Legislative Report #05-14

Report 05-14
May 6, 2005

SENATE APPROVES BUDGET

The Senate passed the proposed state budget for 2005-07 on May 5. Senate Bill 622 was approved on third reading and sent to the House for consideration. The bill includes a number of provisions that extend or increase taxes and several amendments that would affect the proposed state lottery if separate legislation authorizing the lottery is approved.

The bill provides Cost-Of-Living Adjustments for retired state and local governmental employees and makes several important changes to the State Health Plan. These budget provisions are summarized below.

COLA PROVISIONS

The Senate budget proposes a 2% Cost-Of-Living Adjustment for retired state employees, local governmental employees, members of the judicial system, and retired legislators. This is the same as the COLA proposed for active state employees. The 2% COLA for state retirees requires an additional $13.8 million appropriation to supplement available gains in the Teachers' and State Employees Retirement System.

The Senate's proposed COLA is far short of the 3.3% COLA sought by our Association for retired state and local employees and supported by the Board of Trustees of the Retirement Systems. The 3.3% COLA for state retirees would a total supplemental appropriation of approximately $50 million. The Local Governmental Employees' Retirement System has sufficient gains to cover 3.3% at no cost to local governments and would leave a reserve to be carried forward to next year.

The Senate budget also contains COLAs for retired North Carolina National Guard members and for retired volunteer fire and rescue squad workers. Senate Bill 622 would increase the minimum monthly pension for retired National Guard personnel to $75 and the monthly maximum benefit to $150. The monthly benefit for retired fire and rescue squad workers would increase from $161 to $163.

STATE HEALTH PLAN

The Senate budget proposes several important changes to the State Health Plan. The budget provides a total appropriation of $292 million over the 2005-07 biennium of a projected $ 353 million shortfall in the Plan. The remaining gap ($61 million) would be filled by increases in certain co-payments, premiums for dependent coverage, and out-of –pocket annual maximums.

The co-pay for name brand prescription drugs will rise from $25 to $30. Name brand drugs with a generic equivalent would increase from the current $35 to $40. The co-pay for generics will remain the same ($10).

The monthly premium for dependent coverage will increase by 14.3%. Initially, the Senate had proposed a 15.2% increase, but it was reduced by a floor amendment offered by Senator Tony Rand.

The maximum annual out-of-pocket expenditures by members of the State Health Plan will increase from $1,500 to $2,000. However, the annual deductible of $350 will remain the same.

Several other out-of-pocket payments also are increased. These include:

Hospital stays (first day) increases from $100 to $150,Facility fees/ancillary charges in excess of $500 for outpatient care increases from $50 to $150, and emergency room visits increase from $100 to $150.

OTHER BUDGET PROVISIONS

The Senate budget also includes $25 million for the third installment on the repayment of monies diverted from the Teachers' and State Employees' Retirement System in 2001. With this payment, the remaining sum to be repaid in the next two years is reduced to approximately $74 million.

The budget includes a provision extending the sunset on the public school teacher re-employment law for one year to June 30, 2006. Retired teachers are permitted to return to work after a 6-month separation from service without loss of pension benefits and without a limitation on post retirement earnings. Also, the budget specifies that all retired state employees must be fully separated from service for a minimum of 6 months before returning to work for an employer that participates in the same retirement system.

ACTION REQUESTED

The House of Representatives now will review the Senate's version of the budget. There are signs that the state's economy is recovering and state revenue collections are exceeding expectations. We need to ask the House to improve upon the Senate's proposal in a number of areas. We urge each of you to contact your members of the House and request that they increase the COLAs and the funding for the State Health Plan.

For those of you who are retired teachers or state employees, please ask your House member(s) to direct available state revenues to a higher Cost-Of-Living Adjustment and to reduce the proposed increases in State Health Plan co-pays and dependent premiums.

For those of you who are local government retirees, please ask your House member(s) to increase the local COLA to 3.3%. It is important to tell them that:

1) Local retirees received no COLA for 2004,

2) there is enough money in the  Local Governmental Employee's Retirement System to cover a 3.3% raise. The COLA would not require any increase in contributions made to the system by local governments,

3) a 3.3% COLA still would leave money in reserve to be carried forward to next year. The System actually has enough money to cover a 4% COLA.

As always, we appreciate your support. Please share with us ant feedback that you receive from your House members.