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

SPONSOR R. Gonzales

ORIGINAL DATE

LAST UPDATED

2/20/07

3/9/07 HB 1221/aHHGAC

SHORT TITLE Lease of Hospitals for Less Than Market Value

SB

ANALYST Propst

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

Department of Finance and Administration

SUMMARY

Synopsis of Amendment

DoH reports that the amended language includes; on page 1, lines 11 and 12, strike "LEASE A

HOSPITAL FOR LESS THAN MARKET VALUE" and insert in lieu thereof "INCLUDE IN-

KIND SERVICES AS PART OF THE CONSIDERATION FOR A HOSPITAL LEASE". The

amendment on page 2, line 6, after "lease" inserts "; and further provided that a person,

association or corporation demonstrating a consistent history of service to sick and indigent

persons may include the value of in-kind services provided to the municipality as a portion of

consideration due on any lease for the use of hospital facilities owned by the municipality. The

lease agreement must set forth the respective value of services being provided to residents and

the relative value of the use of property provided by the municipality".

DFA notes that HB 1221, as amended, no longer authorizes the below fair market rental of a

hospital, sanitarium, or other institution. Instead, HB 1221 provides that “a person, association

or corporation demonstrating a consistent history of service to sick and indigent persons may

include the value of in-kind services provided to the municipality as a portion of consideration

due on any lease for the use of hospital facilities owned by the municipality. The lease agreement

must set forth the respective value of services being provided to residents and the relative value

House Bill 1221/aHHGAC – Page

2

of the use of property provided by the municipality."

As amended, HB 1221, while not identical, is largely consistent with the approach of Section 4-

38-13.1(B) NMSA 1978, which authorizes counties to lease buildings to non-profits

“demonstrating a consistent history of service to sick and indigent persons in the county, which

service could legally be expected to be provided by a governmental entity, at rates these

organizations can be reasonably expected to pay while maintaining their full service commitment

to their respective constituencies. Such contracts must set forth the respective value of services

being provided to county residents and the relative value of the use of property provided by the

county."

DFA believes that an additional safeguard should be required. Namely, the lessee should be

required to periodically report and document to the municipality regarding the value of the

services it is providing to the community. This helps ensure that the lessee is, in fact, meeting or

exceeding the fair market rental value of the property and, thus, that the public is getting a good

return on its money. Nothing in the statute precludes this, and it is our hope that municipalities

will follow this good business practice.

Synopsis of Original Bill

House Bill 1221 amends Section 3-44-1 NMSA to allow the governing body of a municipality to

lease a hospital, sanitarium or other institution for less then market value.

SIGNIFICANT ISSUES

DOH reports HB 1221 amends Section 3-44-1 NMSA to allow the governing body of

municipalities to lease hospital operations or maintenance for “less than market value." Although

the amendment is a significant addition to the statute, there is no direct finical or administrative

implication to the licensing and/or certification process of the Division of Health Improvement.

WEP/mt