Fiscal Note & Local Impact Statement

125 th General Assembly of Ohio

Ohio Legislative Service Commission

77 South High Street, 9th Floor, Columbus, OH 43215-6136 ² Phone: (614) 466-3615

² Internet Web Site: http://www.lsc.state.oh.us/

BILL:

Sub. S.B. 133

DATE:

December 8, 2003

STATUS:

As Passed by the Senate

SPONSOR:

Sen. Wachtmann

LOCAL IMPACT STATEMENT REQUIRED:

No —

No local cost

 


CONTENTS:

Revises the laws regarding the state retirement systems

 

State Fiscal Highlights

 

STATE FUND

FY 2004

FY 2005

FUTURE YEARS

PERS, STRS, SERS, OP&F, and HPRS

     Revenues

- 0 -

- 0 -

- 0 -

     Expenditures

Between $300,000 and $400,000 for performance audit once every five years for each system; potential increase to create and conduct board ethics and education programs; potential administrative expenses resulting from the addition of members to the boards

Between $300,000 and $400,000 for performance audit once every

five years for each system; potential increase to conduct board ethics and education programs; potential administrative expenses resulting from the addition of members to the boards

Between $300,000 and $400,000 for performance audit once every

five years for each system; potential increase to conduct board ethics and education programs; potential administrative expenses resulting from the addition of members to the boards

Ohio Elections Commission Fund (Fund 4P2)

     Revenues

Potential gain resulting from failure to file campaign disclosure statements and attempting to affect board elections

Potential gain resulting

from failure

to file campaign

disclosure statements and attempting to affect board elections

Potential gain resulting

 from failure

to file campaign

disclosure statements and attempting to affect board elections

     Expenditures

Potential minimal increase

Potential minimal

increase

Potential minimal

increase

Public Audit Expense Fund (Fund 109)

     Revenues

Potential gain

Potential gain

Potential gain

     Expenditures

Potential increase

Potential increase

Potential increase


 

Division of Securities Fund (Fund 550)

     Revenues

Potential gain dependent on the number of new state retirement investment officers that may be hired at any time after the effective date of the bill

Potential gain dependent

on the number of new

state retirement

investment officers that

may be hired at any time after the effective date of

the bill

Potential gain dependent

on the number of new

state retirement

investment officers that

may be hired at any time after the effective date of

the bill

     Expenditures

Potential minimal increase

Potential minimal

increase

Potential minimal

increase

Note:  The state fiscal year is July 1 through June 30.  For example, FY 2004 is July 1, 2003 – June 30, 2004.

 

·        The bill requires that the Ohio Retirement Study Council (ORSC) have an independent auditor conduct a fiduciary performance audit of each of the state retirement systems at least once every five years.  The cost of the audits would be paid by the retirement system being audited.  This could range from $300,000 to $400,000 per audit.  However, there could be a potential for future savings as a result of the findings and recommendations of such audits.

·        The bill requires the Auditor of State to conduct an audit of any of the five state retirement systems at the request of the ORSC.  This could increase expenditures in the Public Audit Expense Fund, depending on how many audits the Auditor is required to complete.  The Auditor may be able to recover part or all of these costs by charging the retirement systems.

·        The bill requires the addition of two members to each of the boards.  This could result in additional administrative expenses for the boards.

·        The bill requires candidates, campaign committees, and persons making expenditures in connection with a candidate’s efforts to be elected to a retirement board to file campaign financial disclosure statements with the Secretary of State.  If a person fails to file a complete and accurate statement, then the Ohio Elections Commission may impose a fine of not more than $100 per day of the violation.  In addition, persons who knowingly attempt to affect the nomination or outcome of a board election may be imprisoned for up to six months and/or fined up to $5,000.  There could be a potential minimal increase in costs for the Ohio Elections Commission to investigate any violations of this provision.

·        The bill requires the boards of the state retirement systems to jointly develop an ethics policy and an orientation and continuing education program for board members.  There could be some administrative costs associated with developing and conducting these training and education programs.

·        The bill requires each board to review its existing travel and travel reimbursement policies and to adopt rules establishing new or revised policies pertaining to travel and bonus awards to board employees.  This provision could present some savings to the retirement systems if the new rules are more restrictive.

·        The bill requires every state retirement investment officer hired after the effective date of the bill to be licensed with the Division of Securities within the Department of Commerce.  The license fee is set at $50 and would need to be renewed on an annual basis.  Current state retirement investment officers would not be required to be licensed.  There could be a potential increase in administrative costs for the Division of Securities to begin licensing a new class of investment officer.

Local Fiscal Highlights

 

·        No direct fiscal effect on political subdivisions.


 


 

Detailed Fiscal Analysis

 

The bill makes several changes to the five state retirement systems:  the Public Employees Retirement System (PERS), the State Teachers Retirement System (STRS), the School Employees Retirement System (SERS), the Ohio Police & Fire Pension Fund (OP&F), and the Highway Patrol Retirement System (HPRS).

 

Fiduciary Performance Audits

 

The bill requires that the Ohio Retirement Study Council (ORSC) have an independent auditor conduct a fiduciary performance audit of each of the state retirement systems at least once every five years.  The cost of the audits would be paid by the retirement system being audited.  The cost for an audit could range from $300,000 to $400,000.  There could be a potential for future savings as the recommendations of the audits are implemented by the retirement systems.

