FY 2011-12 SUPPLEMENTAL S.B. 683: SUMMARY AS ENACTED
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Senate Bill 683 (as enacted) PUBLIC ACT 64 OF 2012 Sponsor: Senator Roger Kahn, M.D.
Committee: Appropriations
House Committee: Appropriations


Date Completed: 3-29-12

CONTENT
On October 27, 2011, the State Budget Office issued Supplemental Request 2012-6, which has been incorporated into Senate Bill 683. This is a fiscal year (FY) 2011-12 multidepartment supplemental bill implementing the portion of the overall budget target agreement reached in May 2011, that addressed other post-employment benefits (OPEB). OPEB refers to retiree health care, and other nonpension retiree benefits such as dental and vision coverage. The agreement reached by the Governor and legislative leaders during target negotiations that related to OPEB set aside $140.0 million in General Fund/General Purpose (GF/GP) money on the FY 2011-12 balance sheet, which, when combined with the $60.0 million GF/GP appropriated directly in the Department of Technology, Management, and Budget (DTMB) budget, was intended for beginning the process of prefunding retiree health care in the State Employees' Retirement System (SERS).


Before FY 2011-12, SERS paid for OPEB on a cash basis by charging departments a percentage of payroll reflecting estimated retiree medical, dental, and vision costs for the year, without any assets in reserve. Under a cash basis, the unfunded accrued liability for OPEB in SERS was estimated at $15.2 billion. However, beginning the process of prefunding retiree health care and other benefits for State employees, results in an estimated decline of nearly $6.0 billion in the unfunded accrued liability in SERS for OPEB, to $9.4 billion, which reflects assumed investment returns available if the State makes yearly payments at prefunding levels, and if market returns materialize at the assumed rate. If these assumptions hold true and the State appropriates the amount necessary to prefund each year for the next 26 years, then the unfunded liability will be paid off at that time, and State costs for retiree health care will drop to 2% of payroll.


Adjusted Gross appropriations (netting out interdepartmental grants) under Senate Bill 683 total $249.7 million. Of that total, the bill would appropriate $144.5 million GF/GP (of which $140.0 million has already been set aside on the FY 2011-12 balance sheet), along with $57.6 million Federal, $38.4 million State Restricted, $8.7 million local, and $0.4 million private, and distribute that funding across departments in order to pay for the increased costs associated with the first year of prefunding the SERS OPEB, which is more expensive in the short term than paying bills on a cash basis (on which the FY 2011-12 departmental budgets initially were based). In addition, the supplemental would distribute, across departments, $42.9 million of the $60.0 million already appropriated to the DTMB via interdepartmental grants. This translates to a 9.3% increase in retiree health care costs to be remitted by departments, above the amounts initially built into their budgets.


Senate Bill 683 incorporates all of the Executive recommendations found in Supplemental Request 2012-6 ($135.4 million GF/GP), and also includes $3.8 million GF/GP for the Legislative Retirement System (LRS) to mirror the prefunding done in the State


Employees' Retirement System. Doing so reduces the estimated unfunded liability from $139.4 million under a pay-as-you-go system to $96.5 million under a prefunded system.


The bill also includes $4.3 million GF/GP, spread among the Senate, Senate Fiscal Agency, House, House Fiscal Agency, and the office that administers the LRS, for the increased costs associated with a provision of House Bill 4701 (Public Act 264 of 2011) that requires the unfunded accrued liability in SERS to be spread among both the Defined Benefit (DB) and Defined Contribution (DC) payrolls, rather than just across the DB payroll. While this is anticipated to be addressed among all departments in the Governor's Recommendation for FY 2012-13, it is not anticipated to be addressed for the Legislature, and this piece of the supplemental is in lieu of what otherwise would be part of the overall adjustments. The statutory change to spread the liability over all payroll means that some departments that are "DB-heavy" will see reduced costs, while those that are "DC-heavy" will see increased costs, but, overall, it is a "zero-sum game" with no net increase or reduction in costs. The House and Senate experience high turnover due to the nature of legislative terms and therefore are "DC-heavy", prompting higher costs when spreading liability across all payrolls. However, since this is a "zero-sum game", there will be corresponding reductions in costs in other departments, which are anticipated to be addressed in the Governor's Recommendation for FY 2012-13.


