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

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

SPONSOR SFCS

DATE TYPED 03/17/05 HB

SHORT TITLE Authorizing Revenue Bonds for UNM Cancer Center SB CS/935/aHAFC

ANALYST Kehoe

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$15,000.0

Non-Recurring UNM Health

Science Center

$10,400.0 Non-Recurring

Credit En-

hancement Ac-

count to General

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$15,000.0

Non-Recurring NMFA for UNM

Health Science

Center

$10,400.0

Non-Recurring Credit Enhancement

Account

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of HAFC Amendments

The amendments adopted by the House Appropriations and Finance Committee delete all refer-

ences to DOH facilities, add language that prohibits any amendments to the cigarette tax that

“reduce debt service coverage” on any outstanding revenue bonds that may be secured by a

pledge of those cigarette revenues, and make technical corrections.

Senate Bill CS/ 935/aHAFC -- Page 2

Synopsis of Bill

The Senate Finance Committee Substitute for Senate Bill 935 authorizes the New Mexico Fi-

nance Authority (NMFA) to issue additional revenue bonds for the University of New Mexico

Hospital (UNM) and the Cancer Research and Treatment Center and to issue bonds for im-

provements to certain Department of Health (DOH) facilities.

Significant Issues

SFCS/Senate Bill 935 authorizes the New Mexico Finance Authority to issue revenue bonds with

a term of up to 20 years for an issuance of no more than $15 million to supplement the proceeds

of previously authorized bonds for this project ($50 million was issued in 2004, with another $10

million authorized and expected to be issued in 2007). The net proceeds of the bond are appro-

priated to the Health Sciences Center to design, construct, equip and furnish additions and im-

provements to the UNM Hospital and the Cancer Research and Treatment Center (CRTC). The

current 14.52% distribution of cigarette tax to NMFA for CRTC is pledged as the revenue stream

to repay bond holders as well as for all related costs associated with the bond issuance. The bill

authorizes NMFA to secure the additional bonds by a pledge of funds from the public project

revolving fund (PPRF) with a lien priority on the PPRF as determined by NMFA.

In addition, the bill authorizes NMFA to issue revenue bonds in an amount not to exceed $40.5

million for improvements to DOH facilities for the following amounts and locations: 1) $500

thousand for Turquoise Lodge; 2) $12 million for Southern New Mexico Rehabilitation Center;

3) $8 million for Fort Bayard Medical Center; 4) $15 million for the Las Vegas Medical Center;

and 5) $5 million for the New Mexico State Veterans’ Home. The current 6.11% distribution of

of cigarette tax to NMFA, and if not used for debt service to the capital program fund, approxi-

mately $3.7 million annually, is pledged for repayment of the bonds.

A major component of DOH’s strategic plan is “to provide for a safe and comfortable environ-

ment for quality patient care.” Aging and deteriorating buildings have made it increasingly diffi-

cult for DOH to carry out its mission, and recent inspections by the Licensing and Certification

Survey organization and the Joint Commission on Accreditation of Health Care have resulted in

citations and deficiencies that could jeopardize accreditation at most of the facilities. Results of

an independent assessment indicate a need of approximately $55 million for repairs and upward

of $120 million for replacement costs.

FISCAL IMPLICATIONS

This bill relates to revenue and bonding components of legislation enacted in Laws of 2003

(Chapter 341), including cigarette tax increases. Current beneficiaries of the cigarette tax distri-

bution are held harmless. The credit enhancement account is a contingency if cigarette tax reve-

nues decline and impact the state’s ability to service the authorized bonds. The amount of the

credit enhancement account that is not used to service bonds will be deposited monthly in the

general fund. Upon repayment of the authorized bonds, the distribution of cigarette tax to

NMFA for the UNM Hospital and Cancer Research and Treatment Center and DOH facilities

would be redirected to the general fund.

The bill also increases the bond maturities of authorized bond issuances from 15 to 20 years.

This 5 year increase should allow an additional $15 million to occur without any new or existing

tax increases.

