NOTE: As provided in LFC policy, this report is
intended only 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 for
other purposes.
The most recent FIR
version (in HTML & Adobe PDF formats) is available on the Legislative
Website. The Adobe PDF version includes
all attachments, whereas the HTML version does not. Previously issued FIRs and attachments may be
obtained from the LFC in
F I S C A
L I M P A C T R E P O R T
|
SPONSOR: |
Lujan |
DATE
TYPED: |
11/5/03 |
HB |
CS/CS/HB15/ahfl/aSCW |
||
|
SHORT
TITLE: |
Tax
Relief and Highway Projects |
SB |
|
||||
|
|
ANALYST: |
Taylor,
Neel, Valenzuela |
|||||
APPROPRIATION
|
Appropriation Contained |
Estimated Additional Impact |
Recurring or Non-Rec |
Fund Affected |
||
|
FY04 |
FY05 |
FY04 |
FY05 |
|
|
|
|
700.0 |
|
|
Recurring |
Weight Distance Tax
Identification Permit Administrative Fund |
(Parenthesis ( ) Indicate
Expenditure Decreases)
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY04 |
FY05 |
|
|
|
|
5,600.0 |
60,300.0 |
60,300.0 |
Recurring |
State Road Fund |
(Parenthesis
( ) Indicate Revenue Decreases)
SOURCES OF
INFORMATION
NM
Taxation and Revenue Department (TRD)
NM
Department of Transportation (DOT)
NM Finance Authority (NMFA)
SUMMARY
Summary of Bill
Amendments
The
Senate Committee of the Whole adopted the following four amendments:
- Amendment one changes
the distance provision on oversize and overweight permits from within a 75
mile radius of trip origin to 125 miles.
- Amendment two
requires the department of public safety to issue special permits for excessive
weight, width, length and height within 24 hours of receiving a completed
application for such a permit.
- Amendment three requires
the department of transportation to adopt and enforce rules with the goal
that no less than 70 percent of the work force shall be
- Amendment four
amends the language on the I-25 reconstruction and improvement project. The I-25 corridor project is changed
from
House
Floor Amendment No. 1: The amendment allows a “design and build” process to be
used for the project reconstructing the interchange at
HAFC
Amendment: The HAFC amendment adds an
emergency clause to the bill. An emergency
clause requires a two-thirds vote, which was not achieved on House final
passage.
Summary of the Bill
The
HTRC Substitute for HB 15 proposes increases in taxes and fees that support the
state road fund. This reflects concerns expressed by the State
Department of Transportation, the Governor’s Office and the Blue Ribbon Tax
Commission that current road fund revenue sources are not adequate to meet the
state highway financing needs. The
overall fiscal impact on the road fund is a revenue increase of $60.3 million
in FY05, the first full year of changes.
SYNOPSIS
OF BILL
Distribution
to
Special
Fuel Excise Tax Distribution. Section
2 reduces the percentage of special fuel excise taxes distributed to the local
government road fund from 11.11 percent to 9.52 percent. Distributions are changed to direct
additional special fuel tax revenues to the state road fund; local distributions
are held harmless by the change in rates.
Effective Date:
Weight Distance Tax
Identification Permits Defined.
Section 3 defines a new “weight distance tax identification permit” that
is issued by TRD and identifies a vehicle as subject to the weight distance
tax. Effective date:
Weight Distance Tax
Rates. Section 4 increases weight distance tax rates
for vehicles other than buses. Rates,
which are established on a mills per mile basis for different gross vehicle
weight ranges (a mill is one thousandth of one dollar), are increased by 38 percent. Effective date:
Bus Tax Rates. Section 5 increases
the weight distance tax rates for buses.
Rates, which are established on a mills per mile basis for different
gross vehicle weights, are increased by 38 percent. Effective date:
Weight Distance Tax
Identification Permits. Sections 6 through 8
deal with weight distance tax permit issues.
