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 Griego

DATE TYPED 02/28/05 HB

SHORT TITLE Construction Industries Enterprise Fund

SB 712

ANALYST McSherry

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

NFI ($6,200.0)

($6,200.0) Recurring

General Fund

NFI

$6,200.0

$6,200.0 Recurring Proposed Construc-

tion Industries En-

terprise Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates House Bill 736

SOURCES OF INFORMATION

LFC Files

Regulations and Licensing Department

Department of Finance and Administration

State Treasury

SUMMARY

Synopsis of Bill

Senate Bill 712 proposes to amend section 9-16-14 NMSA 1978, the “Regulations and Licensing

Operating Fund,” by creating a separate fund for the Construction Industries Division, the “Con-

struction Industries Enterprise Fund.”

The proposed fund would receive any funds appropriated by the Legislature, fees collected by

the Division (except fees subject to 60-13-8.1 NMSA 1978), funds received from other agencies,

any gifts, grants, donation or bequests made to the fund, and any income from investment of the

fund. The fund would be non-reverting and for the purpose of carrying out the provisions of the

Construction Industries Licensing Act. The money in the fund would be appropriated to the Di-

vision and administrated by the Division.

The effective date of the proposed changes would be July 1, 2005.

Senate Bill 712-- Page 2

Significant Issues

The Construction Industries Division (CID) generates approximately $6.2 million in revenues

per year according to Department of Finance and Administration reports. All CID revenues are

currently deposited into the general fund and the CID budget is appropriated from the General

Fund. The Divisions FY05 budget is $6,687.6 thousand in general fund, which is currently the

division’s only revenue source. The proposed bill, should it be enacted, would cause less scru-

tiny during the division’s budget appropriation process as the division’s budget would be primar-

ily “other state funds” rather than general funds.

The proposed enterprise fund would not revert any of the division’s funds at the end of a given

fiscal year including any appropriations by the legislature.

The Division asserts that the significant issue raised by this bill is whether consumers of CID’s

services should have all revenue collected from them retained by CID so that it can be applied

directly to services offered and performed by CID pursuant to the Construction Industries Act.

The agency contends that this bill could alleviate financial difficulties, however, the revenues

generated by the division are not currently of the level that would allow the Division to cover

expenses. If the Division were to operate using the proposed enterprise fund with current reve-

nues, additional appropriations from the general fund would be necessary to continue the current

level of Division services.

CID asserts that in order for the division to provide a quality response to its demand and to sup-

port the economic development and growth in New Mexico’s infrastructures, it needs sufficient,

competent staff. It is not clear how the proposed enterprise fund would allow new or improved

hiring for the division.

The Department of Finance Administration (DFA) speculates that this bill may be submitted

with the assumption that revenues will eventually exceed the current operating budget; if not,

DFA continues, in FY 06 CID may have a $500.0 shortfall in revenues, assuming current expen-

ditures and revenues. DFA predicts that this bill may also assume that the Legislature would al-

low CID to spend all generated revenues, which is not necessarily true.

DFA points out that the State Budget Division has the ability to increase the operating budget of

an agency from self generated revenues, but cannot circumvent the Legislative appropriations

process.

The legislature would still appropriate funds to the Division from the proposed enterprise fund

through the yearly budgeting process, even if no Division revenues were deposited in the general

fund.

PERFORMANCE IMPLICATIONS

It is not clear how an enterprise revenue fund would allow the division to hire additional staff

and overcome budget shortages if currently the Division’s revenues are less than the Division’s

operating budget.

According to RLD, allowing the Division to retain all revenues, would cause more revenues to

be collected and that thus the Division would be functioning better.

Senate Bill 712-- Page 3

CID asserts that the Division is understaffed and that a shortage of qualified people is manifested

in three ways: field operations, information technology, professionalism and reciprocity.

