Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may 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 Stewart

DATE TYPED 3/14/05

HB 32/aHTRC

SHORT TITLE Energy Efficiency and Renewable Energy Bonding SB

ANALYST Aguilar

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$600* $600.0 to $2,400.0* Recurring Energy Efficiency

and Renewable En-

ergy Bonding fund

($0 to $600.0)* ($600.0 to $2,400.0)* Recurring General Fund GRT

Distribution

$0 to $600* $600.0 to $2,400.0* Recurring General Fund Re-

version

(Parenthesis ( ) Indicate Revenue Decreases)

* Revenue impacts depend on the timing of projects completion and the timing of energy

savings realized from state agencies and public school districts. It is expected the first sav-

ings deposits will occur in FY07. See Significant Issues discussion

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Public Schools Facilities Authority (PSFA)

Department of the Environment (ED)

Energy, Mineral and Natural Resources Department (EMNRD)

New Mexico Finance Authority (NMFA)

SUMMARY

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amendment to House Bill 32 changes the require-

ment state agencies and school districts follow the plan and provides instead they cooperate in

the development and implementation.

House Bill 32/aHTRC -- Page 2

The amendment further provides that un-obligated balances in the bonding fund revert to the

general fund at the end of a fiscal year rather than remaining in the fund and eliminates the re-

quirement that balances in the bonding fund in excess of projected debt service be transferred to

the general fund every six months but instead, unexpended or unencumbered balances will revert

at the end of a fiscal year.

The amendment also changes language where a distribution of approximately $200 thousand

monthly shall be made to a distribution may be made in an amount necessary to make the neces-

sary bond debt service payments as determined by the New Mexico Finance Authority.

Significant Issues for HTRC Amendments

The New Mexico Finance Authority’s (NMFA) analysis expressed concern regarding the HTRC

amendment that struck the $2.4 million gross receipts revenue transfer from the general fund and

provided instead a distribution in an amount necessary to make debt service payments. They

question whether this provides a state commitment sufficient to sell the bonds.

Discussion with NMFA staff revealed that they plan to structure bonds so that debt service is

capitalized in the first two years. This would enable the Energy Efficiency and Renewable En-

ergy Bonding Fund to build up sufficient revenues from energy savings to pay debt service pay-

ments in the third year, they say. Gross receipts revenue transfers from the general fund are

meant to provide increased coverage and provide comfort to bond purchasers. Assuming that

revenues from energy savings are sufficient to pay debt service, the gross receipts revenue will

revert back to the general fund. The financial risks associated with this structure are minimal.

However, in a case of unexpected utility rate increases, there is some risk that agencies or

schools will seek relief for these costs from the legislature.

Funds in the Energy Efficiency and Renewable Energy Bonding Fund are appropriated to the

New Mexico Finance Authority to pay debt service on bonds. The HTRC amendment provides

for a gross receipts tax distribution monthly into the fund in an amount necessary to meet these

payments. HB 32 provides for the issuance of up to $20 million in energy efficiency bonds to be

used for installing energy efficiency measures. Although the amount necessary to make debt

payments month to month will fluctuate with the amount of bonds outstanding, EMNRD has

noted that approximately $5 million would be required in the first year. If this is the case, it is

estimated that approximately $600 thousand would be required for debt service. As the amount

of bonds outstanding reaches the $20 million threshold, approximately $2.4 million would be

required annually for debt service.

HB 32 provides for EMNRD to calculate and certify annually to DFA and PED the estimated

energy cost savings in the form of lower utility payments. Upon certification, provisions con-

tained in the bill require PED to deduct 90 percent of the calculated savings from the state

equalization guarantee distribution for each participating school district project and for DFA to

deduct 90 percent of the calculated savings from a participating agency’s operating budget and to

deposit these funds into the Energy Efficiency and Renewable Efficiency Bonding Fund.

Amounts remaining in the fund after debt service payments at the end of a fiscal year would re-

vert to the general fund. EMNRD estimates these amounts would equal the cumulative distribu-

tions annually, thereby making the program revenue neutral after some period of time.

House Bill 32/aHTRC -- Page 3

The amount of overall debt associated with these bonds is capped at a reasonable level. How-

ever, there needs to be some assessment as to the impact on the state’s overall indebtedness.

This may become a more important issue if the debt cap provided here is increased in future

years.

Fiscal Impact of Amended Bill

The fiscal impacts of the bill are expected to be revenue neutral to the general fund: The specific

impacts on any given year are uncertain as they depend on how the bonds are structured. As

noted above NMFA staff has reported that they plan to issue bonds with debt capitalized for the

first two years, implying that no fiscal impact for those years.

However, NMFA is also concerned about their ability to sell bonds given that the original annual

grt revenue transfer of $2.4 million was stripped by the HTRC amendment and replaced with an

amount needed for debt service payment provision. Similarly, there may be questions as to their

ability to build reserves for the same purpose.

Synopsis of Original Bill

House Bill 32 creates the Energy Efficiency and Renewable Energy Bonding Act to fund energy

efficiency measures in state and school district buildings with the proceeds of bonds that will be

secured by gross receipts tax (GRT) revenues and instructs EMNRD to develop a state plan to

install or contract to install these measures in state and school district buildings by the end of

FY10.

The bill also creates the Energy Efficiency and Renewable Energy Bonding Fund to be adminis-

tered by the New Mexico Finance Authority (NMFA).

This bill requires the Public Education Department (PED) to deduct from a school district’s State

Equalization Guarantee distribution ninety percent of the amount of cost savings certified by

EMNRD and transfer this amount to the energy efficiency fund to be used for bond payments.