Vehicles subject to the weight distance tax are required to display and
produce on demand a weight distance tax identification permit upon passing a
port of entry. An administrative fee for
the weight distance tax identification permits is established. A non-reverting
Weight Distance Tax Identification Permit Administration Fund for depositing
associated revenues is created. Money in
the fund is earmarked to TRD to pay for the cost of issuing and administering
the permits. Effective date for these
sections:
Special Fuels Tax Rate. Section 9 increases the special fuels tax
from $0.18 per gallon to $0.21 per gallon.
Effective date:
Tax I.D. Cards.
Section 10 changes TRD’s administration of trucker identification cards
to promote better revenue collection and enforcement.
Motorcycle Registration
Fees. Section 11 increases the twelve-month
motorcycle registration fees from $11 to $15. Effective date:
Passenger
Vehicle Registration Fees. Section
12 raises passenger vehicle registration fees.
The fee for a vehicle weighing less than 2,000 pounds that has been
registered for five years or less is increased from $20 to $27; registration
fees on vehicles registered for more than five years in this weight class
increase from $16 to $21. The fee for
vehicles that weigh between 2,000 and 3,000 pounds and are five years old or
less is increased from $29 to $39; the registration fees on vehicles in this
weight category that have been registered for more than five years is increased
from $23 to $31. The registration fee
for vehicles that weigh more than 3,000 pounds and have been registered for
five years or less is increased from $42 to $56; the registration fees on vehicles in this
weight category that have been registered for more than five years is increased
from $34 to $45. Effective date:
Trailer
Registration Fees. Section 13 increases the registration for
freight trailers from $10 to $13. The
fee for utility trailers not permanently registered is increased from $5 plus
one dollar for each 100 pounds in excess of 500 pounds to $7 plus one dollar
for each 100 pounds in excess of 500 pounds.
The permanent registration fee for utility vehicles not used in commerce
is raised from $25 plus $5 for every 100 pounds above 500 pounds to $33 plus $7
for every 100 pounds above 500 pounds. Effective
date:
Truck,
Truck Tractor, Road Tractor and Bus Registration Fees. Fees for these vehicles vary by weight. Section 14 increases fees on vehicles
weighing less than 4,000 pounds from $30 to $40. Registration fees on heavier vehicles are
also increased by 33 percent. The rate
on the heaviest vehicle—those over 48,000 pounds—is increased from $129.50 to
$172. The percentage of truck fee
revenues flowing to the tire recycling fund are reduced such that the fund continues
to receive the same amount of money it would have prior to the change. Effective date:
Bus
Registration Fees. Buses other than school buses and buses
operated by religious and nonprofit organizations pay the same registration fee
as trucks. Section 15 increases the bus
registration fee for school buses and religious and non-profits from $5 to
$7. Effective date:
Registration
Fees for Buses Used to Transport Agricultural Workers. Section 16 increases the registration for
buses used exclusively to transport agricultural workers from $25 to $33. Effective date:
Fertilizer
Trailers. Section 17 increases the registration fee for
fertilizer trailers $5 to $7. Effective
date:
Manufactured
Home Fees. Section 18 increases the fee for the
registration of manufactured homes from $5 to $7. Effective date:
School
Bus Fees. Section 19 increases the registration fee for
school buses from $5 to $7. Effective
date:
Distribution
of Registration Fees. Section 20 adjusts
fee revenue distributions so that incremental road fund revenue flows to the
road fund and other beneficiaries are held harmless. Effective date:
Overweight
and Oversized Permit Fees. Sections
21-22 increases oversize and overweight permit fees. Oversize permit fees increase from $60 to
$250 per year. Overweight permit fees,
which are imposed on vehicles weighing more than 86,400 pounds, are raised from
$15 for a single trip to $25 plus 2.5 cents for each ton mile. The Department of Public Safety is allowed to
provide rules governing the times during which oversized and overweight vehicles
or loads may be operated. The fee for
annual special permits other than for mobile homes is increased fro $60 to
$250. Language governing allowable
distances for excessive weight vehicles is changed from operations in the vicinity
of a municipality to specify a maximum distance of 75 miles between the origin
and destination for a single trip. Oversized
and overweight permit revenues are distributed to the state road fund. Effective date for these sections:
Highway
Projects Infrastructure. Sections 23 through
28 of the legislation provides the legislative intent to authorize the New
Mexico Finance Authority (NMFA) to issue $1.585 billion of bonds, on behalf of
the State Transportation Commission, to fund construction of 37 highways
projects throughout the state, called Governor Richardson’s Investment
Partnership (GRIP).
