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

SPONSOR Altamirano

DATE TYPED 02/11/05 HB

SHORT TITLE Decouple Lottery Scholarship From Tuition

SB 651

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

SOURCES OF INFORMATION

LFC Files

Commission on Higher Education

Council of University Presidents

SUMMARY

Synopsis of Bill

Senate Bill 651 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

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

Senate Bill 651 -- Page 2

for room and board.

Significant Issues

This proposal is similar to, but differs somewhat, from the recommendations of a recent report of

the Commission on Higher Education, “Improving Student Success in Postsecondary Education

in New Mexico”. In its fiscal impact report, CHE notes its support for the bill. A similar pro-

posal 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.

Senate Bill 651 -- 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.

CHE notes the long-term average growth of tuition in New Mexico is about 10 percent for re-

search institutions, 8 percent for regional institutions and 7 percent 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.

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

resistance 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

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/sb

Attachment

Senate Bill 651 -- Page 4

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