Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

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

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Lopez

DATE TYPED 02/02/05 HB

SHORT TITLE

State Employee Transportation Fringe Benefit

SB 457

ANALYST Moser

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

NMDOT

Attorney General (AGO)

Dept of Public Safety (DPS)

Department of Corrections (CD)

SUMMARY

Synopsis of Bill

Senate Bill 457 would add a new section to Chapter 10, Article 7 of the NMSA 1978. This

change would allow State agencies, state educational institutions, and political subdivisions of

the state to offer their employees a “qualified transportation fringe benefit” or commuter incen-

tive that follows guidelines set forth in Section 132(f) of the US Internal Revenue Code of 1986

as amended. This benefit is already available to private sector employees whose employers

choose to offer the program.

The commuter incentive provides a federal tax deduction for commuting costs for those employ-

ees who commute to work by mass transit or vanpool. The deduction is the cost of a monthly

transit pass or up to $100, whichever is lower.

Senate Bill 457 -- Page 2

The incentive may be offered in one of three methods:

1.

A pre-tax employee payroll deduction,

2.

An employer-paid benefit, or

3.

A combination of 1 or 2.

The bill allows the Department of Financial Administration or the governing body of an institu-

tion or political subdivision of the state to determine which method to use.

Significant Issues

The incentive may increase the demand for transit and vanpools in areas where there are large

concentrations of eligible State employees. This could lead to the need for expanded service.

PERFORMANCE IMPLICATIONS

Employee

morale and productivity may improve as participating employees receive a 30% or

greater reduction in commuting costs and are relieved of the stress of driving and finding park-

ing.

FISCAL IMPLICATIONS

Fiscal impact on the State depends on which of the three implementation methods is used.

Option 1: Employee Payroll Deduction

If the incentive is implemented as a voluntary pre-tax employee payroll deduction, there

would be no cost to the State. There would be a savings to the State in avoided contribu-

tions to FICA (6.2%) and Medicaid (1.45%) on the amount of the benefit. Annual savings

to the State could be as high as $91.80 per employee eligible for the $100/month payroll

deduction for 12 months.

Financial savings to a State employee who qualified for the $100 per month payroll de-

duction could be as high as $403.80 (depending on federal tax bracket and deductions).

For employees who pay $30 per month for a city transit pass to commute to work, saving

would amount to approximately $108 per year through avoided federal and state income

tax, FICA, and Medicaid tax. The avoided state income tax is more than made up in the

State’s avoided payments to FICA and Medicaid. (These calculations assume 20% fed-

eral tax rate and 6% state tax rate.)

Option 2: Employer-Paid Benefit

The amount of the employer paid incentive would negatively impact state funds dollar-

for-dollar. If, for example, the State gave each eligible employee a cash incentive of $30

per month ($360 per year) for commuting by transit or vanpool, the cost to the state

would equal $360 per year per eligible employee.

Option 3: Combination of Options 1 and 2

The state could offer a combination of pre-tax payroll deduction and employer- paid in-

centive. For example, the State could offer a commuter incentive of $30 and a pre-tax de-

duction of up to $70 (maximizing the federal transportation benefit limit). This option

creates two new accounting procedures and would negatively impact State funds dollar-

Senate Bill 457 -- Page 3

for-dollar for the cash incentive portion the employer provides. At a state cost of $360 per

year the employee commuter would save from $360 to $612 per year, which matches or

exceeds employee savings in options 1 and 2.

ADMINISTRATIVE IMPLICATIONS

The governing bodies of State agencies and institutions, such as the Division of Financial Ad-

ministration, would determine which implementation option to use and develop the administra-

tive rules, including when and how often an employee could change the selected vendor/carrier.

The Employee Benefits Office staff would need training on the incentive and payroll deduction

authorization forms would need to be developed and adopted. The State Personnel Manual would

need to be updated or amended to include the benefit.

TECHNICAL ISSUES

A new deduction code would need to be entered into the payroll process. Bi-weekly or monthly

direct deposits would be made to approved vendors (for example, Public or Private Transit Sys-

tems, Park and Ride Service, and Vanpool Services). A bona fide reimbursement arrangement to

ensure that employees have, in fact, incurred the expenses claimed in requesting cash reim-

bursements must be established. For example, employees may be required to present a receipt as

to costs incurred incident to vanpool or public transit usage for commuting. The employee then

may certify that they have availed themselves of the transportation.

OTHER SUBSTANTIVE ISSUES

All terms including eligible employees, transit passes, and commuter highway vehicle are de-

fined in the Federal IRS Code.

If the incentive is provided and a substantial numbers of employees choose this incentive, there

could be a reduction in the demand for parking near State buildings and work sites, a reduction in

traffic congestion on corridors leading to these work sites, increase in the use of mass transit, and

improved health of employees as they walk to and from transit and vanpool stops.

ALTERNATIVES

The State could offer the incentive through any of the three methods described in the bill sum-

mary. Methods 2 and 3 would have negative financial impacts on the State.

Suggested language if incentive is offered only through Method 1: State agencies, state educa-

tional institutions and political subdivisions of state may implement a qualified transportation

fringe benefit program that offers state employees the option to exclude from taxable wages and

compensation, consistent with section 132 of title 26, United States Code, employee commuting

costs incurred through the use of mass transportation and vanpools, not to exceed the maximum

level allowed by law (26 U.S.C. 132 (f) (2)). These programs shall comply with the requirements

of Internal Revenue Service Regulations for qualified transportation fringe benefits under section

1.132-9 of title 26, Code of Federal Regulations, and other guidance.

Senate Bill 457 -- Page 4

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

There will be no additional financial incentive for State employees to use transit or vanpool ser-

vice to commute to work. Demand for parking and traffic congestion near State employment

centers and will remain unchanged or worsen. State employers will not save money or save any

additional funds by choosing to commute on transit or vanpool. Disparity of opportunity to ac-

cess this federal tax incentive will continue between private sector and State employees.

GM/sb:lg