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F I S C A L I M P A C T R E P O R T
SPONSOR SEC
ORIGINAL DATE
LAST UPDATED
2-20-2007
3/16/07 HB
SHORT TITLE Tribal College Affordability Scholarships
SB 355/SECS/aHFL#1
ANALYST Dearing
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
*None
N/A
College Affordability
Fund
*Please see narrative
(Parenthesis ( ) Indicate Expenditure Decreases)
Duplicates HB308/aHEC; SB573/aSEC
SOURCES OF INFORMATION
LFC Files
Responses Received From
Higher Education Department (HED)
Indian Affairs Department (IAD)
SUMMARY
Synopsis of House Floor Amendment # 1
Action on the House Floor amends Senate Bill 355/SECS such that;
1. On page 2, line 13, after “time", insert “later than one hundred twenty days".
2. On page 5, line 19, after “appropriations", insert a semicolon.
3. On page 5, strike lines 20 through 25 and insert in lieu thereof "donations to the fund; and
income from investment of the fund except as provided in Subsection C of this section.".
4. On page 6, lines 3 and 4, strike "college affordability endowment".
5. On page 6, line 5, after "specified", insert "distributions,"
6. On page 6, lines 14 through 20, remove the brackets and line-through.
pg_0002
Senate Bill 355/SECS
/aHFL#1 – Page
2
7. On page 6, line 14, after "Until", insert "fifty percent of the annual income from investment of
the college affordability endowment fund is equal to or exceeds two million dollars ($2,000,000),
an annual distribution of two million dollars ($2,000,000) shall be made from the college
affordability endowment fund to the college affordability scholarship fund. Thereafter, until".
8. On page 6, line 18, after "fund" strike the remainder of the line, strike line 19, strike line 20 up
to the ending quotation mark and insert in lieu thereof a period and "After the corpus of the
endowment fund is two hundred fifty million dollars ($250,000,000), all of the income from
investment of the fund shall be distributed to the college affordability scholarship fund.".
House Floor Amendment makes substantial changes to Senate Bill 355/SECS. Under these
amendments, the language remains in the College Affordability Scholarship act to maintain the
endowment-building retained earnings framework of 50% to build principal, 50% available for
scholarships in any year. However, there is a new provision providing that, until the endowment
fund distribution (the 50% disbursement of earned interest) to the scholarship fund meets or
exceeds $2 million, an annual distribution of $2 million shall be made to the scholarship fund
from the endowment by default.
*The effective date of House 355/SECS as amended by floor action is July 1, 2007. Clarification
is necessary to determine whether the nonrecurring, $2 million appropriation recommended for
the scholarship fund in House Bill 2 will substitute for the default distribution mentioned above,
for FY08. If the entire endowment is invested with the State Investment Council (average 8%
return) at or prior to the beginning of FY08, interest earnings should substantially exceed $2
million during the year, making any default distribution unnecessary in that year.
Synopsis of Bill
The Senate Education Committee Substitute for Senate Bill 355 amends the College
Affordability Act such that 100% of the interest in the fund is available for scholarships in any
given year. As amended, the college affordability endowment fund shall become a non-reverting
fund. All annual interest from investment of the endowment fund will flow into the scholarship
fund for expenditure. Language requiring the fund to be self-supporting through retained
earnings is stricken.
SB355/SECS carries no appropriation from the General Fund. The bill would amend Sections
21-21L-1 through 21-21L-8 NMSA 1978, the College Affordability Act, to extend eligibility for
need-based scholarships to students attending the State’s Tribal colleges. The proposed
legislation amends the Act to re-define the duration of eligibility for recipients. SB355/SECS
adds or amends the Act’s language to define eligible student, scholarship and Tribal college.
FISCAL IMPLICATIONS
There are significant fiscal implications to this proposed statutory change of fund
mechanics. Under the change, there will be a 100% increase in available scholarships the
first year, however, without additional appropriations, the endowment fund would no
longer keep pace with inflation, nor provide for growth in the number of scholarships
available in out-years. Due to significant average inflation in the cost of Higher Education,
the program would lose purchasing power each year, resulting in either fewer grants, or
less valuable grants.
pg_0003
Senate Bill 355/SECS
/aHFL#1 – Page
3
This proposed change to the mechanics of the fund would significantly alter future scholarship
capacity. The original language specified that 50% of earned interest would be retained in the
fund, increasing the fund’s balance by 50% of interest in each year. Existing statute provides for
this framework to remain in place until the fund reaches $250 million.
