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F I S C A L I M P A C T R E P O R T
SPONSOR Varela
DATE TYPED 02/17/05 HB 777
SHORT TITLE Decouple Lottery Scholarship From Tuition
SB
ANALYST Williams
APPROPRIATION
Appropriation Contained Estimated Additional Impact
Recurring
or Non-Rec
Fund
Affected
FY05
FY06
FY05
FY06
($832.1)
Recurring, but could es-
calate over time; see fis-
cal implications
Lottery Tuition
Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Relates to various student financial aid bills; duplicate of Senate Bill 651
SOURCES OF INFORMATION
LFC Files
Commission on Higher Education (CHE)
New Mexico Lottery Authority (NMLA)
Council of University Presidents
New Mexico Association of Community Colleges (NMACC)
SUMMARY
Synopsis of Bill
House Bill 777 amends statute to decouple the lottery scholarship program from tuition and es-
tablish payments for tuition in specified amounts.
Flat tuition amounts would be established for three categories of public, post-secondary institu-
tions. The proposed amount of the award would be included annually as part of the higher edu-
cation budget recommendation of the commission on higher education and determined by the
legislature. However, for FY06 the following is specified in the bill:
Four-year, research institutions: $1,400
Four-year, comprehensive, regional institutions: $900
Two-year institutions: $500
pg_0002
House Bill 777 -- Page 2
Scholarship awards would be placed in student accounts at the institutions and might be used to
pay tuition, fees, books and course supplies. The bill specifically excludes use of the scholarship
for room and board.
Significant Issues
This proposal is similar to recommendations of a recent report of the Commission on Higher
Education, “Improving Student Success in Postsecondary Education in New Mexico”. A similar
proposal was included in the report of the Governor’s Task Force on Higher Education.
Tuition and fees for 2004-2005 are shown on the attachment. To the extent the award amounts
specified in this bill for FY06 and established by future legislatures are set below current and/or
actual tuition levels in the future, students at certain institutions would receive a reduction in lot-
tery tuition payments to pay for tuition, all other things held constant. To the extent the award
amounts specified for FY06 and established by future legislatures are set above current and/or
actual tuition levels in the future, students at certain other institutions would be able to utilize the
funds for fees, book and course supplies.
Potential Advantages:
Allow families or independent students to claim federal tax credits given sufficient tax li-
ability
Minimize impacts on lottery scholarship fund from tuition increases
Potential Disadvantages:
Diminish transparency of link between the lottery scholarship fund and tuition
Would there be impacts on perception of state commitment.
Would there be impacts on strength of lottery ticket sales and advertising campaign.
The Council of University Presidents notes “decoupling the scholarship from institution tuition
rates is a fundamental change, the consequences of which are not well understood. This is an
issue of a magnitude that requires very careful examination and modeling yet to be undertaken.”
NMACC notes “decoupling from tuition and establishing a flat rate for educational expenses
puts more control over tuition increases with the Legislature. Furthermore decoupling can also
extend the life of the fund with the effect of less annual impact on the fund by large tuition in-
creases.”
NMACC also notes “Since tuition rates are determined locally, there is a great disparity in tuition
both between the sectors and within the sectors so decoupling will create a disparity at different
colleges among those that will have to make up some tuition to attend a college in a particular
area and those that will not only have lottery money to cover their tuition but perhaps fees and
books as well.”
FISCAL IMPLICATIONS
The fiscal impact associated with this bill reflects the anticipated reduction in payments to stu-
dents driven by establishing scholarship amounts below tuition rates for certain institutions in
FY06. Given the bill provides the scholarship award amounts would be established annually, the
magnitude of future impacts is not clear.
pg_0003
House Bill 777 -- Page 3
To the extent the legislature authorized increases in scholarship amounts at levels lower than in-
creases in actual tuition charges, the savings for the lottery tuition fund could escalate over time.
In its analysis on Senate Bill 651, CHE notes the long-term average growth of tuition in New
Mexico is about 10 percent for research institutions, 8 percent for regional institutions and 7 per-
cent at community colleges. (In comparison, NMACC notes the 11 year average resident tuition
increase at community colleges is around 50% or less than 5% annually). If scholarship awards
are allowed to grow by roughly the amount of inflation (using a measure similar to consumer
price index), then the differential could result in fund savings of roughly $3.2 million in FY07
and $5.7 million in FY08 under CHE assumptions.
