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F I S C A
L I M P A C T R E P O R T
|
SPONSOR: |
|
DATE
TYPED: |
|
HB |
|
||
|
SHORT
TITLE: |
Tax
and Highway Package |
SB |
21 |
||||
|
|
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 |
|
|
|
|
4,800.0 |
20,500.0 |
21,100.0 |
Recurring |
General Fund |
|
10,000 |
81,600.0 |
*103,600 |
Recurring |
State Road Fund |
|
|
6,600.0 |
6,600.0 |
Recurring |
Other State Funds |
|
|
(2,000.0) |
5,100.0 |
Recurring |
Local Gov’t Funds |
(Parenthesis
( ) Indicate Revenue Decreases)
*$103.6 million in road fund is representative for FY06, however this figure drops to approximately $60 million in FY07.
SOURCES OF
INFORMATION
NM
Taxation and Revenue Department (TRD)
NM
Department of Transportation (DOT)
NM Finance Authority (NMFA)
SUMMARY
Senate
Bill 21 proposes numerous changes to the
The
overall fiscal impact on the road fund is an increase of nearly $81.6 million
in FY05, the first full year of changes.
Although there are some significant changes in particular taxes affecting
the state general fund and local government funds, the overall fiscal impact on
these funds is limited. Presumably, this
reflects the intent of the sponsors to propose a change in the system that
approaches revenue neutrality for these entities. The relatively small, positive effect on the
general fund--nearly $20.5 million in FY05--includes both recurring and
non-recurring components.
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). The report MAY be updated as
material information becomes available.
SYNOPSIS
OF BILL
Local
Option Compensating Tax. Section 1 defines
the “local option compensating tax”, thereby allowing municipalities and
counties to impose the compensating tax.
Effective date:
Distribution
to
Local
Option Compensating Tax. Sections 3 through
6 provide for the transfer of local option compensating tax revenues which
would be collected by TRD to municipalities and counties. Section 15 determines the jurisdiction where
use of property subject to the local option compensating tax occurs. Effective
Date:
Special
Fuel Excise Tax Distribution. Section
7 changes the percentage of special fuel excise taxes distributed to the local
government road fund from 11.11 percent to: 11.11 percent in FY04, 9.52 percent
in FY05, 9.09 percent in FY06 and 8.7 percent in FY07 and beyond Effective
Date: July 1, 2004.
Distribution
of Motor Vehicle Excise Tax. Section
8 provides for 25 percent of the motor vehicle excise tax to be distributed to
the road through FY06. Effective
Date:
Tax
Administration Issues. Additions needed
Sections 9 through 14 address tax administration matters. Section 9 increases the minimum tax liability
threshold after which TRD must assess the taxpayer from ten dollars ($10.00) to
twenty-five dollars ($25.00). It also
eliminates effectivity provisions of tax assessments, the presumed correctness
of TRD tax assessements and the ability of TRD to require payment of assessed
and unpaid taxes. Section 10 allows
taxpayers to elect the “Rules of Civil Procedures for the District Courts” in
TRD administrative hearings. Section 11
provides taxpayers with the right to designate certain refund claims as a protective
claim. A protective claim is a claim for
refund filed by someone based upon the arguments advanced by another person in
a previously filed claim that has not been resolved. TRD would not take action on the protective
claim until the previously filed claim is resolved. Section 12 and 13 change
the interest rate charged and paid by TRD on tax deficiencies and overpayments. The current 14 percent rate would be changed
to 10 percent on
Income
Tax Filing Categories Reduced.
Sections 15 through 18 eliminate the separate personal income tax tables
for heads of household and roll the head of household category into the tax
tables covering surviving spouses and married persons filing joint
returns. The separate tables for head of
households imposed higher taxes on that group compared with the married individuals
table.
