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

SPONSOR Ingle

ORIGINAL DATE

LAST UPDATED

2/16/07

HB

SHORT TITLE Higher Education Capital Outlay Act

SB 862

ANALYST Kehoe

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$56,700.0

Recurring

Higher Education

Capital Outlay Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($56,700.0)

Recurring General Fund

$56,700.0

Recurring

Higher

Education

Capital Outlay

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Higher Education Department (HED)

SUMMARY

Synopsis of Bill

Senate Bill 862 enacts the Higher Education Capital Outlay Act, creates the higher education

capital outlay council and higher education capital outlay fund, provides a process for correcting

outstanding deficiencies at state institutions, and provides for a process for prioritizing future

Senate Bill 862 – Page

2

critical capital outlay projects. The bill further makes a distribution to the proposed higher

education capital outlay fund in an amount equal to the tribal gaming revenue received by the

state in accordance with the revenue sharing agreements.

FISCAL IMPLICATIONS

Senate Bill 862 creates the higher education capital outlay fund in the treasury. The fund,

consisting of appropriations, gifts, grants, donations, and bequests shall be administered by the

Department of Finance and Administration. Income from the fund will be credited to the fund,

and money in the fund shall not be transferred or revert to any other fund at the end of a fiscal

year.

The bill proposes appropriating the full distribution of the annual tribal gaming revenue to the

higher education capital outlay council for the purposes of making grants to institutions for

capital projects approved by the council. The bill will reduce the state general fund revenue by

the entire amount of tribal revenue sharing and increase revenue to the newly created higher

education capital outlay fund by the same amount. The December 2006 consensus revenue

estimate of tribal revenue sharing payments in FY08 is $54.0 million which grows by five

percent annually. The five percent interest earnings of $2.7 million will also decrease general

fund revenue. Indian Gaming Compact negotiations currently underway could increase the tribal

revenue sharing to the state by approximately $9 million in FY08.

In the last several years, capital improvements for higher education facilities have been financed

by local general obligation bonds, revenue bonds issued by the universities, and state severance

tax bonds and general funds. Additional amounts are derived from other sources such as federal

funds, grants, foundations or institution fund balances.

The Legislature authorizes the funding of larger, more costly capital improvements for higher

education projects from general obligation bond capacity available only in even-years. Local

funds, which are usually local general obligation bonds issued by the two-year colleges, have

contributed significantly towards capital needs at their campuses to pay for campus

improvements such as childcare centers, student activity buildings and student recreational

facilities. University system revenue bonds are generally used to pay for projects such as

dormitories, student union buildings, stadiums, parking garages, UNM Hospital, other

revenue-generating facilities or for capital improvements.

Senate Bill 2 and House Bill 7 each contain an appropriation of $43 million based on a recent

facility condition assessment commissioned by the Higher Education Department. The funds

would address the most critical and immediate needs for buildings, sites, campus utilities, and

road infrastructure for higher education institutions listed on the attachment.

SIGNIFICANT ISSUES

Senate Bill 862 creates a Higher Education Capital Council similar to the Public School Capital

Outlay Council. The Council shall consist of 11 members consisting of the following members,

or their designees: secretary of finance and administration, the governor, the directors of the

Legislative Finance Committee and Legislative Council Service, the secretary of Higher

Education Department, a representative of a two-year institution appointed by the New Mexico

Association of Community Colleges, and a representative of a four-year institution appointed by

Senate Bill 862 – Page

3

the Council of University Presidents, two members appointed by the president pro tempore of the

Senate, and two members appointed by the Speaker of the House of Representatives.

The Council is required to review all applications for assistance from the higher education capital

fund, including a review of all existing five-year facility plans and the institution’s facility

condition index (represents the relative physical condition of facilities), verify all health, safety

or infrastructure deficiencies, develop a plan to correct the deficiencies, develop criteria for

assessing other critical capital outlay needs of each institution, prioritize critical needs, and

establish guidelines to ensure the allocations from the fund are expended in a prudent manner.

The council would also be responsible for monitoring the construction of facilities funded

through the proposed capital process.

