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

SPONSOR Begaye

ORIGINAL DATE

LAST UPDATED

1/23/06

1/25/06 HB 106

SHORT TITLE Tribal Infrastructure Trust Fund Distribution

SB

ANALYST Schardin

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

300,000.0

Non-Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

300,000.0

Non-Recurring

STPF-Tribal

Infrastructure

Account

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB41, HB47, and SB66.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Indian Affairs Department (IAD)

Department of Finance and Administration (DFA)

State Investment Council (SIC)

SUMMARY

Synopsis of Bill

House Bill 106 creates the tribal infrastructure account within the severance tax permanent fund

(STPF). The new account will contain all money the legislature transfers to the STPF and desig-

nates to the tribal infrastructure account. The act sets up the first designated transfer from the

House Bill 106 – Page

2

general fund to the STPF in the amount of $300 million. This transfer of $300 million from the

general fund to the tribal infrastructure account would occur on the date House Bill 106 becomes

effective, which is assumed to be May 17, 2006.

The bill will require that SIC maintain separate records for the tribal infrastructure account so

that STPF earnings can be distributed proportionately to the general fund and the tribal infra-

structure account.

The bill also amends Section 7-27-3.3 so that beginning July 1, 2009 and every July 1 thereafter,

a distribution equal to 4 percent of the preceding calendar year end market value of the tribal in-

frastructure account will be distributed to the tribal infrastructure trust fund for investment and

distribution pursuant to the Tribal Infrastructure Act. After distribution to the tribal infrastructure

fund, the remainder will be distributed to the general fund in equal monthly payments.

FISCAL IMPLICATIONS

Because the effective date of the bill is assumed to be May 17, 2006, the fiscal impact of trans-

ferring $300 million from the general fund to the STPF tribal infrastructure account will occur in

FY06.

The $300 million transferred to the tribal infrastructure account will be invested with the rest of

the STPF and earnings from the $300 million will accrue back to the tribal infrastructure ac-

count. Beginning July 1, 2009 and each July 1 thereafter, 4.7 percent of the year end market

value of the tribal infrastructure account for the preceding calendar year will be transferred from

the account to the tribal infrastructure trust fund.

The SIC estimates that if $300 million is deposited in the Tribal Infrastructure Fund on July 1,

2006, and assuming that that money earns a return of 8.5 percent before fees, that by the time

distributions begin in FY09 the fund will have grown to about $350 million. At that time, distri-

butions will be about $14 million per year.

SIGNIFICANT ISSUES

In 2005, the legislature passed and the governor signed the Tribal Infrastructure Act. (Section 9-

21-17 through 9-21-24 NMSA 1978). This act created the tribal infrastructure trust fund to be

invested by the state investment council in the same manner in which the state’s permanent funds

are invested. Every July 1, the lesser of $10 million of 4.7 percent of the average year-end mar-

ket value of the trust fund for the last five calendar years is distributed from the trust fund to the

tribal infrastructure project fund. Money in the tribal infrastructure project fund may be used to

fund tribal infrastructure improvement in the areas of water and wastewater, electrical, commu-

nications, roads, health, emergency response, and economic development.

In FY06, $3 million on nonrecurring general fund was appropriated for tribal infrastructure im-

provements. Of that $3 million, $2.5 million was awarded to 12 entities that leveraged the money

to accomplish about $2 million in improvements that benefited approximately 13,500 people.

IAD feels that House Bill 106 supports the legislative intent of the Tribal Infrastructure Act (HB

868 in 2005 Session) by ensuring adequate financial resources for tribal infrastructure, providing

that infrastructure is planned and developed in an efficient manner, and allowing the develop-

House Bill 106 – Page

3

ment of tribal infrastructure to improve quality of life and encourage economic development.

Tribes face several funding barriers to infrastructure improvement. First, the state capital outlay

process cannot meet the large needs of the state’s tribal entities. In FY05, IAD received 201 capi-

tal outlay requests from New Mexico’s 22 tribes totaling over $162 million.

A recent Department of Energy survey found that almost 40 percent of homes in the Navajo Na-

tion lacked electricity (18 thousand homes).

Second, tribes have greater difficulty leveraging funds outside the capital outlay process because

of the perception that lending to tribal governments is riskier because of their sovereignty status

and other financial issues.

Third, tribes rely primarily on federal funding for infrastructure development. In recent years,

federal funding has been diminishing. The Indian Health Service currently has a backlog of 275

thousand Indian homes nationwide in need of improvement. Addressing this backlog would re-

quire about $1.9 billion over 10 years.

SIC notes that part of the STPF is invested in “Economically Targeted Investments” (ETIs), in-

cluding investments in the New Mexico Film Program, the New Mexico Private Equity Program,

and the SIC’s direct investment program. While these investments are expected to be profitable

over the long run, they may experience greater volatility and longer j-curves before becoming

profitable. These types of investments may not be appropriate for the Tribal Infrastructure Fund.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to House Bills 41 and 47, and Senate Bill 66. House Bills 41 and 47 transfer $125 mil-

lion and $200 million from the general fund to the STPF, respectively. Senate Bill 66 transfers

$1 billion from the general fund to the LGPF.

TECHNICAL ISSUES

SIC notes that in Paragraph C of Section 2, the “remaining” amount authorized to be distributed

each month would go to the General Fund. As the Tribal Infrastructure Fund would be distrib-

uted in a manner parallel to the STPF’s 4.7 percent distribution, the SIC assumes that this “re-

maining” amount refers to the 0.7 percent above the 4.0 percent distribution provided in the bill.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Tribal infrastructure improvements will not occur as quickly.

SS/nt:yr:mt