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.

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

SPONSOR Tsosie

ORIGINAL DATE

LAST UPDATED

2/09/06

HB

SHORT TITLE Lottery Scholarship Expense and Eligibility

SB 625

ANALYST Williams

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$120.0

Recurring

College Affordability

Scholarship Fund --

interest income lottery

intercept

$2,200.0

Recurring

College Affordability

Endowment Fund –

tribal gaming revenue

intercept

$50.0 Recurring, beginning

in FY08

College Affordability

Scholarship Fund---

interest income ---

tribal revenue sharing

intercept

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to numerous student financial aid bills, including lottery scholarship and college afforda-

bility

Relates to Appropriation in the General Appropriation Act for $49 million for the college af-

fordability endowment fund

Senate Bill 625 – Page 2

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

No impact

Recurring

Lottery Tuition

Fund ---- operat-

ing expense cap

-$5,285.8.0

-$5,415.4 Recurring Lottery Tuition

Fund

$5,285.0

$5,285.0 Recurring

College Af-

fordability En-

dowment Fund

$120.0

$245.0 Recurring

College Af-

fordability En-

dowment Fund

– interest in-

come --- lottery

intercept

$120.0

$245.0 Recurring

College Af-

fordability

Scholarship

Fund---interest

income lottery

intercept

Earmarks General

Fund Revenue essen-

tially reducing amount

available for legisla-

tive appropriation by

$2,200.0

Earmarks General

Fund Revenue es-

sentially reducing

amount available for

legislative appro-

priation by $2,200.0

Recurring General Fund

$50.0 Recurring

College Af-

fordability En-

dowment Fund

– interest in-

come --- tribal

revenue sharing

intercept

$50.0 Recurring

College Af-

fordability

Scholarship

Fund---interest

income --- tribal

revenue sharing

intercept

(Parenthesis ( ) Indicate Expenditure Decreases)

Senate Bill 625 – Page 2

SOURCES OF INFORMATION

LFC Files

Responses Received From

Higher Education Department (HED)

New Mexico Lottery Authority (NMLA)

SUMMARY

Synopsis of Bill

The bill makes numerous changes to state student financial aid programs:

•

Intercepts 16 percent of net revenues (net profits) of the New Mexico Lottery Authority

for the College Affordability Endowment Fund;

•

Distributes the remaining 84 percent of net revenues (net profits) of the New Mexico Lot-

tery Authority to the lottery tuition fund for scholarships;

•

Expands eligibility for college affordability scholarships to tribal colleges;

•

Defines tribal colleges as tribally, federally or congressionally chartered post-secondary

educational, accredited institutions which includes Southwestern Indian Polytechnic In-

stitute, Crownpoint Institute of Technology, Institute of American Indian Arts and the

New Mexico campus of Dine College.

Further, the bill earmarks general fund revenue to the extent that 5 percent of tribal gaming reve-

nues dedicated to the general fund would be transferred each August 1 to the college afforda-

bility fund. This calculation would be based on prior fiscal year actual receipts.

The bill also caps operating expenses of the New Mexico Lottery Authority at 22 percent of

gross annual revenues form the sale of lottery tickets. Finally, the bill updates current statute for

the creation of the Higher Education Department.

FISCAL IMPLICATIONS

Cap on Operating Expenses. According to the report Individual Development Accounts report

by Think New Mexico, Fall 2005, New Mexico Lottery spends 19.4 percent of lottery revenues

on operating costs. As such, it is not clear that the cap on annual operating expenses of 22 per-

cent specified in Section 2(A) of the bill would change distributions.

Lottery Revenue Intercept. The bill earmarks 16 percent of lottery net revenues (net profits)

for the college affordability endowment fund. This results in a reduction in funds available for

lottery scholarships of $5.3 million in FY07 with an associated increase in fund balances for the

college affordability endowment, based on current, consensus lottery revenue estimates (see at-

tached). The intercept of lottery revenues accelerates funding pressures on the lottery tuition

fund to address future estimated costs of scholarships.

The college affordability endowment would generate investment income which is then split be-

tween the college affordability endowment fund and the college affordability scholarship fund;

assuming the continued practice of investing in overnights with the Office of the State Treasurer

at 4.5 percent interest, approximately $120.0 thousand and $245.0 thousand in FY07 and FY08

Senate Bill 625 – Page 3

would be generated for the two funds. Investing balances with the State Investment Council

would increase interest income to about 8 percent.

Earmarking General Fund Revenues. The bill earmarks general fund revenue to the extent

that 5 percent of tribal gaming revenues dedicated to the general fund would be transferred each

August 1 to the college affordability endowment fund. This calculation would be based on prior

fiscal year actual receipts. Based on the February 2006 consensus revenue estimates, the reduc-

tion in general fund revenue available to the legislature for appropriation would be about $2.2

million per year.

This bill earmarks general fund revenues, essentially setting precedent for earmarks beyond

those currently existing for public schools.

This bill creates provides for continuing appropriations. The LFC has concerns with including

continuing appropriation language, as earmarking reduces the ability of the legislature to estab-

lish spending priorities.

Finally, the distribution to the college affordability endowment fund would generate investment

income which would then be distributed to the college affordability endowment fund and the col-

lege affordability scholarship fund in FY08, roughly $50.0 thousand for each fund based on

overnight investments. Investing balances with the State Investment Council would increase in-

terest income to about 8 percent.

Expanding college affordability program to tribal colleges. The bill broadens the base of eli-

gible students who could increase demands on the fund for awards (although distributions would

be capped by availability of funding, which is addressed in this bill). Tribal institutions are not

currently required to provide student data to CHE. Based on HED information on the number of

students attending tribal colleges with Pell grant eligibility, the additional impact on the fund

would be $120.0 thousand if all students at tribal colleges received awards in the first year.

