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F I S C A L I M P A C T R E P O R T

SPONSOR Saavedra

DATE TYPED 3/17/05

HB 330/aHLC/aHEC/aSFC

SHORT TITLE Expand Educational Retirement Board

SB

ANALYST Geisler

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

Minimal Recurring Educational Re-

tirement Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates: SB 194

SOURCES OF INFORMATION

LFC Files

Educational Retirement Board (ERB)

State Auditor (SA)

SUMMARY

Synopsis of SFC Amendments

The Senate Finance Committee amendments to House Bill 330 as amended strike all House Edu-

cation Committee and House Labor and Human Resources Committee amendments and strikes

the addition of the state auditor to the board. As amended the bill increases the size of the ERB

board from seven to nine members by adding two new members that will serve four year terms:

1)

one member to be appointed by the governor who possesses at least ten years of investment

or public finance experience;

2)

one member to be appointed by the university president’s council who possesses at least ten

years of investment or public finance experience

Synopsis of HEC Amendments

The House Education Committee amendments to House Bill 330:

1)

Deletes the addition of the state auditor to the board and replace with a member who shall

House Bill 330/aHLC/aHEC/aSFC -- Page 2

be appointed by the NM coalition of school administrators for a term of four years. Total

board size will be eleven.

2)

Adds a requirement for board members during the first year of their term to complete

training on fiduciary responsibility, investing and financial expertise and such other mat-

ters as determined by the board.

3)

Clarify procedures for dealing with vacancies in the terms of appointed or elected mem-

bers.

Synopsis of HLC Amendments

The House Labor and Human Resources Committee amendments to House Bill 330:

1)

Adds one additional board member that is to be appointed for a term of four years by the

board of the New Mexico federation of educational employees. The total size of the

board would increase from the current seven members to eleven members.

2)

Clarifies that vacancies during the terms of members appointed by the governor, univer-

sity presidents’ council, or an association shall be filled by appointment or election by

those organizations.

Synopsis of Original Bill

House Bill 330 is Legislative Finance Committee sponsored legislation to increase the number of

board members on the Educational Retirement Board (ERB) from seven (7) to ten (10) and to

increase the financial expertise of the board. The three additional members are:

1)

the state auditor;

2)

one member to be appointed by the governor for a term of four years who possesses at

least ten years of investment or public finance experience;

3)

one member to be appointed by the university president’s council for a term of four years

who possesses at least ten years of investment or public finance experience

Significant Issues

1)

Current Board Structure

The performance of the board has been under scrutiny given the funds investment performance

and actuarial position. The current board is comprised of seven members: three educators, two

governors appointees, the State Treasurer and the Secretary of Education. The only other major

finance related organizations with boards this size are the Board of Finance and the Mortgage

Finance Authority, chaired by the governor and lieutenant governor, respectively. Most other

finance related state boards have 10 to 12 members. Since it is not uncommon for the ERB to

meet with the minimum quorum of four members, a increase in board members is warranted to

reduce the workload of the current board members and provide additional financial expertise.

House Bill 330/aHLC/aHEC/aSFC -- Page 3

2)

State Auditor Concern about Conflict of Interest

The State Auditor believes that making the state auditor an Educational Retirement Board mem-

ber would impair his auditor independence for purposes of the annual financial and compliance

audit of the Educational Retirement Board. The state auditor provided the following:

The state auditor is required by Government Auditing Standards (GAGAS 3.03) to be independ-

ent of the agencies he is required by statute to audit. A personal impairment of an auditor’s in-

dependence results from relationships and beliefs that might cause auditors to limit the extent of

the inquiry, limit disclosure, or weaken or slant audit findings in any way. The standards cite as

an example of personal impairment to auditor independence having the “ responsibility for man-

aging an entity or decision making that could affect operations of the entity or program being

audited; for example as a director; officer; or other senior position of the entity.” (GAGAS 3.07)

FISCAL IMPLICATIONS

Adding additional board members would likely cause a slight increase in annual board related

costs such as travel expenses and per-diem

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Duplicates SB 194.

ALTERNATIVES

ERB has studied this issue of board expansion and recommends an increase from seven (7) to

eleven (11) members. Two of the new members would be as suggested above: the additional

governor’s appointee and the member appointed by the university president’s council, both with

the ten years of fiscal experience. The board also recommends adding one member who is

elected for a term of four years by the New Mexico Federation of Educational Employees and

one member who is elected for a term of four years by the New Mexico Coalition of School Ad-

ministrators. Eleven board members will also facilitate breaking tie votes.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

The number of board members will remain at seven.

GG/lg:yr