The
Substitute bill makes several changes to address legislative concerns.
Highway
Infrastructure Fund. Section 23 amends
the statute creating the highway infrastructure fund by including authority to
use its dedicated revenue for GRIP projects.
Transportation
Bonds. Section 24 defines the financing strategy for
GRIP projects.
Section 24a authorizes the State Transportation
Commission to direct NMFA to issue bonds on its behalf, payable from
unobligated federal funds and state revenues in either the state road fund or
the highway infrastructure fund.
Section 24b authorizes NMFA to restructure
existing bonds by exchange or current or advance refunding options.
Section 24c authorizes NMFA to define the terms,
conditions and covenants of bond issue and provides discretion to NMFA to enter
into financing strategies in addition to traditional fixed-rate structures. It
also requires project design life to meet or exceed bond maturities, and exempts
NMFA issued bonds from Board of Finance approval.
Sections 24d, 24e, 24f, 24g provide standard
language for issuance of tax-exempt bonds with a non-impairment clause to ensure the executive
or legislature will not divert revenues in state road fund or highway
infrastructure fund to other obligations until debt service is paid off, and
allows bond proceeds to be used to pay bonds issuance costs.
Section 24h requires NMDOT to acquire highway
construction materials from state lands, if feasible.
Section 24i requires bonds to be repaid from
unobligated federal or state transportation revenues.
Section 24j defines state transportation project
bonds by excluding those defined under Section 67-3-72, which includes revenue
bonds payable solely out of the net income to be derived from the operation of
the project, such as toll roads or bridges.
State
Road Fund Distribution. Section 25
authorizes state treasurer to divert road revenue for payment of debt service
on new transportation bonds prior to deposit in the road fund.
Appropriation
of Bond Proceeds. Section 26 provides the legislative intent to
authorize issuance of $1.585 billion of bond proceeds to be used to construct
37 projects and to improve NMDOT facilities.
The
bill authorizes the New Mexico Finance Authority to issue upon the effective
date up to $350 million in bonds to construct highway projects prioritized by
NMDOT. Thereafter annually, beginning with the 2004 legislative session, NMDOT
can request bond authorization and appropriation of up to $350 million, up to a
maximum amount of $1.585 billion.
NMDOT
will be required to submit an annual report to the Legislative Finance Committee
and the Department of Finance and Administration detailing its bond program. In
this report, the department shall highlight the progress of the current major
construction projects, a new annual list of projects planned for construction
with the incremental bond funding, explanation of project priorities for
several criteria (traffic counts, accident rates, pavement serviceability ranking,
etc.), and substructure conditions, and financial projections (5-yr and 20-yr
outlooks) of the NMDOT operating budget ability to afford the outstanding and
proposed bond program within the constraint of its operating budget.
It requires unexpended or unencumbered amounts
to revert to the state road fund.
Project
Authorization. Section 27 authorizes the projects.
Appropriation
of Bond Proceeds—Matching Funds. Section
28 authorizes issuance of $12 million of bonds for two projects in the
Temporary
Provisions. Section 29 provides language to ensure existing
bond debt is not impaired by the new issuance. Effective date: emergency clause.
Repeals. Section 30 repeals requirement for each power
unit to pay a $5.00 annual administrative fee.
Effective date:
Emergency
Clause. An emergency clause was added to bill by an
HAFC amendment. The act takes effect immediately.
