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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports
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F I S C A L I M P A C T R E P O R T
SPONSOR Lopez
ORIGINAL DATE
LAST UPDATED
2/19/07
HB
SHORT TITLE Public Works Employer Fringe Benefits
SB 1178
ANALYST Lucero
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
Indeterminate
Indeterminate Recurring
Public Works
Health Care
Coverage Fund
(Parenthesis ( ) Indicate Revenue Decreases)
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)
FY07
FY08
FY09 3 Year
Total Cost
Recurring
or Non-Rec
Fund
Affected
Total
Minimum to
Moderate
Minimum
to
Moderate
Minimum
to
Moderate Recurring
General Fund
and/or Public
Works Health
Care Coverage
Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Duplicates HB 1237
SOURCES OF INFORMATION
LFC Files
Responses Received From
New Mexico Department of Labor (NMDOL)
Human Services Department (HSD)
SUMMARY
Synopsis of Bill
Senate Bill 1178 amends the Public Works Act to create the public works healthcare coverage
fund. The bill requires contractors who make cash payments to employees in lieu of providing
fringe benefits to instead make payment to New Mexico Department of Labor (NMDOL) for that
portion related to medical benefits. NMDOL is to deposit the collected payments into a newly
created public works healthcare coverage fund. The bill requires the Human Services
pg_0002
Senate Bill 1178 – Page
2
Department (HSD) to administer the newly created fund and use the money in the fund to
provide health insurance to residents of the state.
The bill also adds clarity to the definition of wages to include types of fringe benefits.
The bill requires the Labor and Industrial Division director to develop appropriate criteria and
guidelines for determining whether a medical plan or fund or program is bona fide. The
appropriate criteria will be presented when the division conducts public hearings to establish
regulations that will be used to enforce this law.
FISCAL IMPLICATIONS
Although the bill states in the title “Making an Appropriation", there is no appropriation being
made from the general fund. This bill proposes to grant appropriation authority to HSD over a
newly created fund in the State Treasury. The LFC strongly opposes the granting of continuing
appropriation authority.
The bill proposes for HSD to administer the newly created public works health care coverage
fund to provide health insurance for residents of the state. It is not clear through what program
or mechanism health coverage would be provided or to whom the funds would be distributed.
There are no current programs which serve as health plans in which HSD could provide coverage
to all
residents of the state. HSD administered health plans have eligibility requirements.
Administering the fund does present fiscal implications to HSD; the scope of which is unknown
without further information.
Continuing Appropriations language
This bill creates a new fund in the state treasury and provides for continuing appropriations to
Human Services Department. The LFC has concerns with including continuing appropriation
language in the statutory provisions for newly created funds, as earmarking reduces the ability of
the legislature to establish spending priorities.
SIGNIFICANT ISSUES
The New Mexico “Public Works Minimum Wage Act" (13-4-11 through 13-4-17 NMSA 1978),
also commonly referred to as the “Little Davis-Bacon Act" is closely aligned with the federal
wage act known as the Davis-Bacon Act by including fringe benefits in the prevailing wage
determination. If a contractor does not have in place a benefits package for employees, he is
obligated under that bill to pay the employee the cash value/equivalent of the fringe benefits
determined under the act.
This bill proposes to require employers, who do not provide a benefit package for employees but
instead pay a cash equivalent to the employee, to pay that portion of the cash equivalent
attributable to a medial benefit to the New Mexico Labor Department. The Labor Department
will deposit the cash equivalent into a newly created fund in the State Treasury. The bill
authorizes Human Services Department to use money in the newly created fund to provide health
insurance to residents of New Mexico.
pg_0003
Senate Bill 1178 – Page
3
The bill only proposes to transfer that portion of the cash equivalent fringe benefit associated
with medical plan coverage from employee to NMDOL. It appears as if all other cash equivalent
fringe benefits; sick leave, vacation time, life and accident insurance, etc, would continue to be
paid as cash.
