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 Heaton

DATE TYPED 01/25/05 HB 40

SHORT TITLE “Public Employer” in Employee Retirement Act

SB

ANALYST Geisler

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

Minimal

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Public Employees Retirement Board (PERA)

SUMMARY

Synopsis of Bill

House Bill 40 expands the definition of “public employer” to include irrigation districts for pur-

poses of PERA affiliation.

Significant Issues

Whether an irrigation district is an entity that falls within the meaning of "governmental plan" as

used in Section 414(d) of the Internal Revenue Code. Based on a review of case law, PERA be-

lieves an irrigation district meets the criteria to be considered governmental plan for purposes of

the Internal Revenue Code

FISCAL IMPLICATIONS

PERA estimates minimal fiscal impact on the fund from HB 40.

House Bill 40 -- Page 2

ADMINISTRATIVE IMPLICATIONS

PERA is not aware of the number of irrigation districts that may seek affiliation with PERA as a

result of HB 40. PERA will be required to process applications for affiliation by irrigation dis-

tricts as it does for all entities seeking PERA-affiliation.

OTHER SUBSTANTIVE ISSUES

The PERA Act specifically provides that only "public employers" can affiliate with PERA so

long as they fall within the meaning of "governmental plan" as used in Section 414(d) of the In-

ternal Revenue Code. The Internal Revenue Code requires that to qualify as a “governmental

plan,” a plan must be “established and maintained for its employees by the Government of the

United States, by the government of any State or political subdivision thereof, or by any agency

or instrumentality of the foregoing.”

Currently, the statutory definition of a public employer includes “the state, any municipality,

city, county, metropolitan arroyo flood control authority, economic development district, re-

gional housing authority, soil and water conservation district, entity created pursuant to a joint

powers agreement, council of government, conservancy district, water and sanitation district,

water district and metropolitan water board, including the boards, departments, bureaus and

agencies of a public employer.” The legislature did not include irrigation districts in the special

districts enumerated in NMSA 1978, § 10-11-2(P).

Irrigation districts do, however, qualify as a governmental plan for Internal Revenue Code pur-

poses, as they have been found to be political subdivisions of the state for limited purposes. In

Tomkins v. Carlsbad Irr. Dist., 96 N.M. 368, 370 (Ct. App. 1981), the New Mexico Court of Ap-

peals concluded that an irrigation district is a political subdivision of the state, for the purposes

of Tort Claims Act coverage. The Internal Revenue Code broadly includes plans established and

maintained for employees by a “political subdivision” of the state within the ambit of govern-

mental plans. New Mexico state law suggests that irrigation districts can be political subdivi-

sions. However, the PERA Act definition of “public employer” does not reference or include the

term “political subdivisions” generally or the term “irrigation district” specifically.

House Bill 40’s proposed expansion of the statutory definition of “public employer” to include

irrigation districts as one of the enumerated special districts eligible for PERA affiliation will

comply with the requirements of the Internal Revenue Code and is consistent with the tax-

deferred status of PERA as a 401(a) governmental plan.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Irrigation districts will continue to be ineligible for PERA affiliation.

GG/njw