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.

 

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

 

 

 

SPONSOR:

Smith

 

DATE TYPED:

3/19/03

 

HB

 

 

SHORT TITLE:

 

Objectives for State Investment Officer

SB

779/aSCORC/aHAFC/aHFl #1

 

 

ANALYST:

Neel

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

 

 

 

 

NFI

 

 

 

 

 

 

 

 

(Parenthesis ( ) Indicate Revenue Decreases)

 

SOURCES OF INFORMATION

 

Responses Received From

SIC

 

SUMMARY

 

     Synopsis of HFl #1 Amendment

 

The House Floor amendment #1 adds an emergency clause to the proposed legislation.

 

     Synopsis of HAFC Amendment

 

The House Appropriations and Finance Committee amendment reduces the percent of the Severance Tax Permanent Fund (STPF) that can be invested in New Mexico Private Equities from 8 percent to six. 

 

    Synopsis of SCORC Amendment

 

The Senate Corporations and Transportation Committee amendment makes the following substantive changes:

 

  • Eliminates the 60 percent ceiling that SIC can invest in New Mexico private equity funds;
  • Requires SIC to comply with guidelines and policies established by the council in investing in New Mexico Private equity funds; and
  • Increases the ceiling that SIC can invest in individual companies from 49 percent to 51 percent with specified exceptions;

 

       Synopsis of Original Bill

 

SB-779 raises the limit on investments in New Mexico private equity funds from three percent to eight percent of the market value of the severance tax permanent fund.  It also allows co-investment in New Mexico businesses and defines the term “New Mexico business”. 

 

The bill eliminates restrictions on the dollar amount that may be committed to any one fund or business and eliminates the restriction on the minimum committed capital size of a New Mexico private equity fund.  It raises the amount invested in any one New Mexico private equity fund from fifty percent to sixty percent of the total committed capital of that fund.  It sets limits on investment in any one New Mexico business of no more than ten percent of the amount available for investment pursuant to this section, and limits this investment to no more than forty-nine percent of the total investment capital in a business.  The bill also requires the State Investment Council (SIC) to review SBIC funding once a year and adjust funding to one-fourth percent of the market value of the Severance Tax Permanent Fund (STPF) if below this level.  It also requires semi-annual reporting on the New Mexico private equity investments in the STPF by the SIC to the Legislature.

 

OTHER SUBSTANTIVE ISSUES

 

The SIC reports that SB-779 will allow more investments in New Mexico private equity funds and co-investments in New Mexico businesses, thus providing an increase in capital to stimulate the economic development of New Mexico. The SIC would prefer eliminating the limit on the amount invested in any one New Mexico private equity fund as a percentage of their committed capital.

 

POSSIBLE QUESTIONS

 

SB 779 allows the State Investment Officer to make investments in New Mexico businesses in conjunction with cooperative investment agreements with parties that have demonstrated abilities and relationships in making investments in new, emerging or expanding businesses.  What is the difference between the proposed investment in New Mexico businesses and the current practice of investing in New Mexico businesses through private equity funds?

 

The New Mexico Department of Economic development has in the past directly invested in New Mexico businesses.  What were the returns from these investments? 

 

SN/njw:yr