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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 03/04/05 HB 778/aHEC

SHORT TITLE College Affordability Act

SB

ANALYST Williams

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$10,000.0

Non-Recurring* General Fund

$15,000.0

Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

* Expected to be a multi-year commitment to establish a $250 million trust fund.

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$10,0000.0

Non-Recurring* College Afforda-

bility Endowment

Fund

$15,000.0

Recurring

College Afforda-

bility Scholarship

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

* Expected to be a multi-year commitment to establish a $250 million trust fund.

Relates to various student financial aid bills; duplicate of Senate Bill 669

SOURCES OF INFORMATION

LFC Files

Commission on Higher Education (CHE)

House Bill 778/aHEC -- Page 2

SUMMARY

Synopsis of HEC Amendment

House Education amendment to HB778 amends the legislation as follows:

•

On page 1, line 25: strike the word “and” and after line 25, insert the following new

subsection:

“B. “returning adult” means a student enrolling in a public post-secondary edu-

cational institution at any time later than the first semester following high school

graduation or the award of a general educational development certificate; and”.

•

Reletter the succeeding subsection accordingly.

•

On page 3, line 2: after the word “on” insert the word “a” and after the word “need” in-

sert text “formula calculated”.

This amendment adds no additional appropriation to this legislation.

Original Synopsis of Bill

House Bill 778 establishes the College Affordability Act to “encourage New Mexico students

with financial need to attend and complete educational programs at public post-secondary educa-

tional institutions in New Mexico.” Provisions would apply to resident students of the state at-

tending a public, post-secondary institution. Student eligibility for the new scholarship program

would include:

•

Has not earned a baccalaureate

•

Enrolled at least half-time in a degree program

•

Demonstrated financial need

The new scholarship program would be administered by the CHE. Distribution criteria would be

determined using data from the free application for federal student aid (FAFSA) and on the per-

centage of an institution’s students classified as returning adults who are otherwise ineligible for

state financial aid. Awards are capped at $1,000 per semester. Awards may continue each se-

mester as long as the student maintains eligibility criteria, but are capped at eight consecutive

semesters or until graduation, whichever is first. Eligibility would be discontinued if a student

withdraws, fails to achieve satisfactory academic progress or exhibits substantial noncompliance

with the Act or associated CHE rules.

The program would be funded with two general fund appropriations. The college affordability

endowment fund as well as the college affordability scholarship fund are established. Until the

corpus of the endowment fund reaches $250 million, the bill authorizes an equal split of income

generated by the fund between the corpus and the scholarship fund.

Monies would be transmitted from the state treasury by CHE to institutions for student accounts.

Students could draw upon the funds for tuition, fees, books and course supplies.

House Bill 778/aHEC -- Page 3

Significant Issues

This proposal is based on the recommendations of a recent report of the Commission on Higher

Education. “Improving Student Success in Postsecondary Education in New Mexico” noted the

state spent $31 million for merit-based student financial aid programs versus $18 million for

needs-based programs in 2003. The report included a recommendation of a $250 million en-

dowment fund established to address needs-based student financial aid. A similar proposal was

included in the report of the Governor’s Task Force on Higher Education.

CHE indicates the target population the scholarship program proposed in this bill would serve is

older students demonstrating unmet financial need. These students would be those not eligible

for the lottery tuition scholarship program. A funding allocation would be made to each institu-

tion based on the eligibility criteria established in CHE regulation. Institutions would then de-

termine student distributions. According to CHE, simulations of potential distributions to stu-

dents are not available because institutions have not been required to utilize the FAFSA in the

past. In its fiscal impact report for Senate Bill 669, CHE notes the $15 million recurring appro-

priation could support approximately 7,500 students for two semesters each at the maximum

scholarship amount.

Measuring Up 2004 noted net college costs in New Mexico for low- and middle-income students

to attend public two-year colleges and four-year universities represent 33 percent and 40 percent,

respectively, of their annual income. Several recent higher education policy analyses find New

Mexico deficient in the extent of its needs-based student financial aid programs. The lottery tui-

tion scholarship program is considered a merit-based student financial aid program because it is

available to all students meeting certain criteria and maintaining a 2.5 grade point average. The

state typically ranks high among states with merit-based student financial aid programs.

PERFORMANCE IMPLICATIONS

The bill does not address performance reporting criteria to evaluate program effectiveness and

outcomes.

FISCAL IMPLICATIONS

The bill contains two appropriations. First, the appropriation of $10 million to the college af-

fordability endowment fund contained in this bill is a non-recurring expense to the general fund.

Any unexpended or unencumbered balance remaining at the end of FY06 would not revert to the

general fund. This appropriation is expected to be a multi-year commitment of non-recurring

general funds to reach the goal of establishing a $250 million trust fund.

Second, the appropriation of $15 million to the college affordability scholarship fund contained

in this bill is a recurring expense to the general fund. Any unexpended or unencumbered balance

remaining at the end of FY06 would not revert to the general fund. CHE notes the amount of

recurring appropriation would decline over time as the size of the endowment and associated dis-

tribution of interest income increases.

House Bill 778/aHEC -- Page 4

ADMINISTRATIVE IMPLICATIONS

In its analysis on Senate Bill 669, CHE notes there would be a significant one-time effort to initi-

ate the new program as well as on-going annual allocation of funding. Given current workload,

one additional FTE staff would be “extremely helpful.”

TECHNICAL ISSUES

Page 5, line 4, may need to include the formal name of the fund.

Page 5, line 8, may need to include the formal name of the fund.

OTHER SUBSTANTIVE ISSUES

A recent report of the General Accounting Office found part-time, adult students tend to exhibit

weaker persistence and graduation rates.

The bill does not specify the criteria by which satisfactory academic progress would be deter-

mined.

The sponsor may wish to consider an amendment to the bill to require the fund be invested by

the State Investment Council pursuant to the provisions of 6-8-7G NMSA 1978.

Based on supplementary information requested and received from the CHE, the program would

use data from the FAFSA to determine eligibility solely based on income. Other data collected

from the FAFSA to determine eligibility for other student financial aid programs would not im-

pact eligibility; examples might include felony conviction and drug use.

POSSIBLE QUESTIONS

1.

How would institutions administer the provisions of this bill.

2.

Who would evaluate student eligibility to determine awards ----- the institutions or the

CHE.

3.

What are examples of “substantial noncompliance” which might cause a student to lose a

scholarship award.

4.

What are the implications of semester eligibility when two-year college students exceed a

four semester time to degree in comparison with four-year college students exceeding an

eight semester time-to-degree.

5.

To what extent would the program improve New Mexico’s national ranking for needs-

based student financial aid programs.

AW/lg