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

SPONSOR Lujan, B.

ORIGINAL DATE

LAST UPDATED

1/26/07

2/17/07 HB 308/aHEC/aHFL#1

SHORT TITLE Tribal College Affordability Scholarships

SB

ANALYST Dearing

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

*None

N/A

College Affordability

Fund

*Please see narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Conflicts with: SB 355

Responses Received From

Higher Education Department (HED)

Indian Affairs Department (IAD)

SUMMARY

Synopsis of House Floor Amendment #1

Action on the House Floor amends House Bill 308/aHEC such that;

1. Strike House Education Committee Amendments 2, 3, 4, 5, 6 and 7.

2. On page 1, line 13, after the semicolon insert "ADJUSTING DISTRIBUTIONS TO THE

COLLEGE AFFORDABILITY SCHOLARSHIP FUND;".

3. On page 5, line 21, after "fund" strike the remainder of the line and insert in lieu thereof

"except".

4. On page 5, strike all of line 22 and on line 23, strike "scholarship fund" and after "section"

strike the comma.

House Bill 308/aHEC/aHFL#1 – Page

2

5. On page 5, strike line 24 and strike line 25 up to the period.

6. On page 6, line 2, after "created" insert "as a nonreverting fund".

7. On page 6, line 3, after "fund" strike the remainder of the line and on line 4, strike

"section".

8. On page 6, line 4, after "specified" insert "distributions,".

9. On page 6, line 13, after "Until" insert "fifty percent of the annual income from investment

of the college affordability endowment fund is equal to or exceeds two million dollars

($2,000,000), an annual distribution of two million dollars ($2,000,000) shall be made from

the college affordability endowment fund to the college affordability scholarship fund.

Thereafter, until".

10. On page 6, line 17, after "fund" strike the remainder of the line, strike all of lines 18 and

19 and insert in lieu thereof a period and "After the corpus of the endowment fund is two

hundred fifty million dollars ($250,000,000), all of the income from investment of the fund

shall be distributed to the college affordability scholarship fund."".

The House Floor amendments make substantial changes to the proposed legislation. Under these

amendments, the language remains in the College Affordability Scholarship act to maintain the

endowment-building retained earnings framework of 50% to build principal, 50% available for

scholarships in any year. However, there is a new provision providing that, until the endowment

fund distribution (the 50% disbursement of earned interest) to the scholarship fund meets or

exceeds $2 million, an annual distribution of $2 million shall be made to the scholarship fund

from the endowment by default.

*

The effective date of House Bill 308/aHEC as amended by floor action is July 1, 2007.

Clarification is necessary to determine whether the nonrecurring, $2 million appropriation

recommended for the scholarship fund in House Bill 2 will substitute for the default distribution

mentioned above, for FY08. If the entire endowment is invested with the State Investment

Council (average 8% return) at or prior to the beginning of FY08, interest earnings should

substantially exceed $2 million during the year, making any default distribution unnecessary in

that year.

Synopsis of HEC Amendment

The House Education Committee substantially amends House Bill 308 such that 100% of the

interest in the fund is available for scholarships in any given year. As amended, the college

affordability endowment fund shall become a non-reverting fund. Annual interest from

investment of the endowment fund will flow into the scholarship fund for expenditure.

There are significant fiscal implications to this proposed statutory change of fund mechanics.

Under the change, there will be a 100% increase in available scholarships the first year,

however, without additional appropriations, the endowment fund would no longer keep

pace with inflation, nor provide for growth in the number of scholarships available in out-

years. Due to significant average inflation in the cost of Higher Education, the program

House Bill 308/aHEC/aHFL#1 – Page

3

would lose purchasing power each year, resulting in either fewer grants, or less valuable

grants.

This proposed change to the mechanics of the fund represent would significantly alter future

scholarship capacity. The original language specified that 50% of earned interest would be

retained in the fund, increasing the fund’s balance by 50% of interest in each year. Existing

statute provides for this framework to remain in place until the fund reaches $250 million.

