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intended only for use by the standing finance committees of the
legislature. The Legislative Finance Committee does not assume
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F I S C A
L I M P A C T R E P O R T
|
SPONSOR: |
SFC |
DATE
TYPED: |
|
HB |
|
|
|
SHORT
TITLE: |
Increase
Cigarette Tax |
SB |
CS/804,336,717,835/aSFl#1/aHTRC/aHFl
#1 |
|||
|
|
ANALYST: |
Williams/Neel |
||||
APPROPRIATION
|
Appropriation Contained |
Estimated Additional
Impact |
Recurring or Non-Rec |
Fund Affected |
||
|
FY03 |
FY04 |
FY03 |
FY04 |
|
|
|
|
$8,740.0 |
|
|
Recurring |
UNM HSC |
|
|
$3,680.0 |
|
|
Recurring |
DOH/Capital Program Fund |
|
|
|
|
*$9,568.0 |
Recurring |
Credit Enhancement Account
to General Fund |
(Parenthesis ( ) Indicate
Expenditure Decreases)
* Contingent upon sufficient
funding for immediate debt service payment
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
$8,740.0 |
$9,500.0 |
Recurring |
|
|
|
$3,680.0 |
$4,000 |
Recurring |
|
|
|
$21,252.0 |
$23,100.0 |
Recurring |
General Fund |
|
|
$9,568.0 |
$10,400.0 |
Recurring |
Credit Enhancement Account |
(Parenthesis
( ) Indicate Revenue Decreases)
Relates to SB 133,
SB 292, SB 336, SB 528, SB 717, SB 730, SB 804, SB 835
HB 488, HB 954
SB 656/HB 558: Amend Hospital Funding Act
HB 2, HB 7, SB 2, SB
655
SB 298
SOURCES
OF INFORMATION
LFC Files
SUMMARY
Synopsis of HFl #1 Amendment
The House Floor amendment strikes the emergency clause and other effective dates and replaces them with:
This reduces the impact of the revenue increase by 1/12, because the taxes will be collected in July of 2003 but will not be recognized until August 2003; the above FY04 impact reflects the partial year impact.
Synopsis of HTRC Amendment
The House Taxation and Revenue Committee’s Amendment strikes Senate Floor Amendment #1 that increased the other tobacco products tax from 25 percent to 35 percent of the value of the product.
The HTRC amendment also adds a distribution (15.95%) from
the cigarette tax for the Credit Enhancement Account as a contingency if
cigarette tax revenues decline thereby affecting the state’s ability to service
the authorized bonds. The amounts deposited in the Credit Enhancement Account
are pledged for additional security on bonds issued by NMFA for
After the bonds issued pursuant to SB 804 are paid in full, and upon an associated certification by NMFA, the 15.95 percent distributed for the Credit Enhancement Account will be redirected to the General Fund.
The amendment added language prohibiting new laws that adversely affect payment on outstanding revenue bonds. An emergency clause is also added.
Significant Issues on HTRC
Amendment
The new earmarked distribution increases the coverage ratio from 1.23x - 1.34x to between 2.47x – 2.69x (based on calculations by JP Morgan). Concern has been expressed that under the distribution rates included in SB 804, revenues may not be sufficient for debt service payments in light of the size of the cigarette tax increase ($.70), potential federal cigarette tax increases and the presence of tribal cigarette sales.
The amendment does not set up a reserve mechanism to set aside the upcoming debt payment. Therefore, it appears that there may not be a general fund impact absent of reduced cigarette revenues.
Distributions under the SB 804 and the HTRC amendment are detailed below:
Questions:
- Should be the General Fund bear the cost to ensure higher bond ratings rather than the beneficiary or NMFA?
Synopsis of SFl #1 Amendment
The Senate Floor Amendment # 1 increases the Tobacco Products Tax from 25 percent of the value of the product to 35 percent, which makes the tax rates, when compared to the value of the respective product, commensurate to the cigarette tax increase.
Synopsis of Original Bill
The Senate Finance Committee Substitute for Senate Bills
804, 336, 717 and 835 authorizes an increase in the cigarette tax from the
current $0.21 per pack to $0.91 per pack.
This increase would rank
The Substitute would increase total revenues by $47 million. The revenue estimate uses an assumption of an elasticity of 0.7, i.e. as the tax increases, the incremental amount received in revenues declines because the volume of the product sold is reduced. The Substitute authorizes two new distributions of net receipts attributable to the tax, specifically approximately 14.52 percent of the tax to the New Mexico Finance Authority (NMFA) for the University of New Mexico Health Science Center (UNM HSC) and 6.11 percent for the New Mexico Finance Authority for Department of Health (DOH) facilities improvements.
The General Fund would receive the residual of the cigarette tax increase after these two distributions are made. Current cigarette tax distributions to all other funds are adjusted to hold them harmless compared to projected FY04 revenue levels.
UNM HSC Component. The bill authorizes the New Mexico Finance
Authority to issue revenue bonds with a term of up to fifteen years for an
issuance of no more than approximately $60 million for design, construction,
equipping and furnishing additions and improvements at the UNM HSC and the
Cancer Research and
Any balance remaining, after all bond obligations are met, would be appropriated on a monthly basis to UNM HSC. The legislation directs statutory changes to cigarette tax imposition, collection or distribution could not be enacted which would harm the issuer’s ability to repay bond holders. Upon repayment of the bonds, the NMFA distribution for the UNM HSC would be redirected to the General Fund.
DOH Component. The bill authorizes the New Mexico Finance Authority to issue revenue bonds for improvements for Department of Health facilities upon certification by the Secretary of Finance and Administration of the need for the bonds. Proceeds from the sale of the bonds is appropriated to the capital program fund administered by the Property Control Division of the General Services Department. The new distribution of the cigarette tax is authorized to be pledged as a revenue stream to repay bond holders as well as for issuance, sale and administration costs associated with the bonds. The New Mexico Finance Authority is authorized to pledge funds in the public project revolving fund to these revenue bonds if necessary.
Any balance remaining, after all bond obligations are met, would be appropriated on a monthly basis to the capital program fund for capital improvements to Department of Health facilities. The legislation directs statutory changes to cigarette tax imposition, collection or distribution could not be enacted which would harm the issuer’s ability to repay bond holders. Upon repayment of the bonds, the NMFA distribution for DOH facilities would be redirected to the General Fund.
According to the Capital
Improvement Plan submitted by the Department of Health, there is approximately
$50 million of infrastructure and capital improvement needs during fiscal year
2003-04 at six main facilities. These are primary care facilities that provide
medical, geriatric, mental health, alcohol and drug rehabilitation, and
physical rehabilitation for residents in
FISCAL IMPLICATIONS/RELATIONSHIPS TO OTHER LEGISLATION
The Substitute relates to revenue, appropriations and bonding components of various bills including cigarette tax increases, tobacco settlement funds, appropriations as well as revenue bonding proposals to assist UNM HSC.
AW:SN/sb:yr:njw