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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

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F I S C A L I M P A C T R E P O R T

SPONSOR Smith

DATE TYPED 1/28/05

HB

SHORT TITLE Biennial State Budgets

SB 211

ANALYST Hadwiger

APPROPRIATION

(in $000s)

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

None

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB 404.

SOURCES OF INFORMATION

LFC Files

“Annual and Biennial Budgeting: The Experience of State Governments” (NCSL, October

2004)

Responses Received From

Department of Finance and Administration (DFA)

Department of Transportation (DOT)

Administrative Office of the District Attorneys (AODA)

SUMMARY

Synopsis of Bill

Senate Bill 211 amends existing budget statutes to establish a biennial budget process for the

State of New Mexico beginning on July 1, 2007. The biennial budget would be approved, im-

plemented and modified according to the schedule below:

Senate Bill 211 -- Page 2

ODD-NUMBERED YEARS

BUDGET ACTIVITY

By January 10

Governor submits biennial budget request to legislature.

January-March

Legislature adopts biennial budget

By May 1

Each agency submits operating budget to the Department of

Finance and Administration (DFA) to implement the approved

budget for the ensuing two years.

By June 15

DFA sends supplemental budget forms to be submitted by

state agencies that plan to request a deficiency or supplemen-

tal appropriation.

June 30

Close of biennium; unexpended general fund appropriations

revert to the general fund.

By September 1

Agencies submit requests for supplemental and deficiency

appropriations.

EVEN-NUMBERED

YEARS

By January 5

Governor submits supplemental and deficiency budget to leg-

islature.

By June 15

DFA sends biennial budget request forms to agencies

By September 1

Agencies submit performance-based biennial budget requests

to DFA and the LFC

Significant Issues

Proponents indicate that biennial budgeting would improve the New Mexico budget process by

reducing time devoted to crunching the numbers for annual budgets and increasing the time

available for consideration for policy and performance aspects of budgets and for agency over-

sight by the legislature and Department of Finance and Administration (DFA). Biennial budget-

ing may also reduce government spending, by reducing the need to process volumes of paper for

annual budget requests, possibly reducing the need for overtime, per diem, supplies and other

costs related to annual budget preparation. Proponents of biennial budgeting also indicate that

this reform will increase predictability for state agencies, providing long-term commitments to

programs and policies.

According to DFA, the current annual budgeting process has been seen as time-consuming for

state agencies; biennial budgeting would 'free up' time for those involved in the process to man-

age for outcomes because agencies would only have to build a budget every two years and sup-

plement the appropriated budget with requests for a deficiency and/or supplemental during the

interim year.

Senate Bill 211 -- Page 3

Prior to 1940, 44 states used biennial budgets. According to a study by the National Conference

of State Legislatures (NCSL), the number of states with biennial budgets declined through the

1970s, primarily because legislatures shifted from biennial sessions to annual sessions and ad-

justed their budget cycles accordingly. In the last decade, this trend has reversed somewhat.

Connecticut returned to biennial budgeting in 1991; Arizona enacted a biennial budget in 1999,

now limited to smaller state agencies. In all, today 21 states adopt budgets biennially. Both

President Bill Clinton and President George W. Bush recommended biennial budgeting at the

federal level in their FY2001 and FY2002 budget submissions to Congress.

In Moving New Mexico Forward: Further Along, which was released in August 2004, Governor

Bill Richardson’s administration recommended adoption of a biennial budget model similar to

that used in Arizona and Kansas, whereby biennial budgets would be adopted for smaller agen-

cies and annual budgets would be prepared for large agencies. In Governor Richardson’s pro-

posal, biennial budgeting would be used for 72 agencies with budgets under $5 million.

The primary concern raised by biennial budgeting is the need to address rapid changes in agency

budgets driven by changes in federal funding, state revenues, client populations, federal regula-

tions, etc. DFA indicated concern that biennial budgeting might create difficulties in those agen-

cies that have volatile revenue sources (i.e. Medicaid) and are driven by unforeseen circum-

stances (i.e. the Department of Corrections' inmate population growth). State agencies that typi-

cally have little growth from year-to-year and that have steady sources of revenue would be more

apt to succeed in the biennial budgeting process due to their ability to forecast their future ex-

penditure and FTE needs. For example, the Administrative Office of District Attorneys noted

that, while a biennial budget process would reduce the work associated with preparing, submit-

ting and justifying an annual budget request, it would also make the district attorneys less able to

respond to emerging crime trends and changes in federal grant status which can have significant

fiscal implications. The provision for supplemental and deficiency appropriations in the middle

of the biennium would help to address this concern.

PERFORMANCE IMPLICATIONS

DFA noted that the biennial budget process would assist the smaller agencies by only requiring

the time consuming budget development process on alternate years. The agency would have

more time to manage, implement and measure their performance goals. The two budget agencies

(State Budget Division of DFA and Legislative Finance Committee - LFC) would not need to

review every state agency's budget annually, but would have to review the budget for the sup-

plemental and deficiency requests which could be significant for some agencies. Review of all

agencies would be required and assistance throughout both years, however, those agencies that

maintain level operating budgets would require less time for review compared to the amount of

time that the annual budget process requires now. The process would allow for more time for the

management and oversight of budgets.

FISCAL IMPLICATIONS

There would be savings from reduced paperwork and staff time devoted to preparation, review,

and implementation of annual budgets. To the extent that DFA and LFC staff devote greater

time to performance and policy activities, these savings may be partially offset.

Senate Bill 211 -- Page 4

DFA commented that expenditures will decrease in budget preparation time and resources for

state agencies as well as the State Budget Division, and Legislative Finance Committee every

other year. Decreases may be seen in overtime, comp time, office supplies, and per diem rates in

years without a budget request. However, funds could be then reallocated for training, site visits

and other activities related to management and oversight.

ADMINISTRATIVE IMPLICATIONS

DFA noted that the administration of SB211 will occur at the agency level, State Budget Divi-

sion and the Legislature. Currently, both the State Budget Division and the Legislative Finance

Committee have responsibilities during the request, appropriation and operating aspects of the

budget process. These aspects include the statutory deadlines for the budget submissions and

performance measures development and release of budget recommendations, and the hearings

that the Legislative Finance Committee schedules with each agency. DFA indicated that each

agency involved in the budgeting process has sufficient staff and resources to carry out the legis-

lation. The resources and staff would have to reallocate the work hours and associated costs for

the tasks associated with each year of the biennial budget.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

This bill duplicates House Bill 404.

OTHER SUBSTANTIVE ISSUES

The Department of Transportation identified several ideas which should be considered in evalu-

ating SB211, including:

•

Agencies would continue to require budget adjustment authority and may require greater

flexibility to implement a biennial budget.

•

The DFA and LFC may need to develop a process, in addition to supplemental and defi-

ciency appropriations, to evaluate policy initiatives that the legislature or executive may

wish to undertake in the middle of a biennium.

•

The bill does not address capital outlay budgeting.

DFA noted that consideration should be given to agencies headed by elected officials to assure

that newly elected officers don’t take over an agency with one year left on a depleted budget.

ALTERNATIVES

DFA favored the approach included in Moving New Mexico Forward: Further Along. Accord-

ing to DFA, by implementing the process statewide, several of the larger agencies will experi-

ence difficulty with biennial budgeting due to the size and volatility of the associated revenues

and expenditures.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

The state would continue to adopt annual budgets.

DH/lg