Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

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 SEC

ORIGINAL DATE

LAST UPDATED

02/11/07

03/01/07 HB

SHORT TITLE

Higher Education Faculty Endowment Fund

Distributions

SB

CS/260/aSEC/aSFC/

aSFl#1/aSFl #2/aSFl#3

ANALYST Williams

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$12,000.0

Non-Recurring

General Fund

See Narrative

Faculty Endowment

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$12,000.0

Nonrecurring

Faculty

Endowment

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to SB 645, HB 292 and HB 983

Relates to LFC budget recommendation of $25 million in non-recurring in FY07 to the faculty

endowment fund.

Relates to Executive budget recommendation of $12 million in nonrecurring in FY08 to the

faculty endowment fund

SOURCES OF INFORMATION

LFC Files

Responses Received From

Higher Education Department (HED)

CS/Senate Bill/260/aSEC/aSFC/aSFl #1/aSFl #2/aSFl #3 – Page

2

SUMMARY

Synopsis of SFl#3 Amendment

Senate Floor Amendment 3 to SB 260 provides for funding for “faculty and development

programs" and removes the language “and other purposes".

Synopsis of SFl#2 Amendment

Senate Floor Amendment 2 to SB 260 removes the specific listing of film, energy, aerospace or

education from the language which provides for a carve out of not less than five percent of each

institution’s total endowment effort for governor’s initiatives.

Synopsis of SFl#1 Amendment

Senate Floor Amendment 1 to SB 260 removes the clause “and other purposes" from the list of

expenditures which are authorized using the endowment investment income.

Synopsis of SFC Amendment

The Senate Finance Committee amendment strikes the Senate Education Committee amendment

and corrects the title to reflect that the bill includes an appropriation.

Synopsis of SEC Amendment

The Senate Education Committee amendment clarifies the eligible purposes to receive funding

must be academic in nature.

Synopsis of Original Bill

The faculty endowment program would provide non-recurring endowment funding for endowed

chairs, lectureships, professorships, scholarships, graduate assistantships, faculty development

programs and other purposes to enhance the quality of New Mexico higher education. The HED

is authorized to promulgate rules to establish procedures to disburse funds from the faculty

endowment fund. Not less than 5 percent of each institution’s total endowment program under

funds provided in this legislation would address more or more of the governor’s initiatives in

film, energy, aerospace or education.

Funds would be available through June 30