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F I S C A L I M P A C T R E P O R T
SPONSOR Lundstrom
ORIGINAL DATE
LAST UPDATED
1/24/08
HB 235
SHORT TITLE Road Projects Severance Tax Bonds
SB
ANALYST Moser
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
$50,000.0
Recurring
Severance Tax Bonds
(Parenthesis ( ) Indicate Expenditure Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
New Mexico Department of Transportation (NMDOT)
Department of Finance and Administration (DFA)
SUMMARY
Synopsis of Bill
House Bill 235 proposes a new section of the Severance Tax Bonding Act that authorizes the
State Board of Finance to issue and sell up to five hundred million dollars ($500,000,000) in
severance tax bonds for transportation projects authorized in Paragraphs (1) and (#) through (38)
of subsection A of Laws 2003 (1
st
S.S.), Section 27 between fiscal years 2009 and 2018. These
are all the projects except commuter rail within Governor Richardson’s Investment Partnership
(GRIP) program.
The maximum amount available each year is limited to the lesser of fifty million dollars
($50,000,000) or twenty percent of severance tax bonding capacity. Proceeds from the sale of
bonds are appropriated to a newly created Severance Tax Transportation Fund for distribution as
directed by NMDOT. Money from the bonds cannot be used to pay indirect costs.
The Bill establishes that NMDOT, rather than the legislature, is responsible for determining
when each project, based upon project readiness, will be built.
pg_0002
House Bill 235 – Page
2
FISCAL IMPLICATIONS
This bill appropriates the lesser of $50 million or 20 percent of severance tax bonding capacity in
fiscal years 2008 through 2018. DFA indicates in the table below the estimated amount that
would be funded by fiscal year based on current capacity estimates. The total fiscal impact over
the 11-year period is estimated at $460 million.
Fiscal Year
2008
2009
2010
2011
STB Capacity
322.5
306.7
301.1
282.2
20%
64.5
61.3
60.2
56.4
Lesser of $50 million or 20%
50.0
50.0
50.0
50.0
Fiscal Year
2012
2013
2014
2015
STB Capacity
257.3
230.5
187.3
174.1
20%
51.5
46.1
37.5
34.8
Lesser of $50 million or 20%
50.0
46.1
37.5
34.8
Fiscal Year
2016
2017
2018
Total
STB Capacity
160.4
149.2
147.4
20%
32.1
29.8
29.5
Lesser of $50 million or 20%
32.1
29.8
29.5
459.8
Continuing Appropriations language
This bill creates a new fund and provides for continuing appropriations. 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
DFA points out that this appropriation would overlap with a similar existing appropriation.
Chapter 3, Laws of 2007 (1st Special Session) allows for the Board of Finance to issue the lesser
of $50 million or 12.5% of severance tax bonding capacity in both fiscal year 2008 and fiscal
year 2009 for transportation projects, forty percent of which proceeds are appropriated to the
same projects that are in this bill. If this bill were to pass, based on the latest severance tax
bonding capacity estimate, this bill would provide a total of approximately $66 million to these
specific transportation projects and a total of approximately $92 million to transportation projects
as a whole in fiscal year 2008. In fiscal year 2009, this bill would provide a total of
approximately $65 million to these specific transportation projects and a total of approximately
$88 million to transportation projects as a whole in fiscal year 2009 in conjunction with existing
laws.
LFC indicates concern with the forecast of capital outlay, as shown in the above table. If general
fund surpluses above estimates are not realized in the next few years, available funding for
capital outlay will fall sharply. In line with LFC policy to state concerns about continuing
appropriations it may be desirable to appropriate for GRIP one year at a time.
pg_0003
House Bill 235 – Page
3
In December 2007, NMDOT estimated that GRIP is under funded by $494 million due both to
increased inflationary pressures and project scope changes. These increases in costs are not
unique to New Mexico with practically every other state struggling with the same issues as New
Mexico regarding the continued funding of their construction and maintenance programs.
It is anticipated that inflationary pressures are experienced that the $500 million will be
insufficient to complete the projects as inflation within the highway construction industry is
expected to continue to escalate. In December of 2005 the department reported to the LFC that it
had experienced that calendar year a 12 percent inflationary growth on all GRIP projects. The
department prognosticated at that time that inflation in FY06 would be closer to a 3.5 percent
growth rate. Unfortunately, the FY06 inflation level was closer to 28 percent. Since then this rate
has risen to 37 percent. This inflationary spiral is associated with the price of oil combined with
national shortages of both steel and concrete. Inflationary pressures have dramatically increased
GRIP project costs, delayed construction and resulted in some projects being postponed until
additional funding has been identified. This problem is not just a GRIP problem but impact all
funding for maintenance and construction activities within the NMDOT.
Federal transportation funding cuts to the NMDOT have no impact upon the GRIP program costs
since these bonds were secured with existing federal revenues and not future revenues.
ADMINISTRATIVE IMPLICATIONS
NMDOT reports that with the assemblage and construction of the GRIP projects, NMDOT has
demonstrated the capability to manage large numbers of varying dollar size projects. Since the
work is already planned and programmed, there will be no additional administrative impact.
TECHNICAL ISSUES
As noted in the significant issues, the appropriation would overlap with an existing
appropriation. Chapter 3, Laws of 2007 (1st Special Session) allows for the Board of Finance to
issue the lesser of $50 million or 12.5% of severance tax bonding capacity in both fiscal year
2008 and fiscal year 2009 for transportation projects, forty percent of which proceeds are
appropriated to the same projects that are in this bill.
GM/nt