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

SPONSOR Gonzales

ORIGINAL DATE

LAST UPDATED

2/26/2007

3/11/2007 HB 1226/aHEC/aHFl

SHORT TITLE Timely Payment of School GO Bonds

SB

ANALYST McOlash/Baca/Moser

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

Public Education Department (PED)

Attorney General’s Office (AGO)

Department of Finance and Administration (DFA)

SUMMARY

Synopsis of HFl Amendment

The House Floor Amendment to House Bill 1226, as amended, strikes references to the State

Treasurer and inserts in lieu of the Department of Finance and Administration, as the agency

responsible for distributing General Fund appropriations to intercept SEG distributions.

Synopsis of HEC Amendment

The House Education Amendment strikes “immediately make the payment" in several places and

replaces the phrase with “forward the amount in immediately available funds necessary to make

the payment due on the bonds."

The amendment contains clarifying language and leaves the substance of the bill unchanged.

House Bill/aHEC 1226/aHFL#1 – Page

2

Synopsis of Original Bill

House Bill 1226 amends Section 22-18-13 NMSA (being Laws 2003, Chapter 46, Section 1) by

adding new language regarding state payment on a bond issue that a school district is unable to

meet (on or after the effective date of this legislation). The amendment allows the State Treasurer

to make payment to the paying agent from the current fiscal year’s undistributed State

Equalization Guarantee (SEG) to that school district and to withhold subsequent distributions

from the SEG to the school district until the full payment is recouped.

The bill amends the current statute by adding language that essentially guarantees bond

payments through the State Treasurer’s Office.

The bill contains an emergency clause.

FISCAL IMPLICATIONS

None

SIGNIFICANT ISSUES

This bill provides additional procedures for the repayment of school district General Obligation

Bonds (GOBs). to be backed by the full faith and credit of the state’s permanent funds

. With the

backing of the state, school districts will

might

be able to achieve better bond ratings. These

improved bond ratings will

could

lead to lower interest rates, which will result in lower property

taxes for residents and business owners.

AGO Analysis

Existing law requires the State Treasurer to make any payment due on a local

school district general obligation bond upon notice that a payment is due and

owing, regardless of amount, from immediately available funds. To the extent

the amount of the payment is greater than the amount remaining undistributed

to the school district from that year’s state equalization guarantee distribution,

the State’s ongoing obligation to make that payment likely violates Article IX,

Section 8 of the New Mexico Constitution (the debt clause applicable to the

State) because the State is assuming the school district’s debt and pledging

general tax revenues of the State into a future fiscal year without voter

approval. See Hamilton v. Test Systems, Inc. v. City of Albuquerque

, 103

N.M. 226, 228-229, 704 P.2d 1102 (1985), and cases cited therein, holding that

the comparable limitation on municipal debt, which requires prior approval of

the city’s voters, is implicated whenever a city obligates itself to pay out of tax

revenues and commits itself beyond revenues for the current fiscal year. This

bill, if enacted, would avoid this constitutional problem for bonds issued after

its effective date by limiting the source and amount of any payment by the

State Treasurer to the amount of undistributed state equalization guarantee

distribution due to the particular school district in any given fiscal year, and

requiring repayment to the State Treasurer of any amount so paid from that

funding source or any other legally available monies of the school district.

House Bill/aHEC 1226/aHFL#1 – Page

3

OTHER SUBSTANTIVE ISSUES

The AGO indicates:

This bill, however, does not provide a mechanism for funding, beyond the

amount of any undistributed amounts due to the district under the state

equalization guarantee distribution, any due and owing payment on a school

bond issued on or after July 1, 2003 and the effective date of this bill when a

district is unable to make a timely payment. In light of the guarantee provided

by the State when it enacted section 22-18-13 in 2003, to avoid constitutional

issues regarding the State’s fiscal liability for such payments on school bonds,

a legally valid funding source for such payments should be identified and

provided for.

The Taxation and Revenue Department correctly notes that the Treasurer’s Office does not make

SEG distributions and does not have information on the distributions. The Department of

Finance and Administration (DFA) initiates the General Fund allotments subsequent to the

legislative appropriation of funds. DFA works in cooperation with the Public Education

Department to distribute these funds to school districts, monthly. The Treasurer does not have a

way to intercept the payments or prevent them from being made.

TECHNICAL ISSUES

The Department of Finance and Administration, as the agency responsible for distributing

General Fund appropriations, might be a more appropriate agency to intercept SEG distributions.

BM:LB/csd