Be Alerted to Updates to This Page

Subscribe to the Inside Line

99% of these updates are originally sent to Inside Line subscribers. If you aren't receiving the Inside Line and would like to, please click here.

Legislative Updates

Legislative Update No. 11, Session 81
By Tim Lee, Executive DirectorPrinter Friendly ||| Print as PDF

February 27, 2009

TRS Scrubs Budget Request

Sharpening the Pencil on TRS Operating Expenses

The Senate Finance Committee took great exception to the proposed Teacher Retirement System of Texas budget requests a few weeks ago. The issue basically comes down to TRS obligating expenditures without working through the legislative process. TRS believes their actions were in the best interest of the members and the Legislature thinks the actions were taken prematurely without advising them of the expenditures.

At a specially-called TRS Board of Trustees meeting on Friday, February 27, 2009, the TRS trustees listened to a staff proposal that scrubbed $13.7 million of their FY 2009 budget. The biggest reductions included $3.8 million in performance compensation, $3.4 million in professional fees and services, $1.5 million in building renovation and office lease space, and $5 million in "soft dollar conversion."

TRS Rationale for FY 2009 Budget Reductions
(Information provided by TRS at Board of Trustees meeting)

Performance Compensation--No performance compensation was paid because the fund did not realize a positive return on investment. $2.6 million is deferred until the fund earns a positive annual return.

Professional Fees and Services--TRS has temporarily reduced the volume of investment-related legal transactions as a result of current market conditions and has absorbed $2.1 million in additional professional fees above the appropriated portion of the budget.

Building Renovation/Office Lease--After evaluating all options, TRS entered into a contract to lease office space for the investment division. Ongoing cost for FY 2010-2011 is $3.6 million of the biennium.

Soft Dollar Conversion--TRS staff has decided to not implement this funding change until vetted by the Legislature.

Will these budget reductions strike a more positive tone with state legislative budget writers? TRTA certainly hopes so, as TRS has proven over many decades their ability to effectively manage the pension trust fund in the best interests of the members and at a very low cost to the fund.

One likely sticking point with the Senate Finance Committee is the additional lease space that TRS maintains ins necessary to house the investment division. TRS contends that the current building space does not provide the room necessary to effectively manage the investment team. Stating that the building could not be renovated or modified to accommodate these immediate needs, they contend the lease option is less costly and provides better long-term options for the fund in the future. TRTA will continue to monitor this situation and let you know what the legislature's response is.

Where do things go from here? TRS Trustees and staff agreed that, though they have an ultimate responsibility to manage the fund in the best interest of the members and have the right to make additional expenditures as they see fit, there is a desire to work through the legislative process as much as possible for their budgetary needs. TRTA agrees that the TRS budget process must be transparent and should allow the Texas Legislature the opportunity to know more about their operational and budgetary needs. This approach provides greater feedback on the process, as well as additional oversight by the Texas Legislature, and does so in a way that allows the legislature to be more educated on the needs that exist to manage the 7th largest pension fund in the country.

Additional TRS Budget Information

The Texas Legislature is working on the State budget for fiscal years 2010 and 2011. TRS also took time to review their budget request for these upcoming fiscal years. The state budget proposal for TRS administrative needs is $117.8 million; TRS is requesting $171.1 million. The $53.3 million difference includes $21.5 million in performance compensation, $15.7 million for "soft-dollar conversion," $9.5 million in operational costs and $6.6 million for costs associated with 39 additional employees.

The one item that may catch the most attention is the $21.5 million in performance compensation. TRS is not paying performance compensation benefits as long as the fund is not making a profit. TRS stresses that their performance compensation plan may pay out bonuses to fund managers if the fund makes a comeback in the next couple of fiscal years. They stress that $21.5 million is the maximum that can be paid to employees in performance compensation in the upcoming two fiscal years, provided those employees earn the highest amount of return for the fund. If that is the case, the fund will have made billions in investment gains and TRS would be on the road to recovery, but nobody knows when that will actually happen.

As a final note, with all this discussion about TRS administrative costs, many TRS retirees may wonder where the money that pays TRS administrative costs comes from. The answer is that the Texas Legislature approves a budget for TRS, but all budgeted operational costs are paid out of the pension trust fund.

TRTA is monitoring these budget discussions very closely and will update you regularly on new developments.

Return to Legislative Updates