Under the existing statute, the endowment fund could provide $20 million in annual scholarships
when it reaches its intended terminal value.
The attached table, appendix A. shows the net benefit to maintaining the fund’s current retained
earnings framework. The beginning FY08 values in the table include an LFC recommended $50
million special nonrecurring appropriation for the College Affordability Act in FY08.
Over a 30-year period, maintenance of the current statute would provide eighty-two million
($82,000,000) in excess scholarship grants than the framework proposed in SB355/SECS.
Additionally, the endowment value would have increased to two-hundred, fifty-four million
($253,767,000) midway through the 23
rd
year.
The current framework provides net future benefit exceeding two-hundred, thirty-six million
($236,000,000) above the SB355/SECS proposal.
*Alternatives to the proposal in SB355/SECS include allocating 4%, or $2 million of $50
million recommended special appropriation to the scholarship fund to increase the number
of scholarships available in FY08.
Under the current legislation, students at Tribal colleges are ineligible for scholarship awards
from the fund. The proposed amendments would allow the NM Department of Higher Education
to allocate funds from the College Affordability Fund to eligible Tribal colleges for distribution
as scholarships. Expanding eligibility to include Tribal students would have no significant
impact on the fund. The allocation of funding distributed to public higher education institutions
would incorporate Tribal colleges’ new eligibility.
*The proposed amendment strikes language stipulating only 8 consecutive semesters of
eligibility for recipients. There would be no additional costs of extending the term of eligibility
past 8 consecutive semesters, however, there would be fewer total grants available to new
recipients each year if the duration is extended. As currently proposed, the change to duration of
eligibility would have no affect over the next three years since the program’s first grant awards
were in Fall 2006. As proposed, eligible recipients would no longer have to be in a degree
program.
*The proposed amendment leaves language intact within the Act stipulating a maximum award
amount of $1000 each semester. Both the number of total awards, and the minimum dollar
amount of each award are not provided in either the existing Act, nor in the proposed version.
Setting these levels will remain a department decision through its rule promulgation process.
Because of this, the possibility exists that increased eligibility might place demand pressure on
the department to increase the total available awards, necessitating a reduction in the dollar
amount of awards.
Many significant elements of administration of the Act would be left to rulemaking by the
Higher Education department. The amended version would remove the 4-year cap on duration
of eligibility, as well as a necessity that students remain in degree seeking programs. Because of
this there is significant concern that rules created by the department could have a negative impact
pg_0004
Senate Bill 355/SECS
/aHFL#1 – Page
4
on recipients’ persistence to graduation. These two items have the potential to reduce the service
capacity of the fund in both total numbers and effectiveness.
SIGNIFICANT ISSUES
Enacted during the 2005 regular legislative session and endowed through a $49 million
appropriation in Laws, 2006 Chapter 109, the College Affordability fund was invested in June
2006 with the local government investment pool with the State Treasurer’s office. LFC
recommends investment of the fund with the State Investments Council to increase the annual
rate that is earned; treasury funds are held in overnight fed-funds accounts and bear significantly
less interest than return potential at the SIC. Provisions for distribution of this scholarship
money to students have been developed within the department, however these have not yet been
compiled within New Mexico Administrative Code (NMAC).
The current language in the College Affordability Act restricts the scholarship recipients to eight
consecutive semesters. The Higher Education department states that this does not allow part-
time students to receive the scholarship long enough to graduate and that the issue is particularly
problematic for part-time students at community colleges wishing to continue through to a
bachelor's degree.
Proposed amendments to the Act would keep intact language that terminates the awards when
students fail to achieve satisfactory academic progress, withdrawal, or fail to remain at half-time.
HED will continue to make the determination for academic progress criteria through the
promulgation of rules.