FISCAL
IMPACTS TO THE ROAD FUND
The fiscal impacts of the bill are summarized in
the following table provided by the Taxation and Revenue Department.
|
HTRC Substitute for House Bill 15* |
||||
|
State Road Fund Revenue Impacts |
||||
|
(Fiscal year impacts in thousand dollars) |
||||
|
Description |
Eff. Date |
2004 |
2005 |
Full Year |
|
|
|
|
|
|
|
Weight distance tax identification
card |
|
- |
- |
- |
|
Increase special fuels tax by 3
cents |
|
- |
13,910 |
13,910 |
|
Increase weight distance tax by
38% |
|
- |
21,200 |
21,200 |
|
Increase vehicle registration fees |
|
5,600 |
22,200 |
22,200 |
|
Increase oversize/overweight
permit fees |
|
- |
3,000 |
3,000 |
|
Total Road Fund Impacts |
|
5,600 |
60,310 |
60,310 |
SIGNIFICANT REVENUE
ISSUES
Weight Distance Tax
Rates. NMDOT notes that these taxes have not been
adjusted in twenty-years, and while the proposal is to increase the tax by 38
percent, inflation over that period eroded the purchasing power of the tax by
more than 70 percent. They also note
that 75 to 80 percent of the tax is exported to out-of-state businesses. It should be noted, however, that many states
don’t impose a weight distance tax.
NMDOT reports that tax increases are scored at current collection
levels, and that increased enforcement and collection will result in additional
revenue.
Weight Distance Tax
Identification Permits. Reform of the
permitting process is critical to TRD ability to successfully administer the
associated tax. Increased weight
distance taxes are unlikely to provide additional revenue without better enforcement.
Motor Vehicle
Registration Fees. NM DOT reports that
Significant
Transportation, Road Fund and Bond Finance Issues.
House Floor Amendment #1 amends the Procurement Code
to allow NMDOT to enter into a “design and build” contract for the Coors/I-40
interchange projects. NMDOT reports that design/build provides quicker
construction time and improved quality. However, based on its experiences, it does
not necessarily reduce construction cost. The department and the U.S. General
Accounting Office note that design and build is not appropriate for all construction
projects. Based on the unique construction challenges and heavy traffic volumes
at this interchange, design and build could provide flexibility appropriate to
this project.
Based on bonding authority and new revenues in the
Substitute bill, the NMDOT proposes to allocate approximately $40
million per year to debt service (principal and interest payments) for GRIP
with the balance to the state road fund operating budget. The proposal raises
the following issues, which are reviewed more completely in the fiscal
implications section:
- Operating budget
may fall behind as debt obligates larger share of
operating revenue.
- New revenue may
not be sufficient to pay for GRIP spending under higher
interest rate scenarios.
- GRIP requires
restructuring of existing debt by lengthening maturities of bonds.
- The full GRIP
funding increases total principal and
interest payments from $1.3 billion to almost $4
billion.
- Without additional
revenues, financing the full GRIP package
will eliminate additional bond
capacity for the next 15-20 years. NMFA
reports that under alternative scenarios, it may be able to free up
capacity for future bond issuances, however.
New Revenue Sources. Incremental revenue
in the Substitute is targeted at heavy
road users. According
to NMDOT, 75 percent of the diesel truck traffic originates outside of and passes
through
Operating Budget
Needs. The department typically holds as many as 400
staff positions vacant. Since FY03, the state-supported construction program,
reflecting 1,200 miles of road, has
not been funded. Meanwhile, according to
agency officials, construction costs increase at a 4.5 percent inflation factor
and the unit-based gasoline tax continues to lose its value when adjusted for
inflation. The incremental road fund revenue would allow the department to
boost maintenance and construction activities and fill needed positions.
Bonding Capacity
Based on New Revenue. The department proposes two financing
strategies, along with the new revenue, to achieve its
$1.585 billion goal to fund GRIP:
1. Restructure existing
12-yr debt into longer maturities.
2. As bonds are paid
off, use freed up cash for additional leverage.
