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F I S C A
L I M P A C T R E P O R T
|
SPONSOR: |
Leavell |
DATE
TYPED: |
|
HB |
|
||
|
SHORT
TITLE: |
Road
Projects & Funding Increases |
SB |
15 |
||||
|
|
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 |
|
|
|
|
|
20,650 |
Similar
to FY05 |
Recurring |
State
General Fund |
|
5,600 |
85,167 |
Similar
to FY05 |
Recurring |
State
Road Fund |
|
|
(3) |
Similar
to FY05 |
Recurring |
Local
|
|
5,600 |
105,864 |
Similar
to FY05 |
Recurring |
TOTAL - All Funds |
(Parenthesis ( ) Indicate Revenue Decreases)
The State Road Fund fiscal impact in FY2005
includes: $13,917 thousand of special fuel excise tax; $20,650 thousand of
motor vehicle excise tax; $23,400 thousand of weight distance tax; $22,200
thousand of vehicle registration fees; and $5,000 thousand of oversize and
overweight permit fees. The State
General Fund fiscal impact includes $20,650 thousand of motor vehicle excise
tax.
SOURCES OF
INFORMATION
NM
Taxation and Revenue Department (TRD)
NM
Department of Transportation (DOT)
NM Finance Authority (NMFA)
SUMMARY
Senate
Bill 15 proposes several changes to the
The
overall fiscal impact on the road fund is an increase of slightly more than $85
million in FY05, with an increase to the General Fund of $20.7 million.
Finally,
the numbers reported in this analysis should be considered preliminary. All impacts are reported on a full year basis
on the assumption that the Department of Finance and Administration will have
implemented accounting changes affecting the timing of revenue recognition
(GASB 34).
SYNOPSIS
OF BILL
Special
Fuel Excise Tax Distribution. Section
1 & 2 reduces the percentage of special fuel excise taxes distributed to
the local government road fund from 11.11 percent to 9.59 percent. Distributions
are changed to direct additional special fuel tax revenues to the state road
fund; local distributions are held harmless. Effective Date:
Motor Vehicle Excise Tax
Rate. Section 3
& 4 increases the motor vehicle excise tax rate from three percent
to four percent. Distributions for FY05
and beyond are change to direct 87.5 percent to the General Fund with the remaining
12.5 percent deposited in the road fund.
In FY04, 100 percent is deposited in the general fund. Effective date:
Weight Distance Tax
Identification Permits Defined.
Section 5 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 6 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 42 percent. Effective date:
Bus Tax Rates. Section 7 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 42 percent. Effective date:
Weight Distance Tax
Identification Permits. Sections 8 through
10 deal with weight distance tax permit issues.
Section 52 requires vehicles subject to the weight distance tax to
display and produce on demand a weight distance tax identification permit upon
passing a port of entry. Section 53
establishes an administrative fee for the weight distance tax identification
permit. Section 54 establishes a
non-reverting Weight Distance Tax Identification Permit Administration Fund for
depositing associated revenues. Money in
the fund is earmarked to TRD to pay for the cost of issuing and administering
the permits. Effective date:
Special Fuels Tax Rate. Section 11 increases the special fuels tax
from $0.18 per gallon to $0.21 per gallon.
Effective date:
Tax
Identification Cards. Section 12 modifies
the tax identification card system by requiring TRD to issue annually original
tax identification cards in sufficient for the number of motor vehicles
specified by each motor carrier.
Issuance of the card is contingent upon the motor carrier being in
compliance with weight distance tax and special fuel user permit
requirements. Effective date:
Motorcycle
Registration Fees. Section 13 increases the twelve-month
motorcycle registration fees from $11 to $15.
Effective date:
Passenger
Vehicle Registration Fees. Section
14 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 15 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 16 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 17 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 18 increases the registration for
buses used exclusively to transport agricultural workers from $25 to $33. Effective date:
Fertilizer
Trailers. Section 19 increases the registration fee for
fertilizer trailers $5 to $7. Effective
date:
Manufactured
Home Fees. Section 20 increases the fee for the
registration of manufactured homes from $5 to $7. Effective date:
School
Bus Fees. Section 21 increases the registration fee for
school buses from $5 to $7. Effective
date:
Distribution
of Registration Fees. Section 22 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. Section
23 & 24 increases oversize permit fees from $60 to $300 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 4 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.
Oversized and overweight permit revenues are distributed to the state
road fund. Effective date:
Highway
Projects Infrastructure. Sections 25 through
29 of the legislation 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).
Effective date: February 2004.
Highway
Infrastructure Fund. Section 25 amends
the statute creating the highway infrastructure fund by including authority to
use its dedicated revenue for GRIP projects, as identified in Sections 28 and
29 of this bill.
Transportation
Bonds. Section 26 defines the financing strategy for
GRIP projects.
Section 26a authorizes the State Transportation
Commission to direct and pay NMFA to issue bonds on its behalf.
Section 26b provides a $1.585 billion limit on
bond issuance for GRIP.
Section 26c authorizes NMFA to restructure
existing bonds by exchange or current or advance refunding options.
Section 26d 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.
Requires project design life to meet or exceed bond maturities. It exempts NMFA
issued bonds from Board of Finance approval.
Sections 26e, 26f, 26g, 26h 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 26i requires NMDOT to acquire highway
construction materials from state lands, if feasible.
Section 26j requires bonds to be repaid from
unobligated federal or state transportation revenues.