However, other escalators which could be considered might include the amount of the tuition
revenue credit or one of the published higher education cost indices. These escalators would be
greater than more common measures of inflation, i.e. the consumer price index, with the implica-
tion that the escalation of future savings for the lottery scholarship fund is not clear.
OTHER SUBSTANTIVE ISSUES
A CHE Fact Sheet on Decoupling notes the federal HOPE credit provides up to $1,500 in tax
credits for the first two years of post-secondary education, and the federal Lifetime Learning
credit provides up to $2,000 for on-going education. Taxpayers with dependent, qualifying stu-
dents would be eligible to receive the credit, while independent students would be eligible for the
credit. Note federal tax liability must be sufficient to claim these credits.
For students in the first two years of college (or other eligible post-secondary training), taxpayers
are eligible for the HOPE tax credit equal to 100% of the first $1,000 of tuition and fees and 50%
of the second $1,000 (the amounts are indexed for inflation after 2001). The credit will be avail-
able on a per-student basis for net tuition and fees (less grant aid) paid for college enrollment af-
ter December 31, 1997.
The credit is phased out for joint filers between $80,000 and $100,000 of
income, and for single filers between $40,000 and $50,000 (indexed after 2001).
The credit can
be claimed in two taxable years (but not beyond the year when the student completes the first
two years of college) with respect to any individual enrolled on at least a half-time basis for any
portion of the year.
The Lifetime Learning Credit is focused on college juniors, seniors, graduate students and work-
ing individuals pursuing lifelong learning to upgrade their skills. For those beyond the first two
years of college, or taking classes part-time to improve or upgrade their job skills, the family will
receive a 20% tax credit for first $5,000 of tuition and fees through 2002, and for the first 10,000
thereafter. The credit is available for net tuition and fees (less grant aid) paid for post-secondary
enrollment after June 30, 1998. The credit is available on a per-taxpayer (family) basis, and is
phased out at the same income levels as the HOPE Scholarship.
NMACC suggests “To honor past commitments, those currently on lottery should be grand-
fathered at the tuition rate for the duration of their scholarship. This may help lessen the resis-
tance for accepting the decoupling concept.”
The legislature may wish to consider a sunset provision to re-evaluate the decoupling initiative
and its impacts.
The legislature may wish to consider an annual review and reporting to the legislative finance
pg_0004
House Bill 777 -- Page 4
committee, legislative education study committee, office of the governor and department of fi-
nance and administration by:
o
New Mexico Lottery Authority on revenue situation and outlook and
o
Commission on Higher Education on
expenditure situation and outlook
fund balance situation and outlook
policy and fiscal impacts of each enacted change to lottery scholarship
program
TECHNICAL ISSUES
The amounts specified on page 2, lines 22 to 25 and page 3, lines 1 to 13 may need to specify on
a “per semester” basis.
AW/yr:lg
Attachment
pg_0005
House Bill 777 -- Page 5
ATTACHMENT
Comparison of New Mexico Public, Post-
secondary Tuition Rates
Resident
Tuition per
semester
FY03-04
Resident
Tuition
per se-
mester
FY04-05
Research Universities
New Mexico Tech $1,078 $1,153
New Mexico State $1,209 $1,314
University of New Mexico $1,370 $1,556
Comprehensive Universities
Eastern New Mexico
$888 $939
New Mexico Highlands
$804 $816
Western New Mexico
$876 $948
Branch
ENMU – Roswell
$397 $421
NMSU – Alamogordo
$468 $516
NMSU – Carlsbad
$480 $480
NMSU – Dona Ana
$420 $444
NMSU – Grants
$432 $492
UNM – Gallup
$492 $528
UNM – Los Alamos
$420 $444
UNM – Taos
$444 $480
UNM – Valencia
$456 $492
Community Colleges
Albuquerque TVI
$444 $462
Clovis Community College
$288 $288
Luna Community College
$300 $300
Mesalands Community College
$510 $525
New Mexico Junior College
$204 $204
Northern New Mexico
$324 $348
Santa Fe Community College
$318 $360
San Juan College
$300 $0