Collect Debt Due to the General Revenue Fund from the American Educational Complex College

Texas should collect the long-standing debt owed to the General Revenue Fund from the American Educational Complex College.

In 1979, state law (Section 825.406 of the Government Code) began requiring agencies to reimburse the state for benefit contributions made for employees whose salaries are funded partly or entirely by federal aid, private grants or other non-state sources. The statute says: (a) If an employer applies for money provided by the United States, an agency of the United States, or a privately sponsored source, and if any of the money will pay part or all of an employee s salary, the employer shall apply for any legally available money to pay state contributions required by Section 825.404 or 830.201. 1

Retirement plans are provided to the employees of public colleges and universities by the Teacher Retirement System of Texas (TRS) and the Optional Retirement Program (ORP). Employees contribut ions to either program are made through deductions from their salaries. The state makes a matching contribution from general revenue for each eligible employee. Agencies must then reimburse the state for the retirement benefit matching contribution for emp loyee salaries paid from other funding source or sources. (Prior to 1979, the state made its full matching contribution regardless of the source of funds used to pay the salary.)

TRS relies solely on the educational institutions for information on salarie s paid with federal and private funds and related matching contributions to state retirement plans made by these sources. Institutions submit reports certifying that they are correct; however, TRS does not routinely audit these reports.

During 1988, TRS learned that one institution, the American Educational Complex College (AECC), had been using federal funds to supplement employee salaries, some of which had not been reported to TRS. AECC is centered in the Central Texas College District in Killeen. In a ddition to its traditional community college curriculum, AECC provides educational services around the world through contracts with branches of the military services; generally, these contracts involve federal funds.

In AECC s case, the state s matching payments for retirement benefits had been made for its employees based on AECC s erroneous reporting of the mix of state and non-state money in their salaries. Upon examining reports requested from AECC for the 1979-88 period, TRS determined the institution owed the state $3.8 million in reimbursement for excess matching contributions made from the General Revenue Fund.

TRS was unable to determine whether reimbursements were due for ORP because of contradictory reports from the college concerning this program. 2 Information provided by AECC explained the apparent contradiction by stating it has few ORP members among its employees whose salaries are paid from federal funds.

AECC contends the reimbursement is not owed based on the wording of Section 825.406, but has not requested an Attorney General s opinion. 3 However, in September 1988, the college began submitting all reports and payments required by Section 825.406 for current salaries. In its fiscal 1991 financial statement, the college asserted that no violation of Section 825.406 occurred and its payments for fiscal 1989 through 1991 demonstrated its willingness to comply with TRS s interpretation of Section 825.406. Notes to the financial statement disclosed that AECC made payments to the General Revenu e Fund of about $1.3 million in fiscal 1989 and 1990 for matching retirement contributions from other funding sources; during the year ending August 31, 1991, AECC remitted approximately $474,300. 4 Because the amount is relatively small, the Office of the Attorney General has decided not to pursue any collection action on the $3.8 million owed for the 1979-88 period.

General revenue appropriations to the American Educational Complex College (AECC) should be reduced over four years to recoup the unreimbursed matching retirement contributions made by general revenue for employees paid from federal contracts.

This reduction should be accomplished by an addition of a line item to AECC s appropriation that reduces the formula-derived appropriation. The line item could be entitled Repayment of Matching Retirement Contributions and would reduce the appropriation by $950,000 for each of the fiscal years 1994 through 1997.

Collection of this debt would indicate to other state agencies and educational institutions that accurate reporting of salaries paid from federal and private sources is required.

A disadvantage of this recommendation is the reduction in appropriations to the college district in which AECC resides. The appropriation to the college district for 1992-93 was $22.2 million. The $3.8 million debt due to the General Revenue Fund r epresents 17 percent of its biennial appropriation from general revenue. However, the recommended annual reduction in appropriation represents only 1.8 percent of the institution s total current funds revenue (excluding auxiliary enterprises) for fiscal 1991. 5 In addition, AECC reported unrestricted fund balances of $6.3 million in its current funds at the end of fiscal 1991. 6

Some notice might be necessary for the college district to adjust its budgeted revenues to accommodate a reduction in appropriations, but it appears that AECC could reimburse the General Revenue Fund without threat to its fiscal health.

Precedents for recovering debts to the General Revenue Fund exist within Article III of the 1990-91 General Appropriations Act. Appropriations to Texas Southern University were reduced $500,000 in each fiscal year due to a debt from Auxiliary Funds to Edu cational and General Funds. 7 Moreover, appropriations to The University of Texas at Austin were reduced by $612,500 8 and to the University of Houston-University Park by $125,000 9 in fiscal 1990 and 1991 to pay for staff group insurance premiums.

Fiscal Impact
If AECC s debt were recouped annually over four years by reducing the formula-derived appropriation to the college district by $950,000 each year, general revenue savings would total $3.8 million over the next five years.

Fiscal Savings to the Change in
Year General Revenue Fund 001 FTEs

1994 $ 950,000 0
1995 950,000 0
1996 950,000 0
1997 950,000 0
1998 0 0

Total $3,800,000 0

1 Gov. Code Ann. Sec. 825.406 (Vernon 1990).
2 Teacher Retirement System of Texas, Report on Alleged Underpayment of State Retirement Contribution Reimbursements by the American Educational Complex (Austin, Texas, May 2, 1989), p. 5.
3 Telephone interview with Carey Smith, Tort Litigation Division, Office of the Attorney General, Austin, Texas, November 17, 1992.
4 American Educational Complex College District, Financial Statements (Killeen, Texas, August 31, 1991), p. 24.
5 Ibid., p 9.
6 Ibid., p 3.
7 State of Texas, General Appropriations Act (Austin, Texas, 1991), pp. III-107.
8 Ibid., p. III-59.
9 Ibid., p. III-94.