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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 Salazar
ORIGINAL DATE
LAST UPDATED
02/12/07
03/01/07 HB 277/aHHGAC
SHORT TITLE Finance Board Capital Outlay Expenditure Threshold SB
ANALYST Williams
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
None
(Parenthesis ( ) Indicate Expenditure Decreases)
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)
FY07
FY08
FY09 3 Year
Total Cost
Recurring
or Non-Rec
Fund
Affected
Total
Reduction in
agency workload;
see text
(Parenthesis ( ) Indicate Expenditure Decreases)
Duplicate of Senate Bill 264
Relates to Senate Bill 555
SOURCES OF INFORMATION
LFC Files
State Board of Finance (SBOF)
Department of Finance and Administration (DFA)
General Services Department (GSD)
SUMMARY
Synopsis of HHGAC Amendment
The House Health and Government Affairs Committee amendment changes the SBOF project
review threshold to $1 million.
Synopsis of Original Bill
Endorsed by the Legislative Finance Committee.
pg_0002
House Bill 277/aHHGAC – Page
2
House Bill 277 provides for an exception from State Board of Finance (SBOF) review and
approval of capital outlay projects by higher education institutions specified in Article 12,
Section 11 of the state constitution. Projects of $5 million or less would not be subject to board
review and approval. The approval requirement applies to capital expenditures including the
purchase of real property, the construction of buildings or other major structures and major
remodeling.
FISCAL IMPLICATIONS
The bill does not contain an appropriation.
SIGNIFICANT ISSUES
Public, postsecondary institutions impacted by the legislation include: University of New
Mexico, New Mexico State University, New Mexico Highlands University, Western New
Mexico University, Eastern New Mexico University, New Mexico Institute of Mining and
Technology, New Mexico Military Institute, New Mexico School fro the Blind and Visually
Impaired, New Mexico School for the Deaf and Northern New Mexico State School (Northern
New Mexico College).
All projects must receive review and approval by their respective boards of regents.
HED notes “currently all higher education institutions submit their capital expenditures draw
requests to the department for approval of reimbursement. Once approved, HED then sends
them to the SBOF for final approval. This bill would shorten the current process by eliminating
the last step for…" qualifying projects.
SBOF notes: “Board review of each expenditure is extensive. For example, with each property
acquisition approval request, Board staff and Board counsel carefully review each of the ten
documents required over a period of two weeks, and provide a policy, financial, and legal
analysis of each project to the Board. All required legal documents are closely examined by
Board counsel and any issues that arise must be addressed prior to Board action. Lastly, the staff
will not present any items to the Board unless all required documents have been submitted.
Board staff works closely with the Higher Education Department to obtain missing data or
documents.
The importance of the Board of Finance oversight is not only to shed light on these projects,
which in many cases expand significantly beyond the scope and or amount appropriated by the
Legislature, but by encouraging the institutions to ensure that proper policies and procedures are
followed just knowing that the Board of Finance will be reviewing them. Many of these projects
are funded by bonds issued by the Board of Finance."
PERFORMANCE IMPLICATIONS
The HED policy development and institutional financial oversight has performance measures to
address the timeliness of funding reimbursements provided to higher education institutions for
capital outlay projects. A performance measure that may be indirectly impacted by this bill is:
pg_0003
House Bill 277/aHHGAC – Page
3
Percent of properly completed capital infrastructure draws released to the state board of finance
within thirty days of receipt from the institutions
ADMINISTRATIVE IMPLICATIONS
There would be significant streamlining and efficiencies gained by the State Board of Finance
under the proposed legislation. The following are the average number of projects as a percent of
total projects which would come before the board for review utilizing various project funding
thresholds:
Over $5 million: FY 06: 21 percent or 26 percent over the last five years
Over $1 million: FY06: 62 percent or 66 percent over the last five years
Over $0.5 million: FY06: 85 percent or 82 percent over the last five years
As well, GSD notes the legislation could speed up project delivery.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Senate Bill 555, which amends procurement code requirements, includes a provision that would
exempt from SBOF approval those construction contracts administered by the General Services
Department that are under $500 thousand. In its fiscal impact report on that bill, Property
Control Division (PCD) notes the current practice of requiring contractors to hold their price for
60 to 150 days in order to complete administrative tasks associated with SBOF approval and
contract execution. PCD anticipates savings as small construction contracts are executed within
30 days of bidding.