Senate Bill CS/ 935/aHAFC -- Page 3

The 6.11% distribution, under criteria used to issue the $50 million of publicly marketed bonds

issued on behalf of the UNM health facilities in 2004, would not be sufficient to meet debt ser-

vice on $40.5 million of cigarette tax bonds authorized by this bill. Under the previous bond

structure, the NMFA assumed a 3% decline of cigarette tax receipts available to pay bondholders

and provided for ample revenue coverage in the later years. Under the structure allowed by this

bill, the bond holders could not expect such coverage on the $40.5 million of bonds. Addition-

ally, the 15.95% cigarette tax distribution used as credit enhancement would be required as a

contingency fund on as much as $115.5 million in cigarette tax bonds. Assuming the 3% de-

cline, this credit enhancement would likely be used in the later bond years to meet debt

Lastly, the authorization contained in this bill to additionally secure the authorized cigarette tax

bonds with a lien of the Public Project Revolving Fund would need to be exercised to issue any

more than approximately $25 million in current interest rate environments.

As provided by NMFA, the following is the current distribution of Net Cigarette Tax Receipts:

Distribution of Net Cigarette Tax Receipts

August 2003 Through July 2004

Entity/Fund

% Distribution FY 2003-04 Distribution

(1)

County and Municipality Recreation Fund

1.36%

$ 828,638

County and Municipal Cigarette Tax Fund

2.72%

1,657,275

UNM Cancer Research & Treatment Center 1.36%

828,638

NMFA (Operating Expenses)

2.04%

1,242,957

NMFA (UNM Health Sciences Center)

14.52%

8,846,926

NMFA (Dept. of Health facilities)

6.11%

3,722,777

NMFA (Credit Enhancement Account)

15.95%

9,718,214

State General Fund

55.94%

34,083,817

(2)

Aggregate Receipts Collected

100.00%

$ 60,929,241

(1 )

Numbers do not add due to independent rounding.

(2 )

Includes miscellaneous amounts paid as a result of out-of-State stamping privileges and consumption taxes.

Source: Taxation and Revenue Department.

OTHER SUBSTANTIVE ISSUES

In 1993, the Legislature authorized NMFA to sell $6 million in revenue bonds to plan, design

construct and equip an addition to the University of New Mexico Research and Cancer Center.

The Legislature dedicated 7.125% of cigarette tax receipts, exclusive of penalties and interest,

for the repayment of the revenue bonds. In 1998, the Legislature authorized NMFA to issue up

to $4 million in bonds payable from the Public Project Revolving Fund for the purpose of acquir-

ing, constructing, equipping or improving Bratton Hall at the UNM Law School. In August

1998, the NMFA board approved a $4 million financing package for the UNM Law School. The

package included $2 million in cash from cigarette tax revenue dedicated to NMFA bonds issued

to finance the UNM Cancer Center project but which had not been used to pay debt service. The

Senate Bill CS/ 935/aHAFC -- Page 4

package also included the issuance of approximately $2.06 million in bonds backed by available

cigarette tax revenues and the Public Project Revolving Fund.

In 2002, the Legislature authorized NMFA to make a $4 million grant from NMFA’s 2.04 %

cigarette tax distribution intended for administrative costs (approximately $1.2 million) for the

UNM Law Library project. Because NMFA will be paying debt service on the 2002 UNM Law

Library project, NMFA must have access to its administrative reserve to enable it to meet debt

service in the later years.

In 2003, distributions authorized for the UNM Hospital and the Cancer Research and Treatment

Center at the UNM Health Sciences Center and to the credit enhancement account were added by

the Legislature and NMFA was authorized to issue $60,000,000 in bonds to finance the UNM

Health Sciences Center Project. The Legislature specified that the university distribution and the

credit enhancement distribution were appropriated to be pledged irrevocably for the payment of

principal, interest, and any premium on the bonds. The university distribution is to be deposited

into a separate fund or account of the NMFA, which is held by the trustee under the indenture as

the “UNM Health Sciences Center Project Revenue Fund”. The credit enhancement distribution

is required to be deposited each month in the credit enhancement account held by the NMFA.

LMK/yr:lg