Under the existing statute, the endowment fund could provide $20 million in annual scholarships

when it reaches its intended terminal value.

The attached table, appendix A. shows the net benefit to maintaining the fund’s current

retained earnings framework. The beginning FY08 values in the table include an LFC

recommended $50 million special nonrecurring appropriation for the College Affordability

Act in FY08.

Over a 30-year period, maintenance of the current statute would provide eighty-two

million ($82,000,000) in excess scholarship grants than the framework proposed in House

Bill 308/aHEC. Additionally, the endowment value would have increased to two-hundred,

fifty-four million ($253,767,000) midway through the 23

rd

year.

The current framework provides net future benefit exceeding two-hundred, thirty-six

million ($236,000,000) above the HB308/aHEC proposal.

Alternatives to the proposal in HB308/aHEC include allocating 4%, or $2 million of $50 million

recommended special appropriation to the scholarship fund to increase the number of

scholarships available in FY08.

Synopsis of Original Bill

House Bill 308 carries no appropriation from the General Fund. If enacted, the bill would amend

Sections 21-21L-1 through 21-21L-8 NMSA 1978, the College Affordability Act, to extend

eligibility for need-based scholarships to students attending the State’s Tribal colleges. The

proposed legislation amends the Act to re-define the duration of eligibility for recipients. House

Bill 308 adds or amends the Act’s language to define eligible student, scholarship and Tribal

college.

FISCAL IMPLICATIONS

House Bill 308 carries no appropriation from the General Fund. The bill amends or adds several

passages within the College Affordability Act.

Under the current legislation, students at Tribal colleges are ineligible for scholarship awards

from the fund. The proposed amendments would allow the NM Department of Higher Education

to allocate funds from the College Affordability Fund to eligible Tribal colleges for distribution

as scholarships. Expanding eligibility to include Tribal students would have no net impact on the

fund, as the distribution mechanism would remain at a maximum of 50 percent of annual interest

earnings applied toward scholarships. Under the existing and proposed versions, 50 percent of

annual interest earnings are retained to increase the fund principle.

House Bill 308/aHEC/aHFL#1 – Page

4

*If enacted, the aggregate annual award funding available statewide would remain at half of

earned interest, however, there would be more students eligible for individual grants. The

allocation of funding distributed to public higher education institutions would incorporate Tribal

colleges’ new eligibility.

*The proposed amendment strikes language stipulating only 8 consecutive semesters of

eligibility for recipients. There would be no additional costs of extending the term of eligibility

past 8 consecutive semesters, however, there would be fewer total grants available to new

recipients each year if the duration is extended. As currently proposed, the change to duration of

eligibility would have no affect over the next three years since the program’s first grant awards

were in Fall 2006. As proposed, eligible recipients would no longer have to be in a degree

program.

*The proposed amendment leaves language intact within the Act stipulating a maximum award

amount of $1000 each semester; $2000 annually. Both the number of total awards, and the

minimum dollar amount of each award are not provided in either the existing Act, nor in the

proposed version. Setting these levels will remain a department decision through its rule

promulgation process. Because of this, the possibility exists that increased eligibility might

place demand pressure on the department to increase the total available awards, necessitating a

reduction in the dollar amount of awards.

Many significant elements of administration of the Act would be left to rulemaking by the

Higher Education department. The amended version would remove the 4-year cap on duration

of eligibility, as well as a necessity that students remain in degree seeking programs. Because of

this there is significant concern that rules created by the department could have a negative impact

on recipients’ persistence to graduation. These two items have the potential to reduce the service

capacity of the fund in both total numbers and effectiveness.

SIGNIFICANT ISSUES

Enacted during the 2005 regular legislative session and endowed through a $49 million

appropriation in Laws, 2006 Chapter 109, the College Affordability fund was invested in June

2006 with the local government investment pool with the State Treasurer’s office. HED

estimates the fund may provide scholarship grants of up to $1000 each semester; $2000 annually,

to as many as 625 students demonstrating financial need within its first year. Provisions for

distribution of this scholarship money to students have been developed within the department,

however these have not yet been compiled within New Mexico Administrative Code (NMAC).

