Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

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

1/31/08

2/01/08 HB

SHORT TITLE Educational Services Gross Receipts Exemption

SB 480

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

($168.4)

($173.5) Recurring General Fund

($143.9)

($148.2) Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Rio Grande Educational Collaborative

Responses Received From

Taxation and Revenue Department (TRD)

Public Education Department (PED)

SUMMARY

Synopsis of Bill

Senate Bill 480 creates a new gross receipts tax exemption for receipts from the sale of a service

for supplemental education provided pursuant to the federal No Child Left Behind Act of 2001.

The provisions of the bill will become effective on July 1, 2008.

FISCAL IMPLICATIONS

According to PED, federal spending in New Mexico for supplemental education services totaled

$4.5 million in the 2006-2007 school years (FY07). Most of that federal funding was probably

spent in municipalities, where the statewide average tax rate is about 7 percent. PED expects the

amount of federal funding for supplemental education services is expected to grow as more

schools are identified for improvement. This fiscal impact analysis assumes growth of 3 percent

per year. These assumptions result in a FY09 revenue loss of $312.3 thousand. About 75 percent

of that revenue loss will accrue to the general fund and the remaining 25 percent to local

governments.

Senate Bill 480 – Page

2

LFC notes that the fiscal impact of the bill could be larger if federal funding for supplemental

education services rises in the future, or could be reduced to zero if the No Child Left Behind

program is discontinued.

SIGNIFICANT ISSUES

PED received $4.5 million in federal funds for special education services, commonly referred to

as tutoring, in the 2006-2007 school year. PED reports that supplemental educational services

were established in the No Child Left Behind Act of 2001. These tutoring services are provided

to low-income students in schools that are in year two of school improvement, corrective action

or restructuring.

PED solicits bids from vendors to receive that funding. Winning vendors then provide tutoring

services in Title I school districts. Proponents of the legislation note that because a gross receipts

tax of about 7 percent must be paid out of a set amount of federal funds available for tutoring, the

amount of tutoring that can be provided to New Mexico students is lower. By allowing a gross

receipts tax deduction for tutoring, the federal funds available will be able to serve more

students.

LFC notes that while individual credits, deductions and exemptions from the gross receipts tax

may have small fiscal impacts, their cumulative effect significantly narrows the gross receipts tax

base. Narrowing the gross receipts tax base increases revenue volatility and requires a higher tax

rate to generate the same amount of revenue.

ADMINISTRATIVE IMPLICATIONS

The administrative impact on TRD will be minimal.

TECHNICAL ISSUES

LFC recommends amending the bill to define “service for supplemental education." The No

Child Left Behind Act defines “supplemental educational services" as “tutoring and other

supplemental academic enrichment services that are (i) in addition to instruction provided during

the school day; and (ii) are of high quality, research-based, and specifically designed to increase

the academic achievement of eligible children on the academic assessments required under

section 1111 and attain proficiency in meeting the State’s academic achievement standards."

SS/nt