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.

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(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to House Bill 15, House Bill 78, and Senate Bill 250

SOURCES OF INFORMATION

Economic Development Department (EDD)

Department of Labor (DOL)

LFC Files

SUMMARY

Synopsis of Bill

The bill transfers the Industrial Development Training Program (IDTP), or In-Plant Training, from the Economic Development Department to the Labor Department's Job Training Division. In addition, the bill provides selection criteria for the IDTP Board to follow while awarding funds to companies.

Significant Issues

The purpose of the transfer of the IDTP is to consolidate the State's training programs, encouraging efficiency and coordination of state and federal funds. Currently, the Labor Department administers various training programs, primarily federally funded. Housing the IDTP in the same department/division as these other programs will lead to the leveraging of both state and federal dollars when making award decisions. In addition, the Labor Department maintains an extensive database of potential employees throughout New Mexico. Because of confidentiality issues, the Labor Department has been constrained when needing to share the information with other agencies, such as EDD. Transferring the IDTP to the Labor Department will allow for the use of the database by IDTP Board to target trainees.

Current Fund Issues. In FY01, the IDTP Board awarded 86 percent of the appropriation before the first month of the fiscal year. Virtually, the entire fund balances were awarded prior to the end of the second quarter of FY01, with only $4.1 currently available. For FY01, the program funded 2402 jobs with $10,158.4 of IDTP fund balances. According to the IDTP Budget Report, the Development Training Fund has $14,637.6 obligated to active projects, but only $1,441.4, or 9.8 percent, has been expended. The agency has requested a 150% increase in funding for the current and next fiscal year, totaling $15,000.0.

1996 Performance Audit Review. During the 2000 interim, LFC staff conducted a review of the program, focusing on the 1996 LFC Performance Audit recommendations, the current IDTP policies, rural issues, funding shortfalls, coordination with other economic development incentives, and national trends in employer-based programs.

Important recommendations of the 1996 LFC Performance Audit were not implemented by the IDTP Board, primarily the recommendation of developing company selection criteria, or prioritization. In addition, other findings were not implemented, including targeting trainee selection, program evaluation, review of training success, and creation of a strategic plan for the program.

In the review during the 2000 interim, LFC staff also found a number of policies that restrict the achievement of the program mission, including requiring full-time training, only funding entry-level or hourly wage employees, and allowing for re-application without prioritizing award criteria. In addition, the review found that there has been significant progress in addressing the lack of rural funding in the program. Over the last six fiscal years, an average of 74.9 percent of funds went to urban areas and 25.1 percent to rural areas. The FY01 awards reversed this trend, with 79.5 percent of funds to rural areas, and 20.5 percent to urban.

IDTP Fund Trends. When looking at the recent trends of the Industrial Development Training Program, it is not clear that there has been a rising demand for the program over a period of time. The funding shortfall is a result of extreme rise in demand this year. Since FY95, it is not clear that there has not been steady growth in the number of projects per year, the amount of allocations per year, or the number of jobs created per year (see attachments). The rate of use of the funds vary from year to year and it is difficult to track any recent trends or to anticipate the future demand of the program.

One trend is that of the increasing cost per job (see attachment). This is attributable to the rising wages the program is attracting, as well as funding contracts with institutions to perform training on top of the wage reimbursement. According to the National Governor's Association, in 1998 New Mexico had the highest cost per employee for its employer-based training program, exceeding $3.3. This peaked at $5.7 in FY00. With the increase in rural positions in FY01, the current average cost per employee is $4.2, possibly attributable to lower wages. In addition, other states, such as New Jersey and California, utilize different funding sources such as surcharges on taxes to fund the program. The IDTP program is completely funded from the general fund.

Application Process and Selection Criteria. With limited funding resources of the state and the rising cost per employee, it is vital that selection criteria be implemented and the application process altered to accommodate such changes. Because the Industrial Development Training Board uses a first-come, first served policy, it is unclear if the additional funds would extend the life of the development training fund. The IDTP has changed its policies to help address the situation, such as only allowing for the initial six months of training and only funding rural areas 65 percent of wages instead of the potential 75- or 90-percent. Although these policy changes are steps in the right direction, no policies have been adopted to prioritize applications, or has any changes been made to address the issue of funding the majority of projects in the first month of the fiscal year.

The IDTP staff and board need to develop an application process that allows for consideration of projects, given a certain restraint on the amount that can be allocated. Currently, the board meets once a month and addresses completed applications that have been received and approved as qualified applicants. However, as in FY01, the board could feasibly allocate all the available funds prior to the end of the fiscal year. It is perhaps more efficient to meet quarterly or semi-annually and allow applications to be gathered and then considered against one another. As it is now, companies must rush to get their applications in at the beginning of the fiscal year in order to avoid missing out on the available funds later.

The bill amends the Development Training Act to include the following selection criteria to be analyzed by the IDTP prior to awarding funds:

(1) the complexity of skills needed by the company;

(2) whether the company proposes to target hard-to-employ persons;

• the wages and benefits of trainees and other employees;

(4) the proposed number of trainees and the number of total jobs available from the company;

(5) employee promotion history and retention rates of trainees and other employees of the company;

(6) the economic and environmental impacts of the company on the area;

(7) unemployment rates of the area from which trainees will most likely be hired;

(8) past financial performance of the company;

(9) the community service history of the company; and

(10) other criteria the board deems important to economic development and the quality of life of the area.

According to the Economic Development Department, transferring the program could compromise the efficient application of program incentives because the agency's familiarity with the State's incentives for attracting businesses. However, virtually every business incentive is administered by a different entity other than the Economic Development Department. For example, tax incentives are administered by the Taxation and Revenue Department. Local governments administer other incentives, such as Industrial Revenue Bonds. In addition, the EDD indicates the IDTP will not be marketed if transferred; however, as with other incentives, the EDD will still be able to administer the marketing of the IDTP and other business incentives offered throughout the state. The program and funding decisions will continue to be made by the Industrial Development Training Board.

FISCAL IMPLICATIONS

The bill does not contain an appropriation. All appropriations and funds of the Economic Development Department related to the IDTP shall be transferred to the Labor Department.

ADMINISTRATIVE IMPLICATIONS

The oversight of the program would move from the responsibility of the Economic Development Department's Economic Development Division to the Labor Department's Job Training Division.

CONFLICT/DUPLICATION/COMPANIONSHIP/RELATIONSHIP

This bill relates to the duplicate bills of House Bill 15, House Bill 78, and Senate Bill 250. Each of these bills propose to appropriate $15,000.0 to the development training fund for the IDTP.

TECHNICAL ISSUES

The bill calls for "all appropriations, money, records, files and other property of the economic development department related to the development training program shall be transferred to the labor department."

The bill should be amended to specify the transfer of 3.00 FTE. The program and IDTP Board utilize three employees to administer and monitor the program, including a program manager and two economic development representatives.

MW/njw

Attachment (see next page and attach)