Although the newly created fund is named “public works health care coverage fund" there does
not seem to be a direct link between the cash equivalent being paid into the fund and providing
healthcare coverage for public works employees. It is unclear if the intent of the bill is to make
sure public works employees have health insurance or generate a funding stream to cover other
“residents of the state" with health coverage.
HSD is unclear about its participation role in administering the newly created fund. There is no
clear explanation of HSD’s role, whom is to be covered by health insurance, or the relationship
between HSD and the Public Works Health Care Coverage fund.
PERFORMANCE IMPLICATIONS
It is unclear if the bill’s intent is to make sure that those public works employees who receive
cash equivalent payments for medical benefits actually get health insurance and if so, the number
of uninsured New Mexicans will be reduced. There does not appear to be data on how many
public works employees receive cash equivalent payments but do not actually purchase health
insurance.
ADMINISTRATIVE IMPLICATIONS
It is unknown at this time whether there will be an additional administrative cost for HSD as it is
unclear what HSD’s role is.
There may be a minimum to moderate administrative cost to NMDOL to develop appropriate
criteria, guidelines, and a monitoring system to determine whether health plans are bona fide
plans. There may also be an additional administrative cost to monitor the transfer of cash
equivalents to the public works health care coverage fund.
The newly created health care coverage fund could provide funding to pay the additional
administrative costs to NMDOL and HSD instead of the general fund.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Relates to HB 1237
TECHNICAL ISSUES
This bill does not address whether the Public Works Health Care Coverage Fund is an interest-
bearing fund. Assuming the fund would be an interest-bearing fund, the State Treasurer’s Office
would be responsible for the investment of the fund and the allocation of interest, as it is for all
other self-earning state funds pursuant to statute.
The bill does not make a direct link between diverting the cash equivalent payments from
employees to NMDOL and also providing the same employees with health care coverage by
pg_0004
Senate Bill 1178 – Page
4
HSD. It seems as if the bill proposes to tax away wages from public works employees in order
to generate a revenue stream to provide health care coverage to residents of New Mexico.
As stated above, it is unclear who is to be covered by the health care coverage. HSD, being the
agency responsible for the administration of Medicaid, may be able to leverage the newly created
public works health care coverage fund with federal Medicaid funds to help reduce the number
of uninsured in New Mexico.
OTHER SUBSTANTIVE ISSUES
Currently, the cash payments made to employees, in lieu of health insurance payments, are
considered taxable income. Shifting the cash payments from the employee to NMDOL will
reduce the income tax base of New Mexico, as well as, other employment related taxes. The
shift will also reduce the income of the public works employees.
The Health Coverage for New Mexicans Committee (HCNMC) was created by the Legislature
and the Governor to study three models of universal health coverage. The HCNMC report is due
June 2007, and SB 1178 would have the benefit of a robust report from a national consultant on
alternatives to the current health insurance market on which to propose to make further changes.
ALTERNATIVES
The cash collected by NMDOL and deposited into the newly created public works health care
coverage fund, could be used toward the purchase of a tax-exempt health savings plan for the
employees of public works contractors. This would let employees have complete discretion over
how they use that sum, limited of course by nature of the health savings plans to medical care. If
the employees do not use the funds in their health savings plan, then it should accumulate and
under specified conditions be withdrawn by the employee for other purposes. This way the
public works employee is the beneficiary of the cash equivalent, covered under a health savings
plan, and be tax exempt similar to bona fide health care plans.
Under the Statewide Human Resources, Accounting, and Management Reporting System
(hereinafter “SHARE"), the “Public Works Health Care Coverage Fund" that is established by
SB 1178 would be created by the Department of Finance and Administration (hereinafter
“DFA"). Under the TRACS system, which was replaced by SHARE, interest bearing funds were
created in the State Treasury. Under SHARE, DFA would create the Public Works Health Care
Coverage Fund and notify the State Treasurer’s Office of the creation of the fund.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
Status Quo
DL/nt