NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Suite 101 of the State Capitol Building North.

(Parenthesis ( ) Indicate Expenditure Decreases)

*This bill specifies that all interest earnings will be accrued to the Tobacco Permanent Fund, reducing general fund revenues, increasing the Tobacco Permanent Fund.

(Parenthesis ( ) Indicate Expenditure Decreases)

*40% distribution includes interest earnings that will be accrued to the Tobacco Permanent Fund.

Duplicates/Companion to SB48, HB110, SB47, SB70

SOURCES OF INFORMATION

State Investment Council

State Treasurer's Office

Legislative Council Service

Legislative Finance Committee

SUMMARY

Synopsis of Bill

This bill provides for a 40 percent annual transfer of tobacco settlement proceeds from the tobacco settlement permanent fund to a newly named "tobacco settlement program fund" (formerly the tobacco settlement income fund).

The annual transfer to be used for expenditure is based upon settlement proceeds received and deposited in the state treasury and distributed to the tobacco settlement permanent fund in the prior fiscal year. The balance, or 60 percent would remain in the permanent fund, and constitute the corpus of the tobacco settlement permanent fund. These funds are to be invested by the State Investment Council in a manner similar to the Land Grant and Severance Tax Permanent Funds. Like the Constitutional amendment concerning the Land Grant Permanent Fund (LGPF) and the Severance Tax Permanent Fund (STPF) distributions, the bill provides for a change in the fixed rate annual distribution formula, to 4.7 percent of the five year average year-end market value of the total fund. The formula change, commonly referred to as a "crossover" would occur sometime in the future when the 4.7 percent distribution calculation is greater than the proposed fixed rate (40 percent) annual distribution methodology when it is measured at year end.

This bill also creates a tobacco settlement revenue oversight committee. The committee would be composed of six members: three members of the house of representatives appointed by the speaker of the house, and three members of the senate appointed by the committees' committee of the senate, or if the senate appointments are made in the interim, by the senate president pro-tempore, after consultation with and agreement of a majority of the members of the committees' committee. Political party affiliation on the appointed committee shall be representative of the party affiliation of both houses of the legislature, respectively.

The bill strikes the general language on the appropriation areas allowable and identifies specific agencies and areas where money may be appropriated from the tobacco settlement program fund. The bill identifies four agencies/areas and specifies appropriation amounts as follows:

Department of Health:

$4,750.0 tobacco prevention and cessation programs

$1,000.0 diabetes prevention outreach programs

$3,800.0 primary prevention home visits to families of newborns with priority given to at-risk families

$9,550.0

State Department of Public Education:

$275.0 media literacy tobacco use prevention intervention

UNM School of Medicine:

$3,000.0 endowed chair at UNM school of medicine for research in tobacco related illness

$1,000.0 UNM school of medicine for research on lung tissue regeneration

$4,000.0

Next Generation Trust Fund (if enacted into law)

remaining balances in the tobacco settlement program fund after appropriations are to be expended in accordance with the provisions of the Next Generation Trust Fund Act

Any unexpended or unencumbered balance remaining at the end of fiscal year 2001 shall revert to the tobacco settlement program fund.

Significant Issues

The bill states that beginning in fiscal year 2002, money in the tobacco settlement program fund may be appropriated only to the agencies for the purposes specified in 6-4-10(B) (identified above) except for the endowed chair appropriation, which is a one-time appropriation. The bill also states that expenditures from the tobacco settlement program fund proposed by the legislature be in accordance with the recommendations of the proposed tobacco settlement revenue oversight committee.

FISCAL IMPLICATIONS

Language is added to the existing legislation stating that income earned from investment from the fund shall be credited to the tobacco settlement permanent fund. The Department of Finance and Administration previously indicated that unless there is language in statute that specifies the disposition of interest earnings on fund balances, those earnings would be credited to the state general fund.

To date, two tobacco settlement payments have been made to the state:

December 15, 1999: $14,725.0

December 31, 1999: $12,826.2

Total $27,551.2

Projections performed in the fall by the legislative council service, in cooperation with the legislative finance committee, incorporated volume adjustments to payments based on methodology developed by Standard & Poor's. This methodology provided a 10% volume adjustment applied in the first year (FY2001). The Attorney General's Office indicated that the actual volume adjustment affecting FY2001 distributions will be 14%.

The estimated total revenues to be received by the state from the tobacco settlement through June 30, 2000, are $48,507.0. This consists of $27551.2 received to date and $20.9 million to be received later this fiscal year. This reflects the 14% volume adjustment.

A 40% distribution of the $48,507.0 is estimated to be $19,402.9 and shall be distributed to the tobacco settlement program fund. This is $368.1 less than the distribution previously estimated (see ATTACHMENT).

Projections made in the fall of 1999 estimated total distributions of $49.4 million, based on a 10% volume adjustment. Estimated volume adjustments applied to subsequent fiscal years are 3% for FY2002 distributions, 2.5% in FY2003, and 2% thereafter.

ADMINISTRATIVE IMPLICATIONS

Possible additional administrative impacts on the Department of Health.

DUPLICATION/COMPANIONSHIP

House Bill 8, House Bill 110, Senate Bill 47 Senate Bill 70

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