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F I S C A L I M P A C T R E P O R T
SPONSOR Larranaga
DATE TYPED 02/16/05 HB 631
SHORT TITLE Private Go Bond Sales To NMFA
SB
ANALYST Padilla-Jackson
REVENUE
Estimated Revenue
Subsequent
Years Impact
Recurring
or Non-Rec
Fund
Affected
FY05
FY06
NFI
NFI
(Parenthesis ( ) Indicate Revenue Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
New Mexico Finance Authority (NMFA)
New Mexico Public Education Department (PED)
Department of Finance and Administration (DFA)
SUMMARY
Synopsis of Bill
House Bill 631 excludes the private sale of general obligation bonds by qualified local govern-
ments to the New Mexico Finance Authority. Current NMFA statutes state that local govern-
ments may fulfill their obligation to NMA by the issuance of bonds. House Bill 631 would disal-
low general obligation (GO) bonds from being used by local governments to satisfy debt owed to
NMFA.
Significant Issues
DFA notes that, currently, NMFA provides low interest loans to local governments to finance its
public projects. If GO bonds are excluded as a means of payment to NMFA, local governments
will be forced to fund their GO bond projects by way of traditional banking (at 8 to 9 percent in-
terest rates). DFA cautions that the provisions of this bill would severely hurt small school dis-
tricts, as these are entities that utilize NMFA because of their affordable low interest rates and
flexible payment options.
pg_0002
House Bill 631 -- Page 2
According to information provided by NMFA, the NMFA has been able to purchase GO bonds
through a negotiated sale process since 1992. To date, GO bond purchases represent approxi-
mately 8 percent of loan activity through the Public Project Revolving Fund (PPRF). NMFA
notes that in 2004 there were 41 GO bonds issued in New Mexico totaling $215 million. Of
these 41 transactions, NMFA was involved in 13 deals, totaling $27 million.
PERFORMANCE IMPLICATIONS
PED cautions that House Bill 631 would reduce the number of lenders available to school dis-
tricts and impact the borrowers’ ability to negotiate for the purchase of their GO bonds. This may
have a negative impact on the total cost of the bond issuance.
FISCAL IMPLICATIONS
There is no significant fiscal impact to state or local government revenues.
OTHER SUBSTANTIVE ISSUES
NMFA notes that it is able to negotiate the purchase of GO bonds with local governments, which
allows GO bond issuers to benefit from the PPRF program. These benefits include below market
interest rates for entities with low median household incomes, AAA-insured interest rates set
monthly and fixed for 90 days, payment of costs of issuance, and ability to pre-pay without pen-
alty after the first year. NMFA cautions that by changing the PPRF, NMFA’s borrowers may
surrender the benefits of their GGRT and of the pooled loan program, namely the efficiencies
associated with pooling several small loans.
OPJ/lg