Under these
conditions, it is feasible to finance the debt proposed by
GRIP. To support this conclusion, NMFA ran several scenarios for the LFC, as
shown in the following table:
|
Borrowing Amount
Based on New Revenue (000s) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
New Revenues |
|
12-yr Maturity |
|
16-yr Maturity |
|
18-yr Maturity |
|
20-yr Maturity |
|
|
|
|
|
|
|
|
|
|
|
No new money |
|
- |
|
800,000.0 |
|
815,000.0 |
|
875,000.0 |
|
|
|
|
|
|
|
|
|
|
|
$25 million |
|
625,000.0 |
|
1,100,000.0 |
|
1,260,000.0 |
|
1,350,000.0 |
|
|
|
|
|
|
|
|
|
|
|
$40 million |
|
1,030,000.0 |
|
1,390,000.0 |
|
1,490,000.0 |
|
1,590,000.0 |
|
|
|
|
|
|
|
|
|
|
|
$45 million |
|
1,160,000.0 |
|
1,470,000.0 |
|
1,578,000.0 |
|
1,670,000.0 |
The Substitute allows
NMDOT and the Legislature to adjust and balance its commitment to new debt and
its use of new revenues for the ongoing operations.
According to NMDOT,
bonds would be sold over the next seven years to accommodate project
preparation, construction schedules and capacity. According to NMFA,
this scenario would increase total debt to $4 billion, as shown in a similar table
below.
|
Total Principal
and Interest Payments for GRIP
(Highway Construction) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
New Revenues |
|
12-yr Maturity |
|
16-yr Maturity |
|
18-yr Maturity |
|
20-yr Maturity |
|
|
|
|
|
|
|
|
|
|
|
No new money |
|
$2.2 billion |
|
$2.7 billion |
|
$2.9 billion |
|
$3.2 billion |
|
|
|
|
|
|
|
|
|
|
|
$25 million |
|
$2.1 billion |
|
$3.2 billion |
|
$3.5 billion |
|
$3.8 billion |
|
|
|
|
|
|
|
|
|
|
|
$40 million |
|
$2.7 billion |
|
$3.6 billion |
|
$3.9 billion |
|
$4.2 billion |
|
|
|
|
|
|
|
|
|
|
|
$45 million |
|
$2.9 billion |
|
$3.7 billion |
|
$4.0 billion |
|
$4.3 billion |
|
|
|
|
|
|
|
|
|
|
The following graphic
compares the principal and interest proposed in GRIP with the current bond
program payments under a conservative financing scenario, which
assumes all debt is issued in FY04. This scenario shows that annual payments would
increase to a steady level of $160 to $170 million through
the next two decades. The capacity to take on new debt without additional
revenues would likely be eliminated for the
next 15-20 years.
The LFC requested NMFA
to provide a debt issuance plan that could be used to develop an alternative scenario. On November 4th NMFA provided LFC
with a new financial forecast. That
forecast is extracted and attached as appendix 2. The main difference to LFC’s scenario is a
higher outlook for federal revenues—up to $70 million in 15 years or so.
Operating Budget
Condition with GRIP. Appendix 1 shows an LFC scenario of
the NMDOT operating budget over the next 10 years with the
full GRIP funding. Using a 2 percent
growth factor for revenues and expenditures, the simulation indicates, within
two years, the annual debt service payments will
force a reduction in the rest of the operating
budget. Based on this admittedly conservative simulation, the
projected deficit compounds for the remaining years to levels that may impair
the operating budget. However, if debt
issuance is phased over several years, NMDOT may be able to cash finance some
GRIP projects and reduce borrowing requirements or shorten required
maturities.