CID asserts that because the CID budget is dependent on appropriations from the general fund, it

is limited in staff, such as plan reviewers inspectors and investigators, and that funding limita-

tions can result in delayed permits and inspections, under-prosecution of unlicensed contracting,

undermining of Division continuing education and the understaffing of new projects such as the

electronic permitting services offered at the state-level.

CID contends that new businesses are being attracted to New Mexico and school construction

renovations are being funded causing the demands for CID’s services to increase. The Division

asserts that an enterprise fund would allow the division to hire critically needed additional staff

members who are well qualified to respond to the need for CID’s services. Revenues to the divi-

sion would be directly related to the number of inspections being performed by the division.

Currently, all revenue generated by the Construction Industries Division must be deposited to the

general fund. The Division does not have control over the appropriations out of the general fund,

and there is no set correlation between increase in revenues through higher fees or other revenue

sources and the application of CID’s services.

FISCAL IMPLICATIONS

The appropriation of all Construction Industries program revenues, grants, gifts, bequests, in-

come investments, agency transfers, and legislative appropriations (currently $6.2 million) con-

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

balance remaining at the end of fiscal year 2006 would not revert to the general fund.

CID asserts that because the Division does not have control over appropriations out of the gen-

eral fund, there is no assurance that any increase in revenues realized through higher fees or

other revenue generating initiatives would be used for the purposes of supporting CID’s services.

However, the Division continues, if assurance were given through the creation of an enterprise

fund, revenue generation could be expected to increase.

The Division proposes that with an enterprise fund CID could: develop external sources of fund-

ing through such activities as pursuing grants, inter-agency cooperative agreements, and federal

funds; and raise fees in proportion to quality of services rendered so that its fees reflect value for

service. It is not clear if there are currently prohibitory circumstances that disallow the Division

to garner funds from cooperative agreements, federal funds and grants.

CID maintains that the creation of the enterprise fund would not reduce the revenues currently

available to the legislature and would enable the state to provide a higher level of services to

support its burgeoning economic development. However, this bill would create a recurring ap-

propriation and the LFC objects to including continuing appropriation language in the statutory

provisions for newly created funds. Earmarking reduces the ability of the legislature to establish

spending priorities.

Senate Bill 712-- Page 4

Continuing Appropriations

This bill creates a new fund and provides for continuing appropriations. The LFC objects to in-

cluding continuing appropriation language in the statutory provisions for newly created funds.

Earmarking reduces the ability of the legislature to establish spending priorities.

ADMINISTRATIVE IMPLICATIONS

CID maintains that the Division has the staff to undertake the administration of the proposed

fund.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 712 duplicates House Bill 736.

TECHNICAL ISSUES

Currently CID and the Manufactured Housing Division are funded as a single program, in one

appropriation. The appropriations structure in House Bill 2 for FY-06 as it applies to CID and the

Manufactured Housing Division would have to be amended to be in accord with the funding

structure proposed by this legislation.

House Bill 2 includes an appropriation for the Division in fiscal year 2006 and this proposed

statute would go into effect at the beginning of fiscal year 2006. Should this bill be enacted, the

appropriation for the division would have to be amended to reflect the change in division reve-

nues to be primarily program revenues and the Division’s general fund appropriation would need

to be decreased.

ALTERNATIVES

The Division could pursue grants and awards as suggested by the Department.

Division revenues in part or as a percentage could be returned to the Division. In this scenario,

both the general fund and Division would benefit through the Divisions predictions of increased

revenues.

DFA offers that the alternative to this bill would be to increase the legislative appropriation to

CID.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

The Legislature would continue to appropriate the operating funds for the Division and the Divi-

sion’s revenues would continue to be deposited in the general fund.

CID asserts that the division will continue to be under funded and under staffed and that it will

be required to meet rising demands on its services without the resources necessary to meet those

demands.

Senate Bill 712-- Page 5

POSSIBLE QUESTIONS

1.

Does the Division project generating enough revenues to cover expenditures in fiscal year

2006.

2.

Does the Division not currently have the ability to apply for grants and awards and/or

raise fees as is suggested by the Division should this bill be enacted.

EM/lg