ADMINISTRATIVE IMPLICATIONS
Many significant elements of administration of the Act are left to rulemaking by the Higher
Education department.
CONFLICT
SB355/SECS amends Sections 21-21L-1 through 21-21L-7 NMSA 1978, the College
Affordability Act. SBCS355/SEC defines tribal colleges by name as follows.
D. "tribal college" means:
(1) the southwestern Indian polytechnic
institute;
(2) the Crownpoint institute of technology;
(3) the institute of American Indian arts; and
(4) the New Mexico campus of Dineh college."
SB355/SECS makes other technical adjustments to change language to make the Act parallel
with the statutory change from the Commission on Higher Education (CHE), to the Higher
Education Department (HED), and to incorporate its own proposed definitions.
TECHNICAL ISSUES
Senate Education Committee Substitute for Senate Bill 355 carries no appropriation from the
General Fund, however, as proposed, the short-title suggests otherwise.
pg_0005
Senate Bill 355/SECS
/aHFL#1 – Page
5
The proposed Enactment of Senate Education Committee Substitute for Senate Bill 355 would
make the following changes to the provisions of Sections 21-21L-1 through 21-21L-8 NMSA
1978.
*Section 21-21L-8 (c) requiring the fund to be self-supporting through retained earnings is
stricken.
*
Clauses in Section 21-21L-6 amended to strike maximum duration of eligibility of 8
consecutive semesters.
*Language is added throughout the bill such that the fund becomes a non-reverting fund.
Clauses throughout SB355/SECS change language to make the Act parallel with the statutory
change from the Commission on Higher Education (CHE), to the Higher Education Department
(HED), and to incorporate new proposed definitions.
Section 21-21L-3 (b) defining “returning adult" is stricken.
Section 21-21L-3 (c) defining “student" is stricken.
Clauses in Section 21-21L-3 (b), (c) and (d); add definitions that define eligible student,
scholarship and Tribal college
New Section 21-21L-3 (b); new section defining “eligible student" is added. Creates a change
from previously used semester reference to “any time later than 120 days following high-school
graduation or acceptance of general educational development certificate;" includes New Mexico
resident in criteria.
Clause 21-21L-4 (a); requiring an eligible student be a resident of New Mexico for the purpose
of tuition payment is stricken.
*
Clause 21-21L-4 (b); amended to remove necessity of enrollment in degree program as criteria.
*
Clauses in 21-21L-5 (d) and (e); add tribal colleges to list of institutions making and
administrating awards.
Clauses in Section 21-21L-8 (a) and (b); add minor linguistic changes.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
Sections 21-21L-1 through 21-21L-8 NMSA 1978, the College Affordability Act would remain
in statute in their current form.
ATTACHMENT
PD/csd
pg_0006
1
2008
2009
2010
2011 2012 2013 2014 2015 2016 2017
2
Available for Investment, SBCS355/SEC
99, 0 00, 0 00
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99, 0 00, 0 00
$
99 , 000 , 000
$
99, 0 00, 0 00
$
3
Available for scholarship, SBCS355/SEC
7, 9 20, 0 00
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 9 20, 0 00