In the case of state buildings, this bill requires the Department of Finance to deduct from the op-

erating budget of the agency responsible for paying the utilities of the state building, ninety per-

cent of the amount certified by EMNRD. Prior to June 30 of each year, the total amount de-

ducted for all agencies will be transferred to the energy efficiency fund to be used for bond pay-

ments.

Significant Issues

This bill was endorsed by the interim Revenue Stabilization and Tax Policy committee.

The net proceeds from the sale of the bonds are appropriated to the Energy, Minerals and Natural

Resources Department (EMNRD) for installation of the energy efficiency measures. EMNRD

must develop, in conjunction with those entities controlling and managing the targeted buildings,

a state plan for such efficiency installations; the plan is required to include a funding and con-

struction schedule, with all installations to be completed by the end of fiscal year 2010. The

plan would be followed by EMNRD in executing contracts for the installation of the energy effi-

ciency measures. Once energy efficiency measures are installed, EMNRD must calculate the

House Bill 32/aHTRC -- Page 4

estimated cost savings from each project and certify those estimates to the Department of Fi-

nance and Administration, General Services Department, and/or Department of Education, as

appropriate. The certified savings are then deducted from the appropriate state agency or school

district budgets to reimburse the General Fund. These deductions cease when an agency or

school district’s total payments equal its proportional share of the cumulative debt service.

EMNRD notes provisions contained in HB32 utilize the energy cost savings associated with en-

ergy efficiency retrofits as revenue to be used to pay debt service on the bonds, making this en-

ergy efficiency initiative revenue-neutral.

PERFORMANCE IMPLICATIONS

Implementation of this initiative would help meet the goals in the EMNRD Energy Conservation

and Management Division’s Strategic Plan and its current performance measure relating to en-

ergy savings in State buildings and school facilities.

The Environment Department notes if combustion units such as wood-waste fired boilers were

funded as renewable energy technology by HB32, such units could potentially require an air

quality permit. This could potentially increase the number of permit applications which the Air

Quality Bureau must review, but permit application fees are sufficient to cover any increased

administrative burden.

FISCAL IMPLICATIONS

The Taxation and Revenue Department (TRD) estimated a negative impact of $2.4 million to the

general fund in fiscal year 2006.

This Act authorizes the New Mexico Finance Authority (NMFA) to issue and sell revenue bonds

in an amount not to exceed $20 million for the purpose of installing energy efficiency and re-

newable energy technologies in public schools and state agency buildings. According to

EMNRD, such measures (e.g., replacing high usage light fixtures with newer energy-efficient

models) can reduce energy utility costs by 20-30%. The revenue bonds, known as “energy effi-

ciency bonds”, are payable solely from a new “Energy Efficiency and Renewable Energy Bond-

ing Fund” that is created as a special fund within NMFA. The Act stipulates that the Bonding

Fund shall consist of gross receipts tax revenues distributed to the Fund, as well as other author-

ized transfers; a monthly distribution of $200,000 from net gross receipts tax revenues to the

Bonding Fund is specified. Money in the Fund is appropriated to the NMFA for the purpose of

paying debt service on the energy efficiency bonds and the expenses incurred in their issuance,

payment and administration.

The net proceeds from the sale of the energy efficiency bonds are appropriated to the EMNRD

for installation of the energy efficiency measures. EMNRD must develop, in conjunction with

those entities controlling and managing the targeted buildings, a state plan for such efficiency

installations; the plan is required to include a funding and construction schedule, with all installa-

tions to be completed by the end of fiscal year 2010. The plan would be followed by EMNRD in

executing contracts for the installation of the energy efficiency measures. Once the energy effi-

ciency measures are installed, EMNRD must calculate the estimated cost savings from each pro-

ject and certify those estimates to the Department of Finance and Administration (DFA), General

Services Department (GSD), and PED, as appropriate. The certified savings are then deducted

from agency budgets to reimburse the general fund, effectively making this energy efficiency

House Bill 32/aHTRC -- Page 5

initiative revenue-neutral. In essence, the Act utilizes the energy cost savings associated with en-

ergy efficiency retrofits as the “revenue” needed to pay the debt service on the bonds.

On the last day of January and July of each year, the NMFA shall estimate the amount needed to

make debt service and other payments during the next twelve months from the fund on the bonds

issued pursuant to the Energy Efficiency and Renewable Energy Bonding Act, plus the amount

that may be needed for any required reserves and the amount needed to meet any appropriation.

The authority shall transfer to the general fund any balance in the fund above the estimated

amounts.

ADMINISTRATIVE IMPLICATIONS

There will be a considerable administrative impact on EMNRD in undertaking this initiative.

The EMNRD shall develop a state plan for the installation, no later than the end of fiscal year

2010, of energy efficiency measures in state buildings and buildings owned by school districts.

The plan shall include the maximum amount of on-site renewable energy measures possible

while retaining the overall revenue-neutral status of the plan, such that the total cost of the plan is

covered entirely by the combined energy savings of both the renewable energy and other energy

efficiency measures undertaken. In addition, the plan shall include a schedule for funding and

installing the energy efficiency measures that gives priority to those projects that will realize sig-

nificant cost savings in the shortest time frame. The plan shall be followed by each state agency

and school district in New Mexico, and those agencies and districts shall cooperate with the

EMNRD in the development and the implementation of the plan.

TECHNICAL ISSUES

Page 9, line 10 refers to Subsection D. It appears this reference should be Subsection E.

The committee may wish to consider defining the term "renewable energy source".

The committee may wish to consider amending Section 4, page 4, line 21, to ensure that any ap-

plicable permitting requirements are met: "The installation or contracts shall address provisions

concerning payment schedules, monitoring, inspecting, permitting, measuring and warranties as

are necessary to ensure that the energy efficiency measures will be installed and the energy cost

savings realized in the manner most beneficial to the state; ..."

PA/yr