The current language in the College Affordability Act restricts the scholarship recipients to eight

consecutive semesters. The Higher Education department states that this does not allow part-

time students to receive the scholarship long enough to graduate and that the issue is particularly

problematic for part-time students at community colleges wishing to continue through to a

bachelor's degree.

Proposed amendments to the Act would keep intact language that terminates the awards when

students fail to achieve satisfactory academic progress, withdrawal, or fail to remain at half-time.

HED will continue to make the determination for academic progress criteria through the

promulgation of rules.

House Bill 308/aHEC/aHFL#1 – Page

5

ADMINISTRATIVE IMPLICATIONS

Many significant elements of administration of the Act are left to rulemaking by the Higher

Education department.

CONFLICT

House Bill 308 conflicts with SB 355.

Senate Bill 355 amends Sections 21-21L-1 through 21-21L-7 NMSA 1978, the College

Affordability Act. Senate Bill 355 defines tribal colleges by name as follows.

D. "tribal college" means:

(1) the southwestern Indian polytechnic institute;

(2) the Crownpoint institute of technology;

(3) the institute of American Indian arts; and

(4) the New Mexico campus of Dineh college."

Senate Bill 355 makes other technical adjustments to change language to make the Act parallel

with the statutory change from the Commission on Higher Education (CHE), to the Higher

Education Department (HED), and to incorporate its own proposed definitions.

TECHNICAL ISSUES

House Bill 308 carries no appropriation from the General Fund, however, as proposed, the title

suggests otherwise.

The proposed Enactment of House Bill 308 would make the following changes to the provisions

of Sections 21-21L-1 through 21-21L-8 NMSA 1978.

Clauses throughout House Bill 308 change language to make the Act parallel with the statutory

change from the Commission on Higher Education (CHE), to the Higher Education Department

(HED), and to incorporate new proposed definitions.

Section 21-21L-3 (b) defining “returning adult" is stricken.

Section 21-21L-3 (c) defining “student" is stricken.

Clauses in Section 21-21L-3 (b), (c) and (d); add definitions that define eligible student,

scholarship and Tribal college

New Section 21-21L-3 (b); new section defining “eligible student" is added. Creates a change

from previously used semester reference to “any time later than 120 days following high-school

graduation or acceptance of general educational development certificate;" includes New Mexico

resident in criteria.

Clause 21-21L-4 (a); requiring an eligible student be a resident of New Mexico for the purpose

of tuition payment is stricken.

House Bill 308/aHEC/aHFL#1 – Page

6

*

Clause 21-21L-4 (b); amended to remove necessity of enrollment in degree program as criteria.

*

Clauses in 21-21L-5 (d) and (e); add tribal colleges to list of institutions making and

administrating awards.

*

Clauses in Section 21-21L-6 amended to strike maximum duration of eligibility of 8

consecutive semesters.

Clauses in Section 21-21L-8 (a) and (b); add minor linguistic changes.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Sections 21-21L-1 through 21-21L-8 NMSA 1978, the College Affordability Act would remain

in statute in their current form.

ATTACHMENT

PD/sb:csd

1

2008

2009

2010

2011 2012 2013 2014 2015 2016 2017

2

Available for Investment, House Bill 308

99, 0 00, 0 00

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99, 0 00, 0 00

$

99 , 000 , 000

$

99, 0 00, 0 00

$

3

Available for scholarship, House Bill 308

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

4

5

Available for Investment Status Quo

10 2, 96 0, 00 0

$

107 , 078 , 400

$

111 , 361 , 536

$

115 , 815 , 997

$

120 , 448 , 637

$

125 , 266 , 583

$

130 , 277 , 246

$

13 5, 48 8, 33 6

$

140 , 907 , 869

$

14 6, 54 4, 18 4

$

6

Available for Scholarship Status Quo

3, 9 60, 0 00

$

4, 11 8, 40 0

$

4, 28 3, 13 6

$

4, 45 4, 46 1

$

4, 63 2, 64 0

$

4, 81 7, 94 5

$

5, 01 0, 66 3

$

5, 2 11, 0 90

$

5, 41 9, 53 3

$

5, 6 36, 3 15

$

7

8

Diff. (Existing law -Proposed)