High
Wage Jobs Tax Credit. Section 19 provides
“high wage jobs tax credit” equal to 10 percent of wages and benefits paid to
an eligible employee in a new high-wage job
up to a maximum of $12,000. To qualify, a job must pay more than $40,000 per
year in municipalities with a population greater than 40,000, and $28,000 per
year in a municipality with a population below 40,000. Also, to qualify a business must be growing,
with employment greater on the last qualifying day of the credit than the day
when the new positions were created. The
credit may be claimed for the year in which the job is created and for three
years thereafter. It can be taken
against the taxpayer’s modified combined tax liability (gross receipts tax,
compensating tax and others), personal income tax liability or corporate income
tax liability. The credit is refundable. Effective date:
Research
and Development Small Businesses Gross Receipts Deduction. Section 20 and 21 enact a new section of
statute to provide a GRT/compensating “tax holiday” for small, high tech research
businesses. Qualifying businesses are
small firms (no more than 25 employees with revenue of $10 million or less in
the prior fiscal year) that have made qualified research expenditures in the
last 12 months. Qualified research
expenditures exclude expenditures funded with grants, expenditures on property
associated with Industrial Revenue Bonds, or property received as part of the
Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology
Jobs Tax Credit Act. Effective
date:
Gross
Receipts Exemption for Certain Athletics Contests, Sporting Events and Concerts. Section 22 exempts receipts from ticket sales
and admission fees to boxing, wrestling, auto racing, one-time sporting events
and live concerts held at a venue capable of holding at least 2,500 persons. Effective date:
Compensating Tax on
Services. Sections 23 through 26 impose the state and
local compensating taxes on services from out of state businesses that have no
nexus to the state and which would have been subject to the gross receipts tax
had it occurred within the state. A
compensating tax municipal credit of one half or one quarter of one percent is
also provided, depending on the municipal compensating tax rate. Effective date for section 23:
Gross Receipts and
Compensating Taxes on Motor Vehicles.
Sections 27 and 28 exempt new
alternative fuel cars from the gross receipts and compensating tax. This section relates to the motor vehicle
excise tax exemption provided for these vehicles. Absent this exemption, cars provided the
motor vehicle excise tax exemption would fall under the gross receipts and compensating
tax provisions. Effective date:
Nontaxable
Transaction Certificates (NTTCs). Section
29 changes the law associated with NTTC’s.
It eliminates the requirement that taxpayers be in possession of an NTTC
within 60 days from the date required to allow for a deduction. It also provides use of other evidence in
certain circumstances, including bankruptcy, death or an entity no longer
existing as a business. Effective
date:
Cigarette Stamps. Section 30 eliminates cigarette tax discounts
for small volumes. All cigarette tax
stamps would be sold at face value.
Effective date:
Motor Vehicle Excise Tax
Rate. Section 31 increases the motor vehicle excise
tax rate from three percent to four percent.
It establishes a minimum tax of twenty dollars ($20). Effective date:
Motor Vehicle Tax
Exemption. Section 32 provides a one-time motor vehicle
excise tax exemption for the purchase of clean, fuel efficient vehicles. Qualifying vehicles are defined as vehicles
manufactured to run exclusively on alternative fuels with a
Leased Vehicle Surcharge
Rate. Section 33 increases the surcharge on
short-term leased vehicles incrementally from two dollars ($2) per day to
$3/day in FY04 and $4/day in FY05 and beyond..
Effective date:
Weight Distance Tax
Identification Permits Defined.
Section 34 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 35 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 36 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 37 through
39 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 40 increases the special fuels tax
incrementally from $0.18 per gallon to $0.21 per gallon in FY05, $0.22 per
gallon in FY06 and $0.23 per gallon in FY07 and beyond. Effective date:
Supplemental Local
Government Compensating Taxes.
Sections 41 through 54 deal with local government supplemental
compensating taxes. Section 57 authorizes
municipalities to impose a supplemental compensating tax. The compensating tax rate would be equal to
the gross receipts tax rate. Section 58
requires supplemental municipal compensating taxes to conform to the state
compensating provisions. Section 59
requires TRD to collect and distribute the local option compensating tax
revenues (adjusted for credits and refunds) within the month in which they are
collected. Section 60 provides TRD with
responsibility for administering and enforcing the collection and distribution
of the supplemental compensating taxes.
Section 61 establishes that the tax shall be used to pay current bond
obligations, new bond issues or may be transferred to any other municipal fund
once bonding obligations are met.
Section 62 requires that changes to the local option gross receipts tax
be matched by changes to the compensating tax.
It also automatically implements the local option compensating tax in
municipalities that have imposed local option gross receipts taxes. Section 63 governs how TRD is to collect and
transfer the municipal local option compensating tax. Section 64 requires entities imposing a local
hospital gross receipts tax also impose the local hospital compensating
tax. Section 65 governs TRD’s collection
and transfer of the local hospital compensating tax. Section 66 requires counties to establish a
compensating tax that parallels their gross receipts tax. Section 67 governs how TRD and collects and
transfers the county compensating tax.
