The state's controversial early retirement program will save an estimated $13.7 million in its second year, according to a report from the legislative auditor general.

The report, prepared by Auditor General Wayne Welsh, analyzes retirement savings in state government, public education and higher education. The report said the gross savings of $26.1 million in fiscal year 1989 will be offset by retirement fund costs of $12.4 million.Lawmakers passed the early retirement bill in 1987 as a cost-saving measure. But it wasn't until later that some legislators began to wonder whether it would actually save money in the long run as the costs of paying retirement benefits grows.

Public education savings for 1989 are projected to be the greatest at $17.7 million, followed by state government at $8.1 million and higher education with savings of $255,496.

Those figures compare with net 1988 savings of $8.18 million.