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

SPONSOR Arnold-Jones

ORIGINAL DATE

LAST UPDATED

2/23/07

2/8/07 HB 997/aHHGAC

SHORT TITLE MFA Oversight of Regional Housing Authorities

SB

ANALYST Leger

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$2,700.0

Nonrecurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to, SB 519

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Mortgage Finance Authority (MFA)

SUMMARY

Synopsis of HHGAC Amendment

On page 3, line 10, after the period insert:

“In selecting the transferee, the New Mexico mortgage finance authority shall give preference to

those proposers who are employers of former employees of a high-performing regional housing

authority as ranked by the United States department of housing and urban development."

Synopsis of Original Bill

House Bill 997 appropriates $2.7 million from the general fund to Department of Finance and

Administration (DFA) for the purpose of making disbursements to the New Mexico Mortgage

Finance Authority (MFA) for transitional, operational, and administrative expenses incurred in

carrying out the provisions of HB 997.

Declaring an emergency.

House Bill 997/aHHGAC – Page

2

This bill limits the powers of the regional housing authorities by repealing some sections of the

Regional Housing Law immediately and the remaining sections of the Law no later than July 1,

2010. Effective July 1, 2007, all regional housing authorities shall be subject to the direction and

control of the Mortgage Finance Authority (MFA); over time, all assets and program contracts

currently held by regional housing authorities shall be transferred either to MFA, other

governmental entities, and/or qualified private nonprofit entities.

FISCAL IMPLICATIONS

The appropriation of $2.7 million contained in this bill is a nonrecurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of 2010 shall revert to the

general fund.

$2.5 million will be appropriated from the general fund to DFA for disbursement to MFA over a

three-year period; $155,000 for transitional expenses, $1.7 million for operating expense, and

$645,000 for administrative expenses; to revert to the general fund at the end of FY2010. In

addition, $200,000 will be appropriated to the LFC to conduct an audit of the regional housing

authorities; funds not expended or encumbered will revert to the general fund at the end of FY08.

SIGNIFICANT ISSUES

Performance reviews commissioned by the State Board of Finance and the State Investment

Office cited a critical need for increased oversight and accountability for the regional housing

authorities. If this bill is enacted, it will serve to stabilize a component of New Mexico’s

affordable housing delivery system and ensure its sustainability in the long term so that

additional housing will be provided to those who need it most.

The first step in reforming New Mexico’s regional housing system is to repeal the existing

Regional Housing Law. Although this action implies that regional housing authorities will no

longer exist in statute, MFA will assist currently functioning regional housing authorities to

establish federally recognized non-profit housing service organizations and transition

responsibilities to the non-profit corporations. Alternatively, MFA could assist a governmental

entity (e.g., a municipality or county) to create a multi-jurisdictional housing authority and

responsibilities, staff, etc. could be transferred to the governmental entity.

Funds ($2.5 million) appropriated through HB 997 will allow MFA over a three-year period to

administer the operational component of the funding through a public solicitation that will

prescribe services to be provided on a regional basis throughout New Mexico. MFA has

indicated it will contract with housing service providers to deliver the services; oversight and

accountability will be achieved through contractual means, and MFA will provide long-term

compliance services in conjunction with these contracts just as it does with all other federal and

state-funded housing contracts it currently administers. MFA also notes it has a seven-member

Board of Directors that includes the Lieutenant Governor, the Attorney General, and the

Treasurer as well as four gubernatorial appointees. In addition to the board MFA also has a

legislative oversight committee and is incorporated by the State Audit Act.

MFA points out the $2.5 million in funding will serve three purposes: (1) to support housing

service providers’ operating costs associated with expanding into currently underserved areas,

House Bill 997/aHHGAC – Page

3

(2) to offset costs of creating a new statewide housing development organization, and (3) to

support MFA administrative expenses associated with these activities. Importantly, this structure

is flexible, it leverages existing expertise and capacity throughout the state and it enables

providers to achieve economies of scale that cannot be realized in the existing regional housing

statutory structure. MFA will assist in the development of the 501(c)(3) statewide housing

development organization cited above whose sole function would be to develop housing in areas

that currently lack necessary skill sets, labor, and/or administrative capacity to develop below

market-rate housing.

Language within HB 997 also appropriates $200,000 to LFC to conduct an accounting of all

assets acquired by regional housing authorities pursuant to the Regional Housing Law.

MFA states that based on the recommendations of both performance reviews commissioned by

the State Board of Finance and the State Investment Office, appropriated operating funding is

critical: funding sources exist to finance housing development costs; funding to support

operating costs is extremely limited. In order to create a sustainable system that reaches all areas

of the state, housing service providers must have an appropriate incentive to expand their

geographic service areas beyond what is most economically feasible and logistically convenient.

PERFORMANCE IMPLICATIONS

In order for MFA to have a clear understanding as to the magnitude of the assets and liabilities

the authorities have acquired/incurred under the Regional Housing Law, it will rely on the

regional housing authority audit which will be conducted by LFC.

MFA indicates it will be unable to carry out administrative activities until it receives

appropriated funds from DFA. MFA anticipates having to hire additional staff, purchase

software, obtain training, and travel to meet with successful bidders on the public solicitation in

order to coordinate program management. MFA also plans to assist the two high-performing

regional housing authorities by paying for transitional costs they may incur in obtaining

501(c)(3) certification from the IRS, converting to different software systems (if necessary),

training and travel, and recruiting and hiring new staff (if necessary). These costs will be offset

using the “transitional" component of the appropriation identified in Section 4 (i.e., $155,000).

As previously stated, MFA will utilize the operating component of the appropriation (i.e., $1.7

million) to help offset operating costs of housing service providers that successfully bid in

response to the public solicitation for housing services in underserved areas. MFA also plans to

create a statewide non-profit housing development organization whose primary purpose will be

to develop much-needed affordable housing throughout rural New Mexico: some of the $1.7

million will be used to seed this organization. To this end, it will be important for MFA to

receive disbursements from DFA timely in order to pass this funding through to these housing

agencies.

ADMINISTRATIVE IMPLICATIONS

Section 4 of HB 997 provides that $645,000 of the $2.5 million may be used for administrative

expenses. MFA plans to hire staff to oversee the new housing service providers’ management of

federal public housing programs (which MFA currently does not administer). In addition to

compensation and benefits for these employees, MFA must budget for software, training, travel,

House Bill 997/aHHGAC – Page

4

and other associated administrative costs it will incur beyond the first transition year. MFA

stresses timely disbursements from DFA will have a direct impact their ability to administer

these programs successfully on behalf of the state.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 519

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

According to MFA, if HB 997 is not enacted and if no action is taken during this legislative

session to address the current regional housing authority structure, the regional housing

authorities will continue to lack oversight and accountability. At present, two of the seven

original regional housing authorities are operating well. Two others are troubled, and three are

currently non-operational. In June 2006, the “New Mexico Regional Housing Authority

Assessment" prepared by Community Strategies Institute for the State Board of Finance

observed:

“There are currently some troubled Regional Housing Authorities. Unless

improvements are made to the laws governing these entities, there will be future

problems with some of the other Regionals. Mistakes have been made at the

Regional level but little has been done by the state to promote success among the

Regionals. The Regionals operating in a more responsive statutory framework

could be important players in addressing the affordable housing demands that a

fast-growing state faces."

MFA concurs with this observation.

JL/mt:nt