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

SPONSOR Silva

ORIGINAL DATE

LAST UPDATED

8/16/2008 HB 10

SHORT TITLE

2003 Road Projects Funding

SB

ANALYST Moser/Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY09

FY10

$75,000

$75,000 Non-Recurring

State Severance

Bonds

$25,000

$25,000 Non Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates To: Laws 2003 (S.S.), Ch. 3, Sec. 27

SOURCES OF INFORMATION

LFC Files

New Mexico Department of Transportation (NMDOT)

Responses Received From

New Mexico Department of Transportation (NMDOT)

SUMMARY

Synopsis of Bill

House Bill 10 authorizes $150 million in severance tax bonds in FYs 2009 through 2011, with a

limit of $75 million in a single fiscal year, with proceeds appropriated to the Department of

Transportation for projects authorized in paragraphs (1) and (3) through (37) of Laws 2003

(S.S.), Ch. 3, Sec. 27, Subsection. A. Subject to certain limitations, an additional $50 million

(GF) is appropriated to DOT for the same projects. This appropriation cannot be used on the

Commuter Rail Project through the omission of Paragraph (2) of Laws 2003 (S.S.), Ch. 3, Sec.

27, Subsection A.

FISCAL IMPLICATIONS

House bill 10 provides up to $200 million to partly offset a projected $559 million shortfall in

the 2003 transportation projects provided for under Governor Richardson’s Investment

Partnership (GRIP):

House Bill 10 – Page

2

•

$150 million is scheduled to be funded out of severance tax bond proceeds in FY09 with

$75 million scheduled for release in FY09 and the remaining $75 million in FY10.

•

$25 million is from the general fund contingent on either:

o

reserves at the end of FY09 are at least 10 percent above FY09 recurring

appropriations plus $86.5 million. This would leave $61.5 million for non-recurring

uses in the 2009 regular session and a 10 percent reserve. The reserve level will be

calculated by DFA after the December 2008 consensus revenue estimate; or

o

Reserves at the end of FY10 are at least 10 percent plus $25 million based on the July

2009 consensus revenue estimate.

•

$25 million is from the general fund contingent on either:

o

Reserves at the end of FY10 based on the July 2009 consensus revenue estimate are

at least 10 percent plus $25 million if $25 million had already been appropriated as

indicated above; or

o

Reserves at the end of FY10 based on the July 2009 consensus estimate are at least 10

percent plus $50 million.

Severance Tax Bonding

FY08

FY09 FY10 FY11

STB Capacity - BOF Estimate July 2008*

349.2

388.6

539.4

455.2

LFC August Adjustment

-

(15.0)

(102.3)

(42.3)

STB Capacity - LFC Estimate August 2008*

349.2

373.6

437.1

412.9

Authorized Unissued

(3 1.9)

Issued Bonds

Spaceport (Laws 2006 Chapter 622)

(11.3)

(33.0)

(34.0)

2007SS - DOT maintenance (20%)

(9.1)

(9.3)

2007SS - GRIP II (40%)

(18.2)

(18.7)

2007SS - GRIP I (40%)

(18.2)

(18.7)

North/South Valley Sewer**

(2.0)

(2.0)

Water Project Fund (Statutory 10% of STB)

(32.2)

(37.4)

(43.7)

(41.3)

Other Certified Projects

(202.1)

GRIP 2008 Special Session

(75.0)

(75.0)

NET STB CAPACITY

56.1

147.6

284.4

371.6

Sweep

(15.0)

n/a

n/a

n/a

Transfer to Permanent Fund

(41.1)

n/a

n/a

n/a

FORECAST OF CAPITAL OUTLAY AVAILABLE

This type of budgeting may establish a precedent of contingent financing that

could disrupt the normal appropriation process.

SIGNIFICANT ISSUES

This appropriation along with the already committed appropriations listed in the table

above lowers the severance tax bond proceeds available for capital outlay projects. With the

expectation that there will be very little general fund reserves available for nonrecurring uses, the

amount of capital outlay that will be available for appropriation in the 2009 session will be

dramatically less than prior years.

