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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.

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