Section 26k 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 27
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 28 authorizes issuance of $1.585
billion of bond proceeds to be used to construct 37 projects and to improve
NMDOT facilities. It requires the NMDOT and NMFA to present the detail of the
proposed bond issuance to joint hearing of the NMFA Oversight and Legislative
Finance Committees within 30 days of commission authorization for a bond sale.
It requires unexpended or unencumbered amounts to revert to the state road
fund.
Appropriation
of Bond Proceeds—Matching Funds. Section
29 authorizes issuance of $12 million of bonds for two projects in the
Temporary
Provisions. Section 30 provides language to ensure
existing bond debt is not impaired by the new issuance.
Repeals. Section 31 repeals the requirement for each
power unit to pay a $5.00 annual administrative fee.
SIGNIFICANT
REVENUE ISSUES
Weight Distance Tax
Rates. NM DOT notes that these taxes have not been
adjusted in twenty-years, and while the proposal is to increase the tax by 42
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.
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.
Based on bonding authority and new revenues in SB15, the NMDOT proposes
to allocate approximately $45 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:
- Several revenue
options were eliminated from consideration at administration’s direction.
- Operating budget is
falling behind as debt obligates larger share of operating revenue.
- New revenue may not
be sufficient to pay for GRIP spending.
- GRIP requires restructuring
of existing debt by lengthening maturities of bonds.
- GRIP increases
total debt from $1.3 billion to almost $4 billion.
- GRIP eliminates
bond capacity for the next 20 years.
- GRIP bonds for
rehabilitation projects and low-volume overlays.
FISCAL
IMPLICATIONS
Based
on its current revenue, NMDOT faces severe fiscal constraints as operating and
construction costs have increased and revenues into the state road fund have
stayed relatively flat. The current fiscal picture requires the administration
and Legislature to consider new revenue options for NMDOT. According to the
department, new revenue requirements total $75 million annually, at a minimum:
Debt Service for GRIP $50 million
Fortify Operational
Budget $25 million
Revenue
Options Eliminated. The Executive created a working group to assess the impact
of the Native American gasoline tax exemption, while a Blue Ribbon Tax
Commission assessed opportunities for increases to transportation-related
taxes. The Native American gasoline tax exemption, which according to NMDOT
represents a $15 million loss annually to the road fund, was recommended by the
Executive working group to remain unchanged. In addition, the Executive spoke
publicly about its unwillingness to support any increase in the gasoline tax[1], despite
State Gas Diesel
Incremental
revenue in SB15 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 3,000 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. Bond experts
typically use a 1-to-10 rule-of-thumb to determine bond capacity. Given
incremental revenue in SB15, NMDOT could acquire approximately $500 million in
principal. The department proposes two additional financing strategies to
achieve its $1.585 billion goal to fund GRIP:
1. Restructure existing
12-yr debt into 20-yr maturities, providing $122 million for new debt.
2. As bonds are paid off,
use freed up cash for additional leverage.
Under these conditions,
it is feasible to acquire the debt proposed by GRIP. To support this conclusion,
NMFA ran several scenarios for the LFC, as shown in the table below:
|
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 |
These scenarios portray
the total bond capacity, based on a given revenue source and maturity period.
Given the SB15 revenue, NMFA would issue bonds with 18-year maturities because
the scenario meets the GRIP debt goal. 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. The annual payments would increase to a steady level of $170
million at least through the next two decades. The capacity to take on new debt
would be virtually eliminated for the next 25 years.
Operating Budget
Condition with GRIP. Appendix 2 shows an LFC forecast of the
NMDOT operating budget over the next 10 years with GRIP. Using a 2 percent
growth factor for revenues and expenditures, the simulation indicates, within
two years, the annual debt service payments force a reduction in the rest of
the operating budget. Based on this simulation, the projected deficits compound
for the remaining 20 years to levels that impair the operating budget. Under
GRIP, the proposed annual debt service levels may be unaffordable.
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:
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.
Aside
from the imbalance of funding for I-40, some GRIP projects duplicate planned
STIP projects. As an example, one GRIP project would reconstruct US54 from
Tularosa to
One other concern is the
prioritization of low-volume roads over higher-volume roads. A good example is
seen between the $150 million for 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
Two additional graphics
in Appendix 3 & 4 display the
results of this analysis for the rehabilitation and overlay projects.
One final concern about
the GRIP program is the proposal to bond 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. This
concern is applicable to several projects in the rehabilitation/reconstruction
category. SB15 contains language requiring NMDOT to design the project life to
meet or exceed the bond maturity.
Typically, NMDOT has
managed these types of project through an annual maintenance or construction
program. As mentioned, the state construction program has not been funded since
FY03. As an alternative option, the Legislature may be able to address these
projects by eliminating them from GRIP program and rather, appropriating
funding to the state construction program, funded with some portion of the incremental
revenue identified in SB15. Issuing long-term debt for short-term maintenance
projects simply exacerbates the problem of declining quality of the transportation
system.
TECHNICAL
ISSUES
LFC
notes a technical issue in Section 27, page 44. 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
SB15
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 SB15 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.
Continuing Appropriations
This bill, in Section
25, diverts incremental revenue to the highway infrastructure 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. The Legislature may want to add the following language:
Money
in the highway infrastructure fund shall be appropriated by the legislature for
specific highway construction projects.
BT:SN:MV/prr:yr
Attachments (4)