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 Suite 101 of the State Capitol Building North.

 

 

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

 

 

 

SPONSOR:

Vigil

 

DATE TYPED:

03/12/03

 

HB

725/aHEC/aHAFC

 

SHORT TITLE:

Create Highlands Loan Fund

 

SB

 

 

 

ANALYST:

Williams

 

APPROPRIATION

 

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

FY03

FY04

 

 

 

NFI

 

 

 

 

 

 

 

 

 

 

(Parenthesis ( ) Indicate Expenditure Decreases)

 

Relates to SB 655

 

SOURCES OF INFORMATION

 

LFC Files

Commission on Higher Education (CHE)

Department of Finance and Administration (DFA)

 

SUMMARY

 

     Synopsis of HAFC Amendment

 

The House Appropriation and Finance Committee amendment removes the appropriation and makes technical corrections to the fund name.

 

     Synopsis of HEC Amendment

 

The House Education Committee amendment changes the name of the fund to the New Mexico Highlands University Loan Fund. 

 

     Synopsis of Original Bill

 

House Bill 725 appropriates $1,600.0 from the general fund to the newly created highlands loan fund for the purpose of assisting New Mexico Highlands University (NMHU) with liquidity problems due to outstanding federal government accounts receivable.  The fund would be administered by the Secretary of the Department of Finance and Administration. 

 

NMHU is authorized to apply for a loan from the fund by identifying account receivables contributing to a liquidity problem.  The loan would not bear interest and would be repaid to the fund within thirty days of payment of the account receivable.

 

     Significant Issues

 

CHE presents a brief chronology of funding concerns facing NMHU.  In June 2000, then President Rael notified the CHE of serious financial difficulties due to: 1) entering an incorrect infrastructure allotment into the financial system and 2) escalation of a deficit in the area of athletics.  Subsequently, CHE conducted inter-agency oversight meetings with NMHU and placed the institution on “fiscal watch” in January 2003.

 

According to the LFC budget document, the CHE convened a fiscal watch task force of institutional representatives to develop a system to allow the commission to monitor the financial condition of institutions and to develop “triggers” to flag potential financial problems and place the institution on “fiscal watch.”  The fiscal watch is based on two key components:  1)  An examination of five financial ratio (primary reserve, return on new assets, net operating revenues, viability and debt burden) submitted by an institution to CHE annually upon completion of an independent financial audit and 2) certification by the president or chief financial officer that the governing board has been notified of the financial condition of the institution.

 

NMHU received disclaimed audit opinions on their 1999-2000 and 2000-2001 fiscal year audits and a qualified audit opinion on the 2001-2002 fiscal year audit.

 

The LFC budget recommendation reflects that the ratio analysis and associated reports should be submitted on a quarterly basis.  Further, the LFC budget recommends CHE develop a meaningful performance measure to reflect that agency’s efforts to monitor financial conditions of institutions.

 

FISCAL IMPLICATIONS

 

The appropriation of $1,600.0 contained in this bill is a non-recurring expense to the General Fund.  Any unexpended or unencumbered balance remaining would not revert. 

 

This bill creates a new fund and provides for continuing appropriations.  The LFC objects to including continuing appropriation language in the statutory provisions for newly created funds.  Earmarking reduces the ability of the legislature to establish spending priorities.

 

TECHNICAL ISSUES

 

Both DFA and CHE note due to the Commission’s oversight responsibility, the loan request could be submitted to the Department of Finance and Administration via the CHE.

 

A clarification between the recurring versus non-recurring nature of the appropriation could be made by include a reference to “one time”.

 

 

 

OTHER SUBSTANTIVE ISSUES

 

CHE notes the Commission has not reviewed this proposal.

 

POSSIBLE QUESTIONS

 

  1. What is the magnitude of the liquidity problem?
  2. What is the amount of the federal government accounts receivable?
  3. To what extent are these accounts receivable collectable and over what time frame?
  4. What is the cost/benefit to the state and to the institution of a loan fund approach to address the problem?
  5. What other mechanisms were considered to address this problem?

 

AW/prr:yr