ADMINISTRATIVE
IMPLICATIONS
TECHNICAL
ISSUES
GRIP Project
Selection and Prioritization. In collaboration
with its District Engineers, NMDOT formulated the GRIP list from more than of
$11.4 billion of unfunded transportation needs throughout the state. GRIP
reflects the immediate, critical priorities, according to NMDOT. The
methodology used by LFC to analyze the proposed project list was first to categorize
these projects into the following three groups:
OTHER
SUBSTANTIVE ISSUES
Governor’s Top
Priorities: $ 577.8 million
Reconstruct/Rehabilitation: $
901.9 million
Overlay Projects: $ 63.6 million
The
graphic, which follows, displays the total amount of GRIP funding dedicated to
each highway segment. As shown, GRIP proposes spending almost 30 percent of the
funding for Interstate 40. The need is unquestioned. However, NMDOT is funded
by the federal government to manage interstate maintenance and rehabilitation
through an annual program called the statewide transportation improvement plan
(STIP). STIP, a 6-yr plan, is funded
from dedicated federal funds of $167 million/year. NMDOT reports that a total of $1.2 billion
will be spent for the STIP program over the next six years (note: the money in
the STIP program is in addition to that available for GRIP). Thus, moving
projects from STIP funding to the GRIP program implies room for additional for
projects in the STIP.
POSSIBLE QUESTIONS
The descriptions of the GRIP projects in the
legislation may not provide enough information for legislators to make
appropriation decisions. This is particularly important for the I-25 project. As
originally proposed, GRIP included two critical projects for the
Albuquerque/Santa Fe transportation corridor. These projects, totaling $122.5
million, would reconstruct from 4-lanes to 6-lanes from Tramway to Bernalillo
and would add a 3rd high-occupancy vehicle (HOV) lane between
Bernalillo and
Some GRIP projects duplicate planned STIP
projects. As an example, one GRIP project would reconstruct US54 from Tularosa
to POSSIBLE
QUESTIONS
GRIP includes both high
and low-volume roads. The rationale as to the financing needs for these is not
always evident. For example, compare the
$150 million US 54 and $101 million for US 491. As the following graphic shows,
US 491 has significantly higher traffic volumes and a lower construction cost.
This highway is also one of
GRIP proposes to rebuild
US 54 to a 4-lane highway. It initially proposed
an enhanced 2-lane road for US 491. However,
Secretary Faught testified at an HAFC hearing that NMDOT is committed to making
US 491 a four lane road.
Two additional graphics,
shown below, display the results of this analysis for the rehabilitation and
overlay projects. Appendix 3 details the GRIP project list and estimated costs. The
total cost of projects, $1.646 billion, exceeds the authorized bonding capacity
of $1.585 billion.
Finally, GRIP currently includes
bonding for low-volume maintenance work. This third category of GRIP projects,
overlays, represents 11 pavement preservation projects, i.e., projects traditionally
with useful lives of 5 to 7 years. Typically,
NMDOT has managed these types of project through an annual maintenance or
construction program. However, as noted earlier, the state construction program
has not been funded since FY03. While issuing
long-term debt for shorter-term maintenance projects is problematic, the Substitute
contains language requiring NMDOT to design the project life to meet or exceed
the bond maturity, and thus may address this issue.
The NMDOT FIR notes that
GRIP investments targeted at road failure may achieve significant long-term
savings.
TECHNICAL
ISSUES
LFC
notes a technical issue in Section 25. The section refers
to “state transportation revenue bonds,” which is contrary to the specific term
of “state transportation project bonds” used in the previous section. In fact,
state transportation revenue bonds have a specific meaning, which refers to
bonds financed from the net income of transportation projects.
OTHER SUBSTANTIVE ISSUES
The
HTRC Substitute provides substantial flexibility to NMDOT and NMFA in
specifying priorities and allocating bond proceeds for these projects.
Furthermore, NMFA has considerable discretion in designing the financing strategy
for the bond sales and is not required to receive Board of Finance approval.
One provision of the bill requires NMFA and NMDOT to present details of the
bond sale to the NMFA Oversight and Legislative Finance Committees. However, these committees have no approval
authority over the details. As an option, the Legislature may want to consider
tying bond proceeds to specific projects.
Due
to accounting changes impacting the timing of revenue recognition (i.e., GASB
34 issue), general fund reserves are now estimated to be more than $500
million, or 12 percent of recurring expenditures in FY04. This may provide an
opportunity to partially draw down on those reserves for non-recurring expenditures,
such as state road infrastructure projects.
BT:SN:MV/yr:prr:yr