department of Public Safety, Department of Health, Department of Mental Health and Mental Retardation, Texas Department of Criminal Justice Institutional Division and Parks and Wildlife Department account ed for almost 94 percent of the state s fiscal 1992 partial per diem expenditures, up from 74 percent in fiscal 1990. Collectively, these agencies have reduced their partial per diem expenditures by only 9 percent.

The Department of Human Services alone paid $1.1 million in partial per diem in fiscal 1992, about the same as in fiscal 1990; in all, the agency s fiscal 1992 payments accounted for more than 30 percent of the total state s partial per diem expenditures. 4

Agency FY 1990 FY 1992

Attorney General s Office $ 144,700 $ 163,300
Department of Human Services 1,111,000 1,105,000
Department of Public Safety 953,400 634,600
Department of Health 454,100 443,400
Department of MHMR 241,200 330,700
TDCJ Institutional Division 45,500 117,500
Parks and Wildlife Department 781,400 617,800

Total $3,731,300 $3,411,700


Recommendation
The Legislature should amend the Travel Regulations Act of 1959 to prohibit the payment of per diem unless an employee is traveling overnight.

The elimination of partial per diem payments will save state funds through both direct savings and indirect savings due to reduced voucher processing and avoidance of IRS penalties.


Implications
Most partial per diem payments are made to Department of Human Services caseworkers, Department of Public Safety troopers and Parks and Wildlife game wardens. These individuals and others who regularly receive partial per diem payments may oppose the elimi nation of these payments on the grounds that it would constitute a reduction in their salaries. Even so, partial per diem produces unnecessary costs for the state, particularly in view of the new federal tax reporting requirements.

Partial per diem payments made up only a tenth of a percent of the total expenditures of the Departments of Health, Mental Health and Mental Retardation, Public Safety and Parks and Wildlife in fiscal 1992. The payments comprised less than a fiftieth of 1 percent of the total expenditures of the Department of Human Services. Therefore, elimination of partial per diem payments will have no significant affect on these agencies missions.


Fiscal Impact
In Breaking the Mold, TPR estimated that elimination of partial per diem could save the state $6.4 million in fiscal 1991 through reduced preparation and processing costs for travel vouchers. 5 Since the total amount of partial per diem payments has fallen, TPR now estimates total cost savings of close to $4 million for fiscal 1994.

While the amount of partial per diem payments has fallen, agencies that have continued to make relatively high payments are experiencing rapid employment growth. Therefore, TPR estimates that partial per diem payments and the associated costs will probably rise in the future if they are not eliminated. Direct cost savings due to the implementation of this proposal are estimated at $3.9 million annually, based on expenditures in fiscal 1992.

This amount includes the eliminated partial per diem and an associated reduction in the state s FICA payments; the FICA savings are included in the savings to the specific funds.
Per Diem Savings to Specific State Funds

Savings to
Savings to Savings to Savings to Savings to All Other
General Savings to Game Welfare Federal Dedicated
Fiscal Revenue Highway and Fish Operating Health Accounts Total Change
Year Fund 001 Fund 006 Account 009 Account 166 Account 273 or Funds 6 Savings in FTEs

1994 $1,000,000 $580,000 $590,000 $1,180,000 $270,000 $260,000 $3,880,000 0
1995 1,000,000 580,000 590,000 1,180,000 270,000 260,000 3,880,000 0 1996 1,000,000 580,000 590,000 1,180,000 270,000 260,000 3,880,000 0 1997 1,000,000 580,000 590,000 1,180,000 270,000 260,000 3,880,000 0 1998 1,000,000 580,000 590,000 1,180,000 270,000 260,000 3,880,000 0




Endnotes
1 Comptroller of Public Accounts, Breaking the Mold, Vol. 2 (Austin, Texas, July 1991), PS 21, pp. 71-73.
2 Vernon s Ann. Civ. St. art. 6823a.
3 Comptroller of Public Accounts, Analysis of Expenditures Using Object 7103 and 7107 During Fiscal Year 1992 (Austin, Texas, October 5, 1992) (computer printout).
4 Ibid.
5 Comptroller of Public Accounts, Breaking the Mold, Vol. 2 (Austin, Texas, July 1991), PS 21 pp. 72-73.
6 Account or Fund # s: 011, 026, 027, 029, 036, 040, 047, 055, 061, 062, 064, 071, 076, 086, 099, 100, 102, 109, 112, 114, 116, 118, 127, 129, 134, 136, 137, 138, 139, 141, 148, 151, 153, 156, 158, 160, 165, 222, 223, 224, 225, 226, 235, 253, 256, 259, 262, 264, 268, 273, 274, 408, 421, 449, 451, 467, 469, 470, 487, 501, 512, 517, 519, 522, 523, 524, 541, 549, 550, 551, 554, 562, 570, 581, 583, 596, 597, 623, 628, 635, 637, 640, 643, 655, 695, 707, 955, 960, 973 and 989. Sour ce: Comptroller of Public Accounts, Analysis of Expenditures Using Object 7103 and 7107 During Fiscal Year 1992, October 5, 1992 (computer printout).