Section 68 requires counties with correctional facility gross receipts
taxes to also impose a parallel compensating tax. It establishes that the tax will be governed
and used in the same manner as the corresponding gross receipts tax. Section 69 governs how TRD is to collect and
transfer the county correctional compensating tax. Section 70 provides counties with the
authority to pledge and bond correctional compensating tax revenues as they do
corresponding gross receipts tax revenues.
Effective date:
Severance Tax Rate on
Oil Production. Section 55 increases the oil and gas
emergency school tax rate on oil and carbon dioxide from 3.15 percent to 4
percent. The lower rates provided on oil
and other liquid carbons removed from natural gas at stripper wells in times of
low oil prices are increased. These
rates change from 1.58 percent to 2 percent when the value of the oil is less
than $15 per barrel; and from 2.36 percent to 3 percent if the value of the oil
is greater than $15 but less than
$18. Effective date:
Tax
Administration—Request for Regulations.
Section 26 allows taxpayers or other interested parties to request TRD
regulations. Effective date:
Regulatory
Fees on Promotions. Sections 57 through
62 deal with fees on athletic promotions.
Section 74 strikes the 4 percent privilege tax on promotions and
replaces it with a regulatory fee. The
fee is to be established at an amount that covers the cost of regulating the
contest, with a maximum set at four percent of total gross receipts. Section 75 directs regulatory and supervisory
fee revenues to the athletic commission fund.
Section 77 strikes the five percent tax on exhibiting live professional
contests on closed-circuit telecast or motion picture. It replaces the tax with a “supervisory fee”
in amount necessary to cover the cost of supervising the exhibition, but capped
at five percent of gross receipts.
Effective date:
Tribal
Agreements on Tribal Contests. Section
63 allows the athletic commission to enter into a cooperative agreement with
Indian nations, tribes and pueblos for the reciprocal, joint or common
direction management or control of professional contests in
Tax
Identification Cards. Section 64 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 65 increases the twelve-month
motorcycle registration fees from $11 to $15.
Effective date:
Passenger
Vehicle Registration Fees. Section
66 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 67 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 68 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 69 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 70 increases the registration for
buses used exclusively to transport agricultural workers from $25 to $33. Effective date:
Fertilizer
Trailers. Section 71 increases the registration fee for
fertilizer trailers $5 to $7. Effective
date:
Manufactured
Home Fees. Section 72 increases the fee for the
registration of manufactured homes from $5 to $7. Effective date:
School
Bus Fees. Section 73 increases the registration fee for
school buses from $5 to $7. Effective
date:
Distribution
of Registration Fees. Section 74 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
75 & 76 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 77 through
82 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: Upon signature with two-thirds vote; if not
February 2004.
Highway
Infrastructure Fund. Section 77 amends
the statute creating the highway infrastructure fund by including authority to
use its dedicated revenue for GRIP projects, as identified in Sections 97 and
98 of this bill.
Transportation
Bonds. Section 78 defines the financing strategy for
GRIP projects.
Section 78a authorizes the State Transportation
Commission to direct and pay NMFA to issue bonds on its behalf.
Section 78b provides a $1.585 billion limit on
bond issuance for GRIP.
Section 78c authorizes NMFA to restructure existing
bonds by exchange or current or advance refunding options.
Section 78d 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 78e, 78f, 78g, 78h 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 78i requires NMDOT to acquire highway
construction materials from state lands, if feasible.
Section 78j requires bonds to be repaid from
unobligated federal or state transportation revenues.
Section 78k 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 79
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 80 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
81 authorizes issuance of $12 million of bonds for two projects in the
Temporary
Provisions. Section 82 provides language to ensure
existing bond debt is not impaired by the new issuance.
Repeals. Section 83 repeals requirement for each power
unit to pay a $5.00 annual administrative fee.
Emergency
Clause. The act takes effect immediately.
SIGNIFICANT REVENUE ISSUES
Tax Administrative
Issues. The fiscal impact of reducing the interest
rate on tax delinquencies will be higher in later years. In FY07, the rate is reduced to the IRS rate,
which corresponds to market interest rates.
This could increase the cost in those years to more than $5 million.
Income Tax Filing
Categories Reduced. According to TRD,
this provision would provide tax relief to 13,000 of the 140,000 families
filing taxes under the head of household option. Families in this category pay higher income
taxes than two-parent families.
Gross Receipts Tax
Exemption for Certain Athletic Contests, Sporting Events and Concerts. TRD notes that this exemption may level the
playing field for venues competing with Indian pueblos and tribal lands that
also host such activities.
