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F I S C A L I M P A C T R E P O R T

SPONSOR Tsosie

DATE TYPED 02/28/05 HB

SHORT TITLE Extending and Changing Capital Outlay Purposes

SB 1026

ANALYST

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

(See Fiscal Im-

pact Narrative)

N/A

Severance Tax

Bond Capacity

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Department of Indian Affairs (DIA)

SUMMARY

Synopsis of Bill

Senate Bill 1026 reauthorizes capital outlay balances; changes the purpose of certain severance

tax bond appropriations with conditions; proposes conditions for projects within the Navajo Na-

tion; provides for direct payments to vendors; and defines indigency.

Significant Issues

Senate Bill 1026 reauthorizes all unexpended balances appropriated prior to 2001 to the Depart-

ment of Indian Affairs for capital outlay projects located within Indian country. The bill changes

the purpose of the balances unexpended as of September 1, 2005, as follows: 1) fifty percent of

unexpended balances are reauthorized for renovations and improvements to Dine College in San

Juan County; and 2) fifty percent is reauthorized for planning, design and construction of the

center for lifelong education, research and cultural exchange for indigenous persons at the Insti-

tute for American Indian Arts in Santa Fe County. The bill requires DIA to certify to the Board

of Finance by September 1, 2005 if the project is active, has valid encumbrances, or if the period

of time for expenditure for the projects were extended beyond July 1, 2005.

Senate Bill 1026 -- Page 2

Senate Bill 1026 further authorizes the state to contract through a fiscal agent other than the Na-

vajo Nation for a capital outlay project located on lands within the jurisdiction of the Nation, if

permissible by tribal law. The bill also authorizes the state to expend or encumber funds at the

request and approval of chapters of the Navajo Nation, if allowed by tribal law, and authorizes

the Department of Finance and Administration to make direct payments to third-party contractors

for expenses related to capital projects. It should be noted that except for appropriations to the

capital program fund, current law prohibits severance tax proceeds to be used to pay indirect pro-

ject costs.

A provision of the bill allows funds appropriated from the general fund to multiple chapters of

the Navajo Nation for same or similar purposes to be pooled in order to create a regional or cen-

tralized project, upon review of DIA and approval by the Board of Finance. Lastly, for the pur-

poses of capital outlay projects located within Indian country, persons who are not served by

electric service, water service, telecommunications or indoor plumbing shall be presumed indi-

gent as defined in Article 9, Section 14 of the constitution of New Mexico.

FISCAL IMPLICATIONS

A change of purpose or extension of time by which severance tax bond proceeds may be ex-

pended is not considered a new appropriation and does not impact current severance tax bond

capacity. Any unexpended or unencumbered balances reauthorized in this bill shall revert to the

severance tax bond fund by July 1, 2010.

ADMINISTRATIVE IMPLICATIONS

According to DIA, the provision allowing direct payments to third party vendors would facilitate

completion of projects for tribes with limited resources. The department attributes much of its

current backlog of capital outlay projects to this issue. DFA and DIA are currently developing a

process to make direct payments to third party vendors for all Indian capital outlay projects. Di-

rect payments to third-party vendors would streamline the capital outlay process and allow the

projects to be completed and closed out more efficiently. The DIA indicates it would assist the

tribal entity in completing the project in a timely manner. The tribal entity would provide docu-

mentation to IAD certifying that the tribe’s procurement process had been adhered to. The tribe

would also provide an invoice from the vendor to DIA for the exact cost of the goods or services

provided for the capital outlay project. The DIA would then wire the funds to the vendor

through the New Mexico State Treasurer’s office (similar to the process already utilized by the

DIA for projects financed with STB proceeds).

OTHER SUBSTANTIVE ISSUES

According to the Board of Finance, there are currently 47 projects prior to2001 with severance

tax bond proceed balances totaling approximately $1.5 million. However, due to existing con-

tractual agreements and the corresponding encumbrances, not all the proceeds may be eligible

for reauthorization.

There has been a long-standing “gentleman’s agreement” in the House and Senate that no mem-

ber of either House will reauthorize projects unless he or she was the original sponsor of the

capital outlay request. An initial review of the projects proposed to be reauthorized in this bill

Senate Bill 1026 -- Page 3

indicates the original sponsors are currently serving either in the House of Representatives or the

New Mexico State Senate.

LMK/rs