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F I S C A L I M P A C T R E P O R T
SPONSOR Taylor
ORIGINAL DATE
LAST UPDATED
2/20/07
HB HJR 9
SHORT TITLE Limit Legislative Expenditure Increases, CA
SB
ANALYST Schardin
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
(See Narrative)
Recurring
General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Duplicates SJR 17
SOURCES OF INFORMATION
LFC Files
Responses Received From
Higher Education Department (HED)
Attorney General’s Office (AGO)
State Investment Council (SIC)
Public Education Department (PED)
Department of Health (DOH)
SUMMARY
Synopsis of Bill
House Joint Resolution 9 would ask voters to amend the New Mexico Constitution to limit state
expenditure growth. The resolution would limit FY10 expenditure growth over actual FY08
expenditures to 3.6 percent plus the growth rate of population in the most recent calendar year
for which data is available. For FY11 and beyond, the resolution would limit expenditure growth
over the prior fiscal year expenditure limit to 3.6 percent plus the growth rate of population in the
most recent calendar year for which data is available.
The resolution provides that in FY10 and beyond, money in the general fund in excess of the
expenditure limit on June 30 will be distributed as follows: 60 percent will be transferred to the
severance tax permanent fund (STPF) and 40 percent will be returned on an equal per capita
basis to everyone who filed a personal income tax return in the prior calendar year.
pg_0002
House Joint Resolution 9 – Page
2
Finally, the resolution provides that the amendment proposed in this resolution will be submitted
to voters at the November 2008 general election or any special election prior to November 2008
called for that purpose.
FISCAL IMPLICATIONS
If adopted, this constitutional amendment would decrease the average rate of appropriation
growth and decrease reserve fund balances by mandating that revenues in excess of the
expenditure limit be transferred to the STPF and refunded to taxpayers. It is difficult to estimate
how much the constitutional amendment would reduce expenditures, but the chart below
illustrates how general fund expenditures would have been different if an identical expenditure
limit had been in place since FY96.
General Fund Expenditures: Actual vs. Limit Proposed by HJR 9
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
$5.5
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06* FY07**
Actual Recurring General Fund Expenditures
Result of HJR 9 Expenditure Limit
* Preliminary; ** Operating budget
The chart below compares actual general fund expenditure growth with the limit that would have
applied if the provisions of the proposed constitutional amendment had been in place. While
expenditure growth averaged 5.8 percent between FY96 and FY07, it fluctuated from 0.6 percent
in FY03 to 9.3 percent in FY02. Fluctuations in expenditure growth rates are attributable
primarily to volatility in energy-related revenues. The limit proposed in the resolution would
have been lower than average expenditure growth in every year.
pg_0003
House Joint Resolution 9 – Page
3
Actual General Fund Expenditure Growth vs. HJR 9 Limit
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06* FY07**
Actual Spending Growth Rate (%)
Proposed limit
Average Growth = 5.8%
Average Growth Rate
* Preliminary; ** Operating budget
Proposed Limit
The general fund receives a constitutional distribution equal to 4.7 percent of the five-year
average market value of the STPF. By mandating that 60 percent of revenue that exceeds the
expenditure limit is distributed to the STPF, the bill may indirectly increase general fund
revenue.
SIGNIFICANT ISSUES
UNM’s Bureau of Business and Economic Research (BBER) projects that New Mexico’s
population will grow by about 1.2 percent per year in the next few decades. If these projections
are correct, the proposed constitutional amendment would limit state expenditure growth to
about 4.8 percent per year.
By basing each year’s expenditure limit on the prior year’s expenditure limit rather than on the
prior fiscal year’s actual expenditures, the resolution avoids one of the most troubling aspects of
similar amendments that have been approved in other states. Many other states’ limits base the
limit on actual prior year expenditures so that a sharp revenue and expenditure decline in one
year reduces expenditure limits in all future years. This resolution would allow state expenditures
to recover from temporary revenue shortfalls.
Expenditure limits such as the one proposed in this resolution may be unreasonable for
government programs. Many government programs exist due to the failure of private markets to
provide services deemed necessary by society. For example, government health programs are
designed primarily to serve individuals who cannot afford purchasing private insurance or whose
poor health makes them too expensive for private companies to insure. The presence of such
market failures suggests the costs of many government services should be expected to grow
pg_0004
House Joint Resolution 9 – Page
4
faster than many private sector costs. In addition, many state programs are federally mandated,
taking expenditure choice away from state policymakers.
The resolution limits expenditure growth in FY11 and beyond using the prior fiscal year as a
base. However in FY10, the base is two years prior (FY08). By basing the FY10 expenditure
limit on FY08 instead of FY09, the resolution eliminates one year of natural expenditure growth.
PERFORMANCE IMPLICATIONS
Proponents of the resolution believe that it will force government program control cost increases
to become more efficient. Opponents of the resolution fear that the expenditure limit will leave
critical government programs without adequate funding.
ADMINISTRATIVE IMPLICATIONS
It is unclear which department will be responsible for calculating the expenditure limit required
by the resolution.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
House Joint Resolution 9 duplicates Senate Joint Resolution 17.
TECHNICAL ISSUES
It is unclear whether a revision to state population growth could require expenditure reductions
in a fiscal year that has already begun.
The resolution does not clearly define the base on which the expenditure limit is calculated. The
intent may be for “state expenditures" to mean only those contained in the general appropriation
act (GAA). However, limiting GAA appropriations could have the unintended consequence of
increasing special, supplemental and deficiency appropriations as well as capital outlay
expenditures. Additionally, the GAA contains federal funds and other non-state sources.
The resolution does not state whether revenues deposited in reserve funds will count toward the
expenditure limit. If so, building reserves will be in competition with all other state spending.
The resolution states that each year’s growth limit is to be based on population growth in the
most recent prior calendar year for which data is available. Population estimates are released by
the Census each July 1 rather than January 1, so calendar year population growth rates are not
available. The resolution should be amended so that the limit is based population growth in the
most recent fiscal year for which data is available.
SS/nt