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 Hall

DATE TYPED 2/10/05

HB 380

SHORT TITLE County Investments in Federal Home Banks

SB

ANALYST Hadwiger

APPROPRIATION

(in $000s)

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Office of the Attorney General (AG)

Department of Finance and Administration (DFA)

State Treasurer

State Investment Council

No comments were received from the New Mexico Municipal League or Association of Coun-

ties at the time this F.I.R. was prepared.

SUMMARY

Synopsis of Bill

House Bill 380 would allow counties or municipalities to invest all sinking funds or money re-

maining expended from any issue of bonds or other negotiable securities in federal home loan

banks.

Significant Issues

According to the State Investment Council (SIC), local governments are currently allowed to in-

vest in other federal agency securities, including the federal home loan mortgage association, the

federal national mortgage association, and federal farm credit bank. The SIC indicates the fed-

eral home loan bank (FHLB) securities are of comparable credit quality to the other federal

agency securities currently allowed by law.

House Bill 380 -- Page 2

The Department of Finance and Administration (DFA) noted FHLBs have existed since 1932

and are situated throughout the United States and Canada. Although FHLBanks have been es-

tablished for seventy-three years, Section 6-10-10 NMSA 1978 (formerly being Laws of 1933,

Chapter 175, Section 4) never included them as an investment and lending institution available to

municipalities and counties. And as such, FHLBanks could not conduct banking business in the

State of NM.

One of the commenting agencies indicated incorrectly that FHLB investments are backed by the

full faith and credit of the federal government. This is not accurate. According to the FHLB

web site, “FHLBanks borrow funds to support their operations principally through the sale of

debt securities known as consolidated obligations… Consolidated obligations are not obligations

of, nor are they backed by the full faith and credit of, the United States and the United States

does not guarantee them.” In this sense, the FHLB is similar to investments in the federal home

loan mortgage association (Fannie Mae). Local governments are currently allowed to invest in

Fannie Mae instruments; however, recent reports regarding problems in financial management at

Fannie Mae suggest that these investments should proceed only with appropriate diligence.

FISCAL IMPLICATIONS

The SIC indicated that investment revenue could be enhanced by allowing a broader choice of

potential investments without an increase in risk.

Because these investments are not backed by the United States government, there would be more

risk than some other investment options.

DH/sb