High Wage Tax Credit. The fiscal impact reported in the table
reflects TRD assumptions on how many high wage jobs would be created. This estimate is based on information
regarding the number of such jobs created in a recent year. Economic forecasts suggest that the state may
experience stronger job growth in the future.
Also, an assumption that the jobs created will be similar to activity in
a prior year (which may be quite accurate given all the uncertainty) implies
that the incentive does not result in additional jobs being created. Should the incentive prove effective, the
fiscal impact (reduced general fund revenues) would be higher.
Compensating Tax on Out
of State Services. TRD’s fiscal impact estimate in FY05 is $10
million. This increases to $15 million
in FY06 as TRD anticipates greater knowledge and compliance with the
change. The $15 million estimate is
based on the assumed tax base. There is
some risk that this additional revenue may not be realized, especially absent
additional auditing resources. An
additional concern is that the ramping up of revenue from this source coincides
with a reduction in the effective tax rate for the state. This is because in FY06 a half percent
municipal credit is implemented.
Motor Vehicle Tax
Exemption. The fiscal impact of this legislation is
relatively muted in near future.
Technological breakthroughs could make such cars more competitive and
available later on, however. A sunset
provision may be in order. TRD suggests
another alternative to dealing with the risks would be to provide a cap on the
value of the exemption.
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.
Severance Tax Rates on
Oil Production. TRD provided a table (see Appendix 1) comparing New Mexico taxes on the oil and gas industries
with those of other major producing states.
The table shows that New Mexico’s taxation of oil and gas is comparable
to other states’. The proposed increase
does not appreciably alter the comparisons.
Regulatory Fees on
Promotions. According to RLD and TRD the proposed fee
changes, which are designed to generate less revenue than the current tax,
could impair the Athletic commission’s ability to generate sufficient revenues
to cover costs, including the cost of administration. RLD recommends increasing the regulatory fee
to five percent.
Motor Vehicle Registration
Fees. NM DOT reports that New Mexico registration
fees are relatively low compared with other states. Compared to seventeen western states, New
Mexico has the fifth lowest registration fee for passenger vehicles. The average registration fee for this group
of states is $33.74.
Significant
Transportation, Road Fund and Bond Finance Issues.
Based on bonding authority and new revenues in SB21,
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 BY FUND AND GOVERNMENT ENTITY
The
Fiscal Implications are summarized in table below.
FISCAL
IMPLICATIONS FOR ROAD FUNDING
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
New Mexico’s lower-than-surrounding-states rate:
State Gas Diesel
Arizona $0.18 $0.26
Colorado 0.22 0.205
New Mexico 0.185 0.195
Texas 0.20 0.20
Utah 0.245 0.245
Incremental
revenue in SB21 is targeted at heavy
road users. According to NMDOT, 75 percent of the diesel truck traffic
originates outside of and passes through New Mexico; one
commercial vehicle weighing 80,000 pounds has as much impact on highways as
does 38,000 motor vehicles.
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 SB21,
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 SB21 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
principal and interest payments 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
five 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 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,
the descriptions of the GRIP projects do not provide enough information for
legislators. As an example, when originally proposed, GRIP included two
critical projects for the Albuquerque/Santa Fe transportation corridor. These
projects, totaling $122.5 million, would reconstruct from 4-lanes to 6-lanes from
Tramway to Bernalillo and would add a 3rd high-occupancy vehicle
(HOV) lane between Bernalillo and Santa Fe. SB21 proposes $122.5 million for
reconstruction and improvement of I-25 to accommodate public transportation
elements including commuter rail. Introduction of commuter rail in this corridor
is a significant policy issue, one in which the Legislature should approve. As
written, SB21 provides NMDOT discretion in making this important policy
decision.
Other concerns deal with project duplication. For
instance, some GRIP projects duplicate planned STIP projects. As an example,
one GRIP project would reconstruct US54 from Tularosa to Santa Rosa for $150
million. The project duplicates three stretches already programmed under the
STIP. It may be that STIP funding could cover some portion of the project cost.POSSIBLE QUESTIONS
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 New Mexico’s most dangerous.
GRIP proposes to reconstruct US 54 to a four-lane highway and proposes an
enhanced two-lane road for US 491.
Two additional graphics
in Appendix 3 & 4 display the
results of this analysis for the rehabilitation and overlay projects. Appendix
5 details the GRIP project list and estimated costs. The total cost of projects
exceeds the authorized bonding capacity of $1.585 billion.
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. SB21 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 SB21. 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 79, page 152.
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
SB21
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 SB21 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
77, 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/yr