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

SPONSOR HTRC

ORIGINAL DATE

LAST UPDATED

2/9/08

2/10/08 HB 43/HTRCS

SHORT TITLE Severance Tax Bond Projects

SB

ANALYST Kehoe, L.

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

$129,329.3

Non-Recurring

General Fund

$216,190.7

Non-Recurring Severance Tax Bond

Capacity

$600.0

Non-Recurring

State Road Fund

$600.0

Non-Recurring Miners’ Trust Fund

$1,500.0

Non-Recurring Public Employees

Retirement Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of Bill

The House Taxation & Revenue Committee Substitute for House Bill 43, as amended,

appropriates approximately $129.3 million from the general fund, authorizes approximately

$216.2 million from severance tax bond capacity, and authorizes $2.7 million from other state

funds for various capital outlay projects statewide. The amendments revise projects to address

errors in certain projects in the original bill. The amendments do not have a fiscal impact.

FISCAL IMPLICATIONS

The appropriations and authorizations contained in this bill are a non-recurring expense to the

general fund, severance tax bond capacity, and other state funds (state road fund, miners’ trust

fund, and public employees retirement fund). Except for appropriations to the capital program

fund, money from severance tax bond proceeds, the general fund, and any other fund contained

in this bill may not be used to pay indirect project costs. The balance of an appropriation made

from the general fund or other state fund to the Indian Affairs Department or the Aging and

House Bill 43/HTRCS – Page

2

Long-Term Services Department for a project located on lands of an Indian nation, tribe or

pueblo shall revert to the tribal infrastructure project fund within the time-frames set forth in this

bill. For the purpose of the sections 1 and 2 of this bill, “unexpended balance" means the

remainder of an appropriation after reserving for unpaid costs and expenses covered by binding

written obligations to third parties.

Unless otherwise specified, the unexpended balance from severance tax bond proceeds shall

revert to the severance tax bonding fund no later than the following dates: 1) for a project for

which severance tax bonds were issued to match federal grants, six months after completion of

the project; 2) for a project issued to purchase vehicles, including emergency vehicles and other

vehicles that require special equipment, heavy equipment, books, educational technology, or

other equipment or furniture not related to a more inclusive construction or renovation project, at

the end of the fiscal year two years following the fiscal year in which the severance tax bonds

were issued for the purchase; and 3) any other projects for which severance tax bonds were

issued, within six months of completion of the project, but no later than the end of fiscal year

2012. All remaining balances from the proceeds of severance tax bonds issued for projects in

this bill shall revert to the severance tax bond fund three months after the latest reversion date

specified in this bill, whether or not any of the remaining balances are subject to a contractual

obligation to third parties.

In compliance with the Severance Tax Bonding Act, the State Board of Finance (BOF) is

authorized to issue and sell severance tax bonds in an amount not to exceed the total of the

amounts appropriated in this bill. The BOF must also comply with the Internal Revenue Code of

1986, as amended. The agencies named in this bill shall certify to the BOF when the money

from the proceeds of the severance tax bonds authorized in the bill is needed for the purposes

specified in the applicable section of the bill. Before an agency certifies for issuance of the

bonds, the project must be developed sufficiently so that the agency reasonably expects to: 1)

incur within six months after the applicable bonds have been issued a substantial binding

obligation to a third party to expend at least five percent of the bond proceeds for the project; and

2) spend at least eighty-five percent of the bond proceeds within three years after the applicable

bonds have been issued.

Except as otherwise provided in this bill, the unexpended balance of appropriations from the

general fund or other state fund shall revert no later than the following dates: 1) for an

appropriation to match federal grants, six months after completion of the project; 2) for

appropriations to purchase vehicles, including emergency vehicles and other vehicles requiring

special equipment, heavy equipment, books, educational technology, or other equipment or

furniture not related to a more inclusive construction or renovation project, at the end of the

fiscal year two years following the fiscal year in which the appropriation was made for the

purchase; and 3) for all other projects, within six months of completion of the project, but no

later than the end of fiscal year 2012. All remaining balances from the proceeds from the general

fund in this bill shall revert to the general fund three months after the latest reversion date

specified in this bill, whether or not any of the remaining balances are subject to a contractual

obligation to third parties.

SIGNIFICANT ISSUES

Policymakers have taken advantage of the influx of energy-related revenues in recent years to

make meaningful investments in properly planned and managed state and local assets. However,

House Bill 43/HTRCS – Page

3

given the expectation of limited and volatile funding in future years, legislators and the executive

continue to scrutinize the vast amounts of money and large number of projects that remain

unexpended and inactive. A lack of planning, a piece-meal approach to funding projects, and

escalating construction costs continue to be the main reasons for delays in successfully

completing projects.

Between 1997 and 2007, the Legislature authorized over $3.7 billion for over 17,000 capital

projects. As of December 2007, of the amount appropriated, over $2.1 billion remains

unexpended for over 8,500 projects, including $721.6 million for nearly 3,000 projects

authorized in 2007. Of particular concern is the $590 million for 2,960 projects appropriated

between 2002 and 2006 with little or no progress.

Projects funded by severance tax bonds (STB) are of particular concern. Based on the

certification of project readiness by grantees, the Board of Finance authorizes the sale of bonds.

The issuance of tax-exempt bonds for projects not ready to commence leaves the state open to

noncompliance with the Internal Revenue Service Code. Failure to spend STB proceeds in a

timely manner causes the state, under IRS regulations, to have to rebate interest earnings the

state could otherwise use to reduce the cost of a project or to reduce debt service costs.

OTHER SUBSTANTIVE ISSUES

Despite the considerable capital outlay of recent years, the state has not added significantly to its

long-term debt obligation. Long-term debt service is expected to be $180 million by FY2013, up

from $93 million in FY2007. Most of the severance tax bonds for capital outlay have been

issued as short- term notes that use up the capacity but do not add to long-term debt. However,

use of short-term notes prevents significant transfers to the permanent fund.

According to the U.S. Census Survey of Government Finance, the combined long-term state and

local debt per capita for New Mexico was $5,343 in FY05. The average for all states was much

higher at $6,903 — an indication New Mexico has not over-leveraged its residents.

LMK/bb:nt