 

The bill requires the Auditor of State to conduct financial audits and any special audits of the retirement systems at the request of the ORSC.  The bill also requires that the Auditor report on any findings to the ORSC.  This provision could increase costs for the Auditor, depending on how many audits are requested by the ORSC.

 

Board Composition and Elections

 

Current law provides for all elections of board members to be conducted under the supervision of the retirement boards.  The bill requires the Secretary of State to adopt rules governing the election of board members to the state retirement systems.  This could lead to a potential increase in administrative costs for the Secretary of State’s office because the bill also requires the Secretary to oversee the administration of board member elections.

 

The bill also makes several changes to the compositions of the state retirement boards, as outlined below: 

·        The Attorney General is removed as a statutory member from the PERS, STRS, SERS, and OP&F boards and the Treasurer of State is added as a statutory member to the PERS, STRS, SERS, OP&F, and HPRS boards.  In addition, the Director of Public Safety is added as a member to the HPRS board.

·        Two members are added to the PERS board, one who is a county commissioner, prosecutor, auditor, sheriff, treasurer, recorder, engineer, or coroner, and one who is an investment expert.

·        Two members are added to the OP&F and the HPRS boards who are to be investment experts.

·        Two members are added to the SERS board, one who is a school board member appointed by the Governor, and one who is an investment expert.

·        Two members are added to the STRS board, one who is an (additional) elected retired teacher member, and one who is a school board member appointed by the Governor.

 

Currently, the ORSC has nine voting members (three Senators, three Representatives, and three members appointed by the Governor) and five non-voting members (the five executive directors of the retirement systems).  The bill adds two former legislative members as voting members of the ORSC who have served at least one term on a committee dealing with health or retirement issues.  One member is to be jointly appointed by the Speaker of the House and the leader in the Senate who is of the same political party as the Speaker.  The other is to be jointly appointed by the legislative leaders of the two houses who are not of the same political party as the Speaker.  The bill also requires at least one of the three current gubernatorial appointees to the ORSC to be a person with investment expertise.

 

The bill requires candidates for election to the retirement boards, campaign committees, and individuals or entities that make expenditures in connection with a candidate’s efforts to be elected to a retirement board to file two itemized statements with the Secretary of State’s office that detail the contributions, in-kind contributions, and expenditures relative to the board election. The first statement is required to be filed 12 days before the election and the second is required to be filed no later than 38 days following the election.  The bill also requires candidates elected to fill a vacancy to a retirement board to file a single itemized statement.  If the Secretary of State’s office determines that a statement is incomplete or inaccurate, then the Ohio Elections Commission can fine that person up to $100 per day that they are in violation.  This could result in an increase in revenues to the Ohio Elections Commission Fund.  The potential increase is dependent on the number of people who fail to properly file their campaign disclosure statements.  Monitoring the elections for the retirement systems could potentially increase the expenditures for the Secretary of State’s office.

 

Ethics Training, Orientation and Continuing Education for Board Members

 

The bill requires the boards of the state retirement systems to develop an ethics policy, in consultation with the Ohio Ethics Commission, and to provide periodic ethics training to members and employees of the boards.

 

In addition, the bill requires the boards to jointly develop orientation and continuing education programs for board members.  There could be some administrative costs associated with developing and conducting these training and education programs.  The boards would jointly pay any cost for establishing and conducting the programs.

 

Travel and Bonus Policies

 

The bill requires each board to review its existing travel and travel reimbursement policies and to adopt rules establishing new or revised policies pertaining to travel and bonus awards to board employees.  In addition, each board is required to submit proposed operating budgets (including administrative budgets) to the ORSC for the next immediate fiscal year, and to submit plans to improve the dissemination of public information about the board.  Provided that the new policies are more restrictive, this could offer some savings to the retirement systems.

 

 

 

 

 

Licensing of State Retirement Investment Officers

 

The bill requires investment officers with the retirement boards to hold a valid state retirement system investment officer license issued by the Division of Securities within the Department of Commerce.  The bill sets the license fee at $50 and requires holders of the license to renew on an annual basis.  Current state retirement investment officers would not be required to be licensed, but anyone hired by the retirement systems as an investment officer after the effective date of the bill would be required to be licensed.  All license fees collected under this provision would be paid into the Division of Securities Fund.  The potential increase in revenues to this fund would be dependent on the number of new retirement investment officers hired after the effective date of the bill.  There is a potential increase in administrative costs for the Department of Commerce to begin licensing a new type of investment officer.

 

In addition, the bill requires each retirement board to designate a person who is a licensed state retirement investment officer to be the chief investment officer for the retirement fund.  The chief investment officer will supervise other investment officers and persons employed by the retirement fund with a view toward preventing violations of federal and state securities laws and rules and regulations pertaining to those laws.

 

Local Costs

 

There are no direct local costs for this bill.  Generally, if there are significant costs to the retirement systems, the costs could be passed on to the employers, but several provisions in this bill could generate savings for the systems (e.g., the audit recommendations could potentially generate savings for each system), so the potential savings could offset the potential costs.

 

 

LSC fiscal staff:  Sara D. Anderson, Budget Analyst

                           Kerry Sullivan, Budget Analyst

 

SB0133SP.doc