OTHER SUBSTANTIVE ISSUES
In June 2006, the State Board of Finance (SBOF) voted “Do Not Pass" on improvements to the
asphalt parking lot at the University of New Mexico (UNM) Championship Golf Course. Paving
was intended for 200 thousand square foot, or just over four acres, of parking lot. There were
three project funding sources: 1) 2004 general fund appropriation of $180.0 thousand; 2) 2005
severance tax bond capital appropriation of $150.0 thousand and 3) UNM minor capital outlay
funds of $250.0 thousand, for a total of $580.0 thousand. Subsequently, UNM officials resized
the project, such that SBOF approval was not necessary and completed the down-sized project.
The revised project was $499.5 thousand, of which $330.0 thousand was generated by legislative
appropriations and $169.5 was contributed from UNM minor capital outlay funds.
SBOF policy identifies project criteria to determine which projects must go before the board. In
December 2006, the SBOF revised the board policy in the area of “major" projects. Specifically,
the new policy provides an exemption from review for certain, small projects (see Attachment
A). The board’s position is that the rule did not substantively change, but interpretation of the
rule was clarified with these changes. The key test for determining whether or not a higher
education project would go before the SBOF for review is the total project cost.
As shown in the new rule, board approval is based on full-time-equivalent (FTE) student
enrollment of the institution as well as the project cost and funding source. Projects meeting the
following criteria must be reviewed and approved by the board:
pg_0004
House Bill 277/aHHGAC – Page
4
1.
Any project funded, in whole or in part, by capital outlay legislation signed into law
which costs over $500.0 thousand, at institutions with FTE enrollments under 1,500; and
2. Any project funded, in whole or in part, by capital outlay legislation signed into law
which costs over $750.0 thousand, at institutions with FTE enrollments of 1,500 or more.
As an example, at a large institution, if a project utilizes solely state funding of $400.0 thousand,
then it would not be subject to SBOF review and approval. If a project at a large institution
consists of a state appropriation of $600.0 thousand as well as other funds of $600.0, for a total
project cost of $1.2 million, then board staff indicate the SBOF review and approval would be
needed.
The board policy provides additional criteria to determine if a “major" project would require
board review and approval:
1.
Any project funded exclusively by sources other than legislative appropriations which
costs over $50,000 at institutions with enrollments of 1,500 FTE or less, or
2.
Any project funded exclusively by sources other than legislative appropriations which
costs over $300.0 thousand at institutions with enrollments exceeding 1,500 FTE.
Attachment
AW/mt
pg_0005
House Bill 277/aHHGAC – Page
5
Attachment
TITLE 2 PUBLIC FINANCE
CHAPTER 70 CAPITAL EXPENDITURES
PART 4 POLICY ON CAPITAL EXPENDITURES BY STATE EDUCATIONAL INSTITUTIONS
2.70.4.1 ISSUING AGENCY: State Board of Finance.
[Recompiled 10/01/01]
2.70.4.2 SCOPE: [RESERVED]
[Recompiled 10/01/01]
2.70.4.3 STATUTORY AUTHORITY: [RESERVED]
[Recompiled 10/01/01]
2.70.4.4 DURATION: [Permanent]
[Recompiled 10/01/01]
2.70.4.5 EFFECTIVE DATE: [Filed August 30, 1989]
[Recompiled 10/01/01]
2.70.4.6 OBJECTIVE: [RESERVED]
[Recompiled 10/01/01]
2.70.4.7 DEFINITIONS: [RESERVED]
[Recompiled 10/01/01]
2.70.4.8 [CAPITAL EXPENDITURES:]
A. Section 21-1-21 NMSA 1978 states: "No expenditure shall be made by any state
educational institution confirmed by Article 12, Section 11 of the state constitution for the purchase of real
property or the construction of buildings or other major structures or for major remodeling projects without
prior approval of the proposed purchase or construction or remodeling by the board of educational
finance and the state board of finance".
B. Involvement of the state board of finance in the approval of capital outlay projects and
capital expenditures at New Mexico colleges and universities is specified by this statute. This involvement
is substantially different from the involvement with state building projects, where the state board of
finance is the final authority for accepting bids and determining whether the project will be constructed. In
the case of educational institutions, the authority for the actual construction of the project resides with the
board of regents of the institution. However, New Mexico statute requires the higher education
department and the state board of finance to provide prior approval to the board of regents before they
are allowed to proceed with the project.
