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

SPONSOR Ingle

ORIGINAL DATE

LAST UPDATED

1/26/07

HB

SHORT TITLE Lottery Scholarship Tuition Increases

SB 110

ANALYST Dearing

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

NFI

$800.0 Recurring

Lottery Success

Scholarship

Fund

*Please see narrative

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Relates to;

HB209, HB361, HB571, SB537, SB364

Responses Received From

Higher Education Department (HED)

SUMMARY

Synopsis of Bill

Senate Bill 110 amends Section 21-1-4 NMSA 1978 such that Lottery Success scholarship

recipients entering New Mexico institutions would pay the first semester’s tuition rate in

successive semesters.

FISCAL IMPLICATIONS

Senate Bill 110 carries no direct appropriation from the General Fund. The bill pre-empts tuition

raises from factors such as inflation for entering recipients, effectively creating semester-specific

price-tiers (traunches) for entering recipients. If enacted, Senate Bill 110 would have the effect

of extending the longevity of the fund by decreasing distributions. The legislation would freeze

Senate Bill 110 – Page

2

tuition levels for incoming students at the 1

st

semester tuition rate and would mandate that higher

education institutions must exempt these students from increases to tuition. The change to

statute would create one-year or semester-based pricing, depending on the frequency of

institutions’ tuition increases.

*Enactment of Senate Bill 110 would create a net increase to revenue in the Lottery Scholarship

fund in the second year following tuition freezes. As successive classes of lottery recipients

became entitled to the tuition freeze, the amount of net-revenue generated would increase. The

following table highlights potential savings, given several key assumptions concerning historical

inflation and enrollment growth rates at New Mexico’s higher education institutions. Historical

inflation factors for tuition and enrollment growth rates were provided by HED. In the case of

tuition inflation, the data were reported by institution type. Enrollment growth and tuition cost

was reported for each institution in the Higher Education department’s “Condition of Higher

Education; 2005-2006." A weighted average of enrollment growth was compiled by institution

type for this fiscal impact report. The following revenue scenario would depend on consistency

of previously mentioned rates.

Year One (FY08)

Year Two (FY09) Year Three (FY10) Year Three (FY11)

0

$800,000

$1,320,000

$2,300,000

Institution Sector

Enrollment Growth Tuition Inflation

Research Universities

0.13%

8.7%

Comprehensive Universities

6.00%

6.2%

Branch Community Colleges

6.90%

6.1%

Independent Community Colleges

7.70%

6.1%

Potential Revenue Increases in years following SB110 Enactment

Table 1. Potential Net-Revenue Scenario using HED Inflation and Growth Data; Weighted Avg. Enrollment growth from

“Condition on Higher Education, 2005-2006." Tuition inflation rates from HED Lottery projection, 9-26-2006.

SIGNIFICANT ISSUES

If enacted, there could be potential issues surrounding the creation of price differentials among

other full-tuition paying students and those receiving scholarships. Additionally, there could be

significant pressure by the institutions to increase state appropriations to fund inflation and

displace lost tuition revenue from Lottery recipients.

In the 2005-2006 academic year, approximately $36.9 million in Lottery Success scholarship

funds were distributed to assist NM students. Payouts to beneficiaries continue to exceed New

Mexico Lottery Authority disbursements to the scholarship fund. With overall flat high school

graduation rates expected over this period, projected increases in expenditures are primarily

based on tuition inflation.

Across the country, merit scholarship programs are undergoing similar solvency issues.

Underestimated and rapidly increasing merit scholarship demand and scarce resources have

forced other states to pursue alternatives. Other alternatives can include mechanical adjustments

to eligibility, family income caps on recipients, reductions in awards, or increased eligibility

criteria.

Senate Bill 110 – Page

3

Lottery Revenues Forecast

Year

Net Income (000s)

% Change

FY97 21,253

FY98 19,267

-9.34%

FY99 20,010

3.85%

FY00 25,680

28.33%

FY01 25,914

0.91%

FY02 29,604

14.24%

FY03 33,093

11.79%

FY04 35,939

8.60%

FY05 32,231

-10.32%

FY06 36,856

14.35%

FY07 34,500

-6.39%

FY08 35,074

1.67%

FY09 35,607

1.52%

FY10 36,288

1.91%

FY11 37,009

1.99%

Source: DFA/LFC Consensus Forecast, September 2006

TECHNICAL ISSUES

If enacted, Senate Bill amends 21-1-4 NMSA 1978; adding clause specifying rate for lottery

tuition scholarship recipients.

A new section 21-1-4 (h) NMSA 1978 is created; amends statute such that the tuition rate for

entering Lottery Success Scholarship recipient students is frozen at that rate for the duration of

their term in the Lottery program.

RELATIONSHIP

Senate Bill 110 relates to the following bills; HB209, HB361, HB571, SB364, and SB537. Each

bill proposes amendments to eligibility or fund mechanics in statute relating to the Lottery

Success Scholarship program.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

If Senate Bill 110 is not enacted, tuition rates for lottery recipients will remain susceptible to

inflation and other tuition increases.

PD/sb