House Bill 10 – Page

3

FY09 reserves have been estimated at $821.8 million or 13.6 percent of current year recurring

appropriations. However, no non recurring appropriations have been decided upon by the

legislature. The executive proposal contains several appropriations and revenue bills that will

lower FY09 reserves to $679.9 million or 11.3 percent. If the entire executive package is

enacted and a ten percent reserve is maintained, there will only be $77.2 million for nonrecurring

appropriations, including the feed bill and specials, supplementals and IT, in the 2009 session.

Governor Richardson’s Investment Partnership (GRIP) was passed in the 2003 special

Legislative session. The program provides for the construction and reconstruction of assorted

projects throughout the state of New Mexico. Funding for GRIP was provided through the

issuance of bonds totaling $1.585 billion dollars. In 2007, to offset GRIP shortfalls, the

Legislature appropriated an additional $52.8 million from both the general fund and severance

tax bonding authority for FY07, FY08 and FY09. GRIP funding has also been augmented by the

use of GRIP interest and STIP funding. This additional $291 million increased GRIP to $1.872

billion.

NMDOT reports that through July 2008, 32 projects totaling $525 million have been completed.

Another 33 projects valued at $718 million are under construction and 26 projects valued at $629

million are scheduled to be let for bid. This, however, leaves 32 projects valued at $559 million

unfunded.

These unfunded projects are largely the result of inflationary increases in the cost of materials,

an

under-funded commuter rail project and inadequate initial cost projections. While the NMDOT

disagrees with the impact of commuter rail there is no question that costs dramatically

accelerated from the original $120 million for this project to its current projection of $475

million. This has resulted in GRIP being over half a billion dollars short of the requisite funding

for completion of all projects designated by the Legislature. This shortfall is growing because of

continued inflationary pressure. In January the Legislature was advised by the department that

the shortfall was projected at $495 million. Since January this number has grown to the current

projection of $559 million, a 12.9 percent increase in a seven month period.

The following table illustrates the growth in construction materials costs since 2003:

ITEM

2003

2008

PERCENT

INCREASE

Asphalt

$219 per ton

$850 per ton

288%

Pavement

$29 per ton

$55 per ton

90%

Base Course

$8.77 per cubic yard $15.59 per cubic yard 65%

Earthwork

$4.34 per cubic yard $5.65 per cubic yard 30%

Concrete

$351 per cubic yard $$475 per cubic yard 30%

Rebar

$0.53 per pound

$1.17 per pound

121%

NMDOT indicates that it has issued $1.1 billion of the bonding authority and secured a $200

million line of credit with the remaining authority of $236 million outstanding. The financing

plan calls for a final bond issuance of $436 million (includes redemption of the line of credit) to

occur in late CY2010. Due to the construction inflation previously mentioned, project costs have

grown requiring the department to spend down the proceeds at a quicker rate than anticipated in

the original finance plan.

House Bill 10 – Page

4

TECHNICAL ISSUES

The definition of reserves is defined as “reserves as a percentage of current-year recurring

appropriations.” In the last few years, the term “reserves” has referred to budget year

appropriations to be decided during the regular legislative session and not the operating budget

already in place. For example, the reserves estimated based on the August consensus revenue

group have been reported as $207.8 million based on the expected reserve balance of 10 percent

of FY10 appropriations.

Section 2-B-1(a) and (b) should simply state minimum amounts of revenue that must be

estimated rather than the complicated formula in the current proposal.

The bill creates a “July 2009 revenue projection” that is not subject to the DFA and LFC

performance measures.

NMDOT indicates that it will comply with the requirements of Subsections C, D and E of

Section 67-3-59.4 NMSA 1978. (Legislative reporting requirements on project status).

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The department will not be able to complete the scheduled projects under GRIP. Additional

maintenance funds will need to be expended to maintain the deteriorated condition of these

highways for public safety.

GM/mt