To aid policymakers and institutions in evaluating and determining the current and future repair

and replacement costs of all higher education and special school facilities, HED contracted a

general facility-condition index assessment of buildings at all 27 state-funded institutions, a total

of 17.7 million gross square feet. According to the assessment, New Mexico’s higher education

and special schools facility condition index (FCI) average is 35.5 percent. The FCI is

determined by taking the total cost of the repairs divided by the current replacement cost for the

facility. The higher the FCI, the poorer the relative condition of the facility. For example, if a

building has a replacement value of $1 million and has $100 thousand of existing deficiencies,

the FCI is $100 thousand/$1 million or 0.10. The generally accepted rule of thumb in building

condition assessments is: Good - 0 to 5%; Fair - 5% to 10%; Poor - 10% and above.

An FCI greater than 10 percent is considered poor by national standards. A ranking of the listed

institutions in order of their FCI and deficiencies ranked from worst to best are attached.

The

assessment costs are ranked by priority—critical immediate needs, trending critical in 12 months,

necessary in three to five years, and necessary in five to 10 years. Over $1.1 billion is needed to

address the current backlog of deficiencies due to the aging conditions of the facilities. An

additional $1 billion is needed for renewal of facilities over the next five to 10 years.

PERFORMANCE IMPLICATIONS

While Senate Bill 862 addresses a process and prioritization of emergency capital needs and

deficiencies, the bill does not address a process, prioritization, or oversight of other capital outlay

projects funded by the Legislature. A body such as the council proposed in this bill could focus

on coordinating and prioritizing all funding allocations for all capital improvements at higher

education institutions

ADMINISTRATIVE IMPLICATIONS

Senate Bill 862 states the Department of Finance and Administration will be responsible for

administering the higher education capital outlay fund. However, the bill does not provide a

mechanism or support for staffing the council in its mission to achieve the processes proposed by

this bill. The proposed Higher Education Capital Outlay Council would be responsible for

overseeing capital improvements or construction on 27 campuses throughout the state. The

Public School Facility Authority (PSFA), Legislative Council Service, Legislative Finance

Committee, and Legislative Education Study Committee currently assist in staffing the Public

School Capital Outlay Council. The PSFA, with 55 FTE, support the efforts of direct oversight

of the construction of facilities for 89 public school districts statewide.

Senate Bill 862 – Page

4

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 653 duplicates the concept of this bill, but proposes funding the higher education

capital outlay fund through the issuance of short-term severance tax bonds.

Senate Bill 2 and House Bill 7 each contain an appropriation of $43 million to correct higher

education facility deficiencies statewide. The executive’s most recent capital outlay proposal

reduces its support to correct deficiencies from $40 million to $25 million.

OTHER SUBSTANTIVE ISSUES

Results of the 2006 independent assessment indicate major investments totaling nearly $1.5

billion at our campuses is needed to maximize the useful life of the state’s assets and to make the

necessary health and safety improvements to meet the current and future needs of students,

faculty, staff, and to strengthen community relationships. Without adequate funding to address

the aging and rapidly deteriorating conditions on the state’s campuses, in particular the growing

backlog of deferred maintenance, the mission of the post educational institutions is becoming

more difficult to achieve. Higher education facilities are a major tool required for the institutions

to carry out their mission and are critical to supporting academic excellence whether it be for

teaching, research or public activities.

The buildings and infrastructure at the state’s campuses require a substantial investment for

“deferred maintenance. Most campuses require extensive infrastructure replacements or

improvements for heating and cooling, water and sewer improvements, metering and energy

management systems, electrical distribution systems, fiber optic cabling and other

communications systems, and other improvements to eliminate fire and safety code deficiencies.

The backlog of repairs and renovations along with the lack of adequate funding has resulted in

the minimum performance of repairs and maintenance necessary to keep buildings at a “safe and

healthy" level for students and staff. More and more campuses are suffering from frequent

utility outages, unusable classrooms, a loss of students, and discouraged faculty members.

POSSIBLE QUESTIONS

1.

Which state entity will be responsible for providing staff support to the proposed Higher

Education Capital Outlay Council.

2.

What role will the Higher Education Department play in the prioritizing of capital outlay

deficiencies.

3.

Two-year institutions are now represented by two separate associations, the New Mexico

Association of Community Colleges, and the New Mexico Association of Independent

Community Colleges, should the appointment to the council be a joint appointment.

LMK/mt