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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 Foley

ORIGINAL DATE

LAST UPDATED

2/12/07

HB 775

SHORT TITLE Gas Tax Replacement Fund & Distributions

SB

ANALYST Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

115,234

Nonrecurring

Gasoline Tax Re-

placement Fund

111,464

Nonrecurring Special Fuel Tax Re-

placement Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(5,000)

(15,000) none Nonrecurring State General Fund (GRT)

(3,250)

(9,750) none Nonrecurring Local Governments (GRT)

749

(1,443) none Nonrecurring State Road Fund (Fuel Taxes)

33

(192) none Nonrecurring Local Government Road Fund

154

134 none Nonrecurring Local Governments (Fuel

Taxes)

2

2 none Nonrecurring Aviation Fund (Fuel Taxes)

1

1 none Nonrecurring Motorboat Fuel Fund (Fuel

Taxes)

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Transportation

Bill No. – Page

2

Energy Minerals and Natural Resources Department

SUMMARY

Synopsis of Bill

House Bill 775 exempts gasoline and special fuels received in the state from the Gasoline Tax

Act, the Special Fuels Supplier Tax Act and the Gross Receipts and Compensating Tax Act.

Two funds are created, the gasoline tax replacement fund and the special fuel tax replacement

fund, that distribute funds according to the distributions set up in the gasoline tax act and the

special fuels supplier tax act. HB 775 appropriates the equivalent of 101.225 percent of the FY06

revenues attributable to the gas tax to the gasoline tax replacement fund and 103.13 percent of

the FY06 revenues attributable to the special fuels tax revenues to the special fuels tax replace-

ment fund.

The exemption is from April 1, 2007 to March 31, 2008 for both the gas tax and the special fuels

tax. The two newly created funds distribute one-twelfth of the appropriation each month from

June 2007 to May 2008.

FISCAL IMPLICATIONS

The fiscal impact is determined by the difference between the projections of the gasoline and

special fuels tax and the percentage increase dictated by HB775. The gross receipts tax impacts

has to do with the treatment of dyed fuels.

DOT reports that the revenues will be further impacted since it will be difficult to restart the tax

in FY09 after a year hiatus and likely there will be delays in collection.

This bill creates a new fund and provides for continuing appropriations. The LFC has concerns

with including continuing appropriation language in the statutory provisions for newly created

funds, as earmarking reduces the ability of the legislature to establish spending priorities.

SIGNIFICANT ISSUES

The need for an appropriation to the two new funds—the replacement funds—is to ensure that

the revenues required for bonding road projects are not impacted while still providing relief for

fuel taxes.

DOT Reasons Why Eliminating Motor Fuel Taxes – Even Temporarily – Would be a Seri-

ous Mistake

1. Motor fuel tax revenues are committed to bond debt service (see discussion on page 4).

2. There is no guarantee that reduced taxes will be passed on to consumers.

3. Significant problems and complications would occur under the International Fuel Tax

Agreement that regulates tax obligations among interstate commercial carriers.

4. Tax savings to consumers would be allocated based on fuel usage rather than on income

class or financial need.

5. Decreasing the tax would not encourage conservation, which is needed in the short run to

avoid shortages and in the long run to develop alternative sources and encourage efficient vehicle

development.

Bill No. – Page

3

6. The tax is not related to income and the ability to pay. A targeted refund scheme could

better assist low income families, fledgling industries, public policy goals, etc. at less cost to the

state.

7. If high energy costs represent a long-run concern for the state, they demand a long-run

solution. A temporary suspension of motor fuel tax, which is needed to fund transportation in-

frastructure in the state, is not an appropriate part of such a strategy.

8. It will be difficult to re-instate the tax – both politically and administratively.

9. Approximately 80% ($80 million) of the tax on diesel is paid by out-of-state trucking

companies engaged in interstate commerce.

10. At least a small amount of the total cost of suspending the gasoline tax will benefit resi-

dents of other states (probably less than 10%, but still in the range of $5 to $10 million).

11. Native American tribes and Pueblos may be forced to suspend or decrease their tribal

gasoline taxes. For certain Pueblos, the tribal gasoline tax may represent the most significant

source of tribal government income.

12. Motor fuel tax distributors would have no incentive to accurately report fuel volumes

needed for local government revenue distribution calculations. Motor fuel volumes are also re-

ported to the Federal Highway Administration for use in determining the state’s share of federal

highway money, so a negative impact on Federal Highway Funds is quite possible.

OTHER SUBSTANTIVE ISSUES

DOT:

Bonding Impacts of a reduction of the rate of gasoline taxes.

A reduction of the gasoline tax or special fuel tax would constitute a violation of non-

impairment language of State statute and covenants in documents related to outstanding

NMDOT bond debt and the NMFA GRIP bond issues.

Rating agencies (Moody’s and S&P) may react negatively to any change in pledged

revenues.

Based on the current interest rate market, a downgrade to the “A" category could cost 21

to 23 basis points (.21% to .23%) in terms of higher interest rates (approximately $16

million additional interest cost on future GRIP bonds).

In total, even for issues selling with bond insurance, the added interest and bond insur-

ance cost for an issue falling into the “A" rating category could range from $3.15 million

to $4.85 million.

A change in the pledged revenue source in violation of legal covenants would likely re-

quire filing of a “Material Events Notice" under SEC continuing disclosure regulations.

The impact of substituting another source of revenues to replace a reduction of gasoline

taxes, with regard to outstanding bonds, could require consent of a majority of existing

bond holders. As with the SEC regulation notice, this could require time and expense in

identifying, notifying, negotiating and securing consent from holders.

Another potential cost which might be difficult to quantify at this time would be ratings

and credit implications on the State of New Mexico in general. Violation of non-

impairment provisions and covenants on specific issues such as the transportation bonds

Bill No. – Page

4

could produce questions regarding intent and support of other credit matters.

ALTERNATIVES

One alternative would be to give a tax rebate similar to the energy tax rebate distributed in 2005.

This gave taxpayers relief while avoiding any negative bonding consequences. SB812 provides

such a rebate to all NM tax filers.

ANA/sec