C. Since the statute requires the higher education department and the state board of finance
to provide "prior" approval of the project, these two bodies should review all major capital projects to
determine that the proposed project is in keeping with the overall statewide plan for higher education. The
source of funding for the project should also be carefully reviewed to determine that sufficient funds are
available for the project and the use of the funds will not have an adverse effect on other portions of the
institution's budget. The sufficiency of planning for the project, and the completeness of the review of the
project by the board of regents should also be determined.
[Recompiled 10/01/01]
2.70.4.9 PROJECTS REQUIRING REVIEW: All projects which fall under the following
categories must be submitted for review by the state board of finance:
A. any purchase of real property;
B. any construction of a new building;
C. any project involving a bond issue which requires state board of finance approval; [and]
D. any other major project, including construction of facilities such as parking lots or radio
towers; site improvements or landscaping; and remodeling or repair of an existing building. For these
purposes, "major" is defined as:
pg_0006
House Bill 277/aHHGAC – Page
6
(1) any project funded, in whole or in part, by capital outlay legislation signed into law
which costs over $500,000.00, at institutions with FTE enrollments under 1,500;
(2) any project funded, in whole or in part, by capital outlay legislation signed into law
which costs over $750,000.00, at institutions with FTE enrollments of 1,500 or more;
(3) any project funded exclusively by sources other than legislative appropriations which
costs over $50,000.00, at institutions with enrollments of 1,500 FTE or less; or
(4) any project funded exclusively by sources other than legislative appropriations which
costs over $300,000.00, at institutions with enrollments exceeding 1,500 FTE.
E. In-house labor applied to a project must be included as part of the cost of the project.
Projects may not be artificially segmented or phased in a manner designed to avoid review by the state
board of finance.
[Recompiled 10/01/01]
2.70.4.10 INFORMATION REQUIRED FOR SUBMISSION: To ensure that the state board of
finance will have sufficient information to review capital outlay expenditures at New Mexico's educational
institutions, the following information will be required to be submitted to the board after the higher
education department has approved the request:
A. Purchase of Real Property:
(1) legal description of the property;
(2) a copy of the appraisal and concurrence therewith, if performed by an independent
appraiser, by the property tax division of the taxation and revenue department;
(3) a site improvement survey to verify the legal description and to uncover the existence
of recorded and unrecorded easements and encroachments;
(4) a description of the use to which the property will be placed;
(5) the source of funds for the purchase to include citation of the relevant section of the
law when source of funds is legislative appropriation;
(6) current title binder evidencing clear title with no non-standard exceptions, and
agreement by the title company that it will delete general exceptions 1 through 6 and the first two-thirds of
7;
(7) merchantable fee simple title by warranty deed, except if the seller is a public entity;
(8) phase I of an environmental assessment to verify prior use of the land with regard to
possible environmental hazards;
(9) a copy of the purchase agreement, which should contain a provision making the
acquisition subject to the approval of higher education department and the state board of finance; and
(10) evidence of approval of acquisition by applicable board of regents and higher
education department;
Waivers of certain provisions may be granted at the discretion of the board of finance, on a case by case
basis, until patterns develop that can be worked into the policy. Additionally, requirements affecting bond
approvals are set forth in SBF Rule 94-1 [now 2.61.5 NMAC].
B. Construction of Buildings or Other Facilities; Major Remodeling or Repairs:
(1) a description of the facility to be constructed or repaired, including the types of space to
be included, the function of the facility, and the relationship of the project to the institution's five-year
master plan;
(2) the total square footage of the facility, both net assignable square feet and gross
square feet;
(3) the cost per square foot for the construction or repair of the facility and the cost per
square foot for the total project.
(4) a budget for the project, including architects and engineering fees and contingencies;
(5) source of funds to include citation of the relevant section of the law when source of
funds is legislative appropriation; and
(6) evidence of approval of expenditure by applicable board of regents and higher
education department.
[Recompiled 10/01/01]
2.70.4.11 REVISED PROJECTS: To ensure that the projec t actually constructed will be
substantially the same as that approved by the higher education department and the state board of
finance, any change in the project resulting in a change in the budget of more than ten percent will require
separate review and approval by the state board of finance. The same information will be required for
such changes as is required for the original submission of the project. Any additional information which
pg_0007
House Bill 277/aHHGAC – Page
7
can help in evaluating a proposed project can be requested by the state board of finance prior to
approval.
[Recompiled 10/01/01]
HISTORY OF NMAC 2.70.4:
Pre-NMAC History: The material in this Part was derived from that previously filed with the State Records
Center and Archives:
Directive 89-4, Policy on Capital Expenditures by State Educational Institutions, 8-30-89.
History of Repealed Material: [RESERVED]