SIGNIFICANT ISSUES

NMLA notes: “By capping the operating expenses to 22%, this would limit the lottery’s ability

to compete in changing economic and competitive environments. In addition, this bill would

limit the lottery’s ability to function as an enterprise. According to state statutes, the lottery was

created as a corporate business structure and passage of this bill is contradictory to that intent and

may have an impact on the lottery’s long term obligations such as contractual issues with ticket

print vendors, on-line vendors, advertising, etc…which may require to buy outs by the lottery at

a higher cost and impact less favorable pricing in the future, locally and nationally.”

NMLA expresses concerns that bills to expand eligibility and reduce net profits transfers to the

lottery tuition fund may require additional revenue that the Lottery may not be able to generate.

In related analyses, HED and PED note:

•

“The tribal colleges in New Mexico are chartered by the Navajo Nation, Bureau of

Indian Affairs and Congress and are in a unique funding situation. They do not re-

ceive funding from state government due to their status as trust territories, and tribal

governments cannot levy property taxes. This is in accord with treaty obligations and

Senate Bill 625 – Page 4

trust responsibility between sovereign Indian tribes or nations and the U.S. govern-

ment. Most funding comes from the Tribally Controlled College and University As-

sistance Act of 1978 (TCCUAA), which is administered by the Bureau of Indian Af-

fairs. Funds, primarily from Title I, are allocated to colleges based on the number of

Indian students from federally recognized tribes that are enrolled. The lack of state ju-

risdiction over tribes, including tribal colleges, creates a challenge in how HED will

prepare guidelines and administer the lottery tuition scholarship fund to tribal col-

leges that are chartered either by the tribe, Bureau of Indian Affairs or Congress.

These issues of nation-to-nation jurisdictions will need to be worked out.

•

The unique charter status of tribal colleges creates a challenge in how the Tribal Col-

lege Scholarship funds will be allocated, administered and adhered to in regards to

performance accountability.

•

HED as a state entity has no jurisdiction over tribes and tribal colleges. These chal-

lenges will have to be addressed.”

The College Affordability program is a new, state need-based student financial aid program with

renewable awards, depending on eligibility, of up to $1,000. Note grants from the College Af-

fordability Act could be used to address expenses, such as room, board, books and supplies as

well as tuition.

In related analyses, executive branch fiscal impact reports note: “The four tribal colleges in New

Mexico offer Associate's and Bachelor's degrees in a variety of academic disciplines and offer

certificate and associates degrees. The majority of the students who attend tribal colleges are

non-traditional, female, American Indian, and first generation college students….American In-

dian students continue to have the lowest representation in higher education and make up less

then 1% of college enrollment... Tribal colleges are located on or near tribal reservations, Ameri-

can Indian students who enroll in tribal colleges are most likely to graduate due to the support of

family, extended family, and a college student population that reflects their culture and identity.

Statistics indicate that more than 50% of those students who transfer from tribal colleges into

four-year public postsecondary institutions graduate….“

ADMINISTRATIVE IMPLICATIONS

Data reporting by tribal colleges to HED institutions would be needed.

OTHER SUBSTANTIVE ISSUES

Accreditation status of Crownpoint Institute of Technology is not clear at the present time.

In related analyses, Department of Indian Affairs notes tribal Colleges were created in response

to the higher education needs of American Indians, and generally serve geographically isolated

populations that have no other means of accessing education beyond the high school level. Tribal

colleges have become increasingly important for educational opportunities for American Indian

students, an importance achieved in a relatively brief period of time. Tribal Colleges are unique

institutions that combine personal attention with cultural relevance, in such a way as to

encourage American Indians - especially those living on reservations - to overcome the barriers

they face to higher education. (American Indian Higher Education Consortium,

www.aihec.org

)

Senate Bill 625 – Page 5

The bill would address areas important to Tribal communities:

1.

Provide scholarship assistance to Native American students enrolled in tribal colleges es-

pecially those with financial needs with satisfactory academic performance;

2.

Increase the enrollment of Native American students at Tribal colleges

3.

Allow affordable access for Native American students seeking degrees in tribal colleges

(for Indian communities: parents, extended relatives, clan relatives, brothers, sisters)

The bill may be in conflict with Article 12, Section 3 of the New Mexico Constitution which

specifies “The schools, colleges, universities and other educational institutions provided for by

this constitution shall forever remain under the exclusive control of the state, and no part of the

proceeds arising from the sale or disposal of any lands granted to the state by congress, or any

other funds appropriated, levied or collected for educational purposes, shall be used for the sup-

port of any sectarian, denominational or private school, college or university.” Further, there

may be considerations of the anti-donation clause in Article 9, Section 14 and Article 4, Section

31 regarding absolute control of the New Mexico Constitution.

POSSIBLE QUESTIONS

1.

Is the bill in conflict with the New Mexico Constitution.

2.

If Crownpoint Institute of Technology is successful in its application for accreditation,

when would the evaluation process conclude and the designation occur.

3.

What data reporting requirements would be needed for enactment of this bill.

4.

Given the wide range of student eligibility and expense eligibility under the College

Affordability program, is there a plan to prioritize needs.

5.

How many students would receive scholarships/grants in the first year of the program if

the $50 million appropriation to the endowment fund recommendation of the LFC and

the Executive is enacted.

6.

How will additional funds for the endowment fund be obtained. What is the target

amount of funding for the endowment fund.

7.

How will performance outcomes of the new program be measured.

8.

Who would evaluate student eligibility to determine awards ---- HED or the institutions.

9.

How would HED and institutions administer the provisions of the bill.

AW/yr