(3, 9 60, 0 00)

$

(3, 80 1, 60 0)

$

(3, 63 6, 86 4)

$

(3, 46 5, 53 9)

$

(3, 28 7, 36 0)

$

(3, 10 2, 05 5)

$

(2, 90 9, 33 7)

$

(2, 7 08, 9 10)

$

(2, 50 0, 46 7)

$

(2, 2 83, 6 85)

$

9

10

2018

2019

2020

2021 2022 2023 2024 2025 2026 2027

11

Available for Investment, House Bill 308

99, 0 00, 0 00

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99, 0 00, 0 00

$

99 , 000 , 000

$

99, 0 00, 0 00

$

12

Available for scholarship, House Bill 308

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

13

14

Available for Investment Status Quo

15 2, 40 5, 95 2

$

158 , 502 , 190

$

164 , 842 , 277

$

171 , 435 , 968

$

178 , 293 , 407

$

185 , 425 , 143

$

192 , 842 , 149

$

20 0, 55 5, 83 5

$

208 , 578 , 068

$

21 6, 92 1, 19 1

$

15

Available for Scholarship Status Quo

5, 8 61, 7 67

$

6, 09 6, 23 8

$

6, 34 0, 08 8

$

6, 59 3, 69 1

$

6, 85 7, 43 9

$

7, 13 1, 73 6

$

7, 41 7, 00 6

$

7, 7 13, 6 86

$

8, 02 2, 23 3

$

8, 3 43, 1 23

$

16

17

Diff. (Existing law -Proposed)

(2, 0 58, 2 33)

$

(1, 82 3, 76 2)

$

(1, 57 9, 91 2)

$

(1, 32 6, 30 9)

$

(1, 06 2, 56 1)

$

(78 8, 26 4)

$

(50 2, 99 4)

$

(2 06 ,3 14 )

$

10 2, 23 3

$

4 23, 1 23

$

18

19

2028

2029

2030

2031

2032 2033 2034 2035 2036 2037

20

Avail. for Investment, House Bill 308

99, 0 00, 0 00

$

99 , 000 , 000

$

99,000,000

$

99,000,000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99, 0 00, 0 00

$

99 , 000 , 000

$

99, 0 00, 0 00

$

21

Avail. for scholarship, House Bill 308

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7,920,000

$

7,920,000

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

22

23

Available for Investment Status Quo

22 5, 59 8, 03 9

$

234 , 621 , 960

$

244,006,839

$

263,527,386

$

284 , 609 , 577

$

307 , 378 , 343

$

331 , 968 , 610

$

35 8, 52 6, 09 9

$

387 , 208 , 187

$

41 8, 18 4, 84 2

$

24

Available for Scholarship Status Quo

8, 6 76, 8 48

$

9, 02 3, 92 2

$

9,384,878

$

19,520,547

$

21 , 082 , 191

$

22 , 768 , 766

$

24 , 590 , 267

$

26, 5 57, 4 89

$

28 , 682 , 088

$

30, 9 76, 6 55

$

25

26

Diff. (Existing law -Proposed)

7 56, 8 48

$

1, 10 3, 92 2

$

1,464,878

$

11,600,547

$

13 , 162 , 191

$

14 , 848 , 766

$

16 , 670 , 267

$

18, 6 37, 4 89

$

20 , 762 , 088

$

23, 0 56, 6 55

$

27

28

29

30

A

30-yr Excess with Current Statute

81,584,842

$

31

Excess endowment value

32

with existing framework

33

154,767,112

$

35

36 A

excess scholarship funding available under current statutory framework over 30-year horizon

Investment Growth

8.0%

midway between 2030-31

100% of interest would be available in years

2030-31 under the current statutory

framework. The endowment will have

reached intended terminal value of $250

million.