Senate Bill 683 includes one final piece concerning the legislative budget, again related to retirement costs. In the current year, pension costs rose substantially above the FY 2010-11 rates and the bill would allocate $550,000 GF/GP to both the House and the Senate to make payments into SERS for the increased rates. A similar supplemental was enacted for the Legislative Service Bureau in Public Act 278 of 2011. Other Executive branch budgets already accounted for these increases in pension costs during the initial budget process. The table below summarizes the appropriations in Senate Bill 683.

Senate Bill 683 Appropriation Summary
 
Fund Source		 FY 2011-12 Appropriation
  Gross Appropriation $306,271,900
Less Interdepartmental Grants and Transfers 56,590,800
Adjusted Gross Appropriation $249,681,100
Financed From:
Federal Revenue $57,621,400
Local and Private Revenue 9,124,700
State Restricted Revenue 38,407,000
State GF/GP $144,528,000
FISCAL IMPACT
While the bill would appropriate Gross funding of $306.3 million, of which $144.5 million is GF/GP, Senate Bill 683 actually would appropriate $12.6 million GF/GP less than previously anticipated. As noted above, $140.0 million GF/GP was set aside on the FY 2011-12 balance sheet for prefunding OPEB and $60.0 million GF/GP was directly appropriated to the DTMB for this purpose, for combined GF/GP spending toward OPEB of $200.0 million. Under this bill, $144.5 million would be newly appropriated and $42.9 million of the DTMB's appropriation for OPEB would be distributed among departments, for total GF/GP OPEB and other retirement spending of $187.4 million (or $12.6 million less than original expectations). The following table lists OPEB appropriations by budget area.
Fiscal Analyst: Kathryn Summers


Senate Bill 683
OPEB Appropriations by Budget Area
Department/Budget Area Gross Appropriation Interdept. Grants Adjusted Gross Federal Funds Local and Private State Restricted GF/GP One-Time IDG from DTMB1)
  Agriculture & Rural Development $2,463,700 $140,100 $2,323,600 $403,000 $7,100 $737,500 $1,176,000 $128,900
Attorney General 3,835,400 1,122,000 2,713,400 451,100 0 793,600 1,468,700 162,100
Civil Rights 652,600 144,500 508,100 0 0 0 508,100 144,500
Community Health 27,862,000 671,800 27,190,200 5,850,000 7,249,600 837,800 13,252,800 608,500
Corrections 77,925,600 30,900 77,894,700 264,400 8,500 1,518,900 76,102,900 0
Education 2,961,000 0 2,961,000 1,993,500 110,000 272,600 584,900 0
Environmental Quality 8,467,100 3,572,000 4,895,100 1,055,900 14,000 2,938,500 886,700 3,522,600
Human Services 61,242,900 3,965,000 57,277,900 33,521,000 981,300 84,500 22,691,100 3,943,500
Judiciary 2,814,000 29,200 2,784,800 155,300 245,200 178,300 2,206,000 0
Legislative Auditor General 934,100 266,000 668,100 0 0 34,900 633,200 100,100
Legislature 3,841,400 0 3,841,400 0 0 0 3,841,400 0
Licensing & Regulatory Affairs 24,327,600 1,496,600 22,831,000 11,787,300 0 10,092,400 951,300 884,000
Military & Veterans Affairs 4,061,400 2,810,500 1,250,900 199,900 45,500 66,700 938,800 2,806,200
Natural Resources 9,945,300 4,652,500 5,292,800 36,400 89,200 4,671,700 495,500 4,590,100
State 7,873,100 6,312,700 1,560,400 0 0 1,096,000 464,400 6,312,700
State Police 8,657,600 2,564,900 6,092,700 20,600 247,900 1,134,200 4,690,000 2,318,000
Technology, Management, & Budget 17,326,200 11,948,700 5,377,500 307,700 70,400 2,554,100 2,445,300 725,000
Transportation 16,666,500 16,466,300 200,200 0 0 200,200 0 16,330,700
Treasury-Operations 11,067,800 397,100 10,670,700 274,500 56,000 9,020,000 1,320,200 302,800
Treasury-Strategic Fund 4,208,500 0 4,208,500 1,300,800 0 2,175,100 732,600 0
  Subtotal OPEB Prefunding $297,133,800 $56,590,800 $240,543,000 $57,621,400 $9,124,700 $38,407,000 $135,389,900 $42,879,700
               
Retirement Adjustments-Legislature $9,138,100   $9,138,100       $9,138,100
               
  Total Appropriations $306,271,900 $56,590,800 $249,681,100 $57,621,400 $9,124,700 $38,407,000 $144,528,000  
1) These amounts are included in the Interdepartmental Grants column.        

Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. 683/1112