$
7, 92 0, 00 0
$
7, 9 20, 0 00
$
4
5
Available for Investment Status Quo
10 2, 96 0, 00 0
$
107 , 078 , 400
$
111 , 361 , 536
$
115 , 815 , 997
$
120 , 448 , 637
$
125 , 266 , 583
$
130 , 277 , 246
$
13 5, 48 8, 33 6
$
140 , 907 , 869
$
14 6, 54 4, 18 4
$
6
Available for Scholarship Status Quo
3, 9 60, 0 00
$
4, 11 8, 40 0
$
4, 28 3, 13 6
$
4, 45 4, 46 1
$
4, 63 2, 64 0
$
4, 81 7, 94 5
$
5, 01 0, 66 3
$
5, 2 11, 0 90
$
5, 41 9, 53 3
$
5, 6 36, 3 15
$
7
8
Diff. (Existing law -Proposed)
(3, 9 60, 0 00)
$
(3, 80 1, 60 0)
$
(3, 63 6, 86 4)
$
(3, 46 5, 53 9)
$
(3, 28 7, 36 0)
$
(3, 10 2, 05 5)
$
(2, 90 9, 33 7)
$
(2, 7 08, 9 10)
$
(2, 50 0, 46 7)
$
(2, 2 83, 6 85)
$
9
10
2018
2019
2020
2021 2022 2023 2024 2025 2026 2027
11
Available for Investment, SBCS355/SEC
99, 0 00, 0 00
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99, 0 00, 0 00
$
99 , 000 , 000
$
99, 0 00, 0 00
$
12
Available for scholarship, SBCS355/SEC
7, 9 20, 0 00
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 9 20, 0 00
$
7, 92 0, 00 0
$
7, 9 20, 0 00
$
13
14
Available for Investment Status Quo
15 2, 40 5, 95 2
$
158 , 502 , 190
$
164 , 842 , 277
$
171 , 435 , 968
$
178 , 293 , 407
$
185 , 425 , 143
$
192 , 842 , 149
$
20 0, 55 5, 83 5
$
208 , 578 , 068
$
21 6, 92 1, 19 1
$
15
Available for Scholarship Status Quo
5, 8 61, 7 67
$
6, 09 6, 23 8
$
6, 34 0, 08 8
$
6, 59 3, 69 1
$
6, 85 7, 43 9
$
7, 13 1, 73 6
$
7, 41 7, 00 6
$
7, 7 13, 6 86
$
8, 02 2, 23 3
$
8, 3 43, 1 23
$
16
17
Diff. (Existing law -Proposed)
(2, 0 58, 2 33)
$
(1, 82 3, 76 2)
$
(1, 57 9, 91 2)
$
(1, 32 6, 30 9)
$
(1, 06 2, 56 1)
$
(78 8, 26 4)
$
(50 2, 99 4)
$
(2 06 ,3 14 )
$
10 2, 23 3
$
4 23, 1 23
$
18
19
2028
2029
2030
2031
2032 2033 2034 2035 2036 2037
20
Avail. for Investment, SBCS355/SEC
99, 0 00, 0 00
$
99 , 000 , 000
$
99,000,000
$
99,000,000
$
99 , 000 , 000
$
99 , 000 , 000
$
99 , 000 , 000
$
99, 0 00, 0 00
$
99 , 000 , 000
$
99, 0 00, 0 00
$
21
Avail. for scholarship, SBCS355/SEC
7, 9 20, 0 00
$
7, 92 0, 00 0
$
7,920,000
$
7,920,000
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 92 0, 00 0
$
7, 9 20, 0 00
$
7, 92 0, 00 0
$
7, 9 20, 0 00
$
22
23
Available for Investment Status Quo
22 5, 59 8, 03 9
$
234 , 621 , 960
$
244,006,839
$
263,527,386
$
284 , 609 , 577
$
307 , 378 , 343
$
331 , 968 , 610
$
35 8, 52 6, 09 9
$
387 , 208 , 187
$
41 8, 18 4, 84 2
$
24
Available for Scholarship Status Quo
8, 6 76, 8 48
$
9, 02 3, 92 2
$
9,384,878
$
19,520,547
$
21 , 082 , 191
$
22 , 768 , 766
$
24 , 590 , 267
$
26, 5 57, 4 89
$
28 , 682 , 088
$
30, 9 76, 6 55
$
25
26
Diff. (Existing law -Proposed)
7 56, 8 48
$
1, 10 3, 92 2
$
1,464,878
$
11,600,547
$
13 , 162 , 191
$
14 , 848 , 766
$
16 , 670 , 267
$
18, 6 37, 4 89
$
20 , 762 , 088
$
23, 0 56, 6 55
$
27
28
29
30
A
30-yr Excess with Current Statute
81,584,842
$
31
Excess endowment value
32
with existing framework
33
154,767,112
$
35
36 A
excess scholarship funding available under current statutory framework over 30-year horizon
Investment Growth
8.0%
midway between 2030-31
100% of interest would be available in years
2030-31 under the current statutory
framework. The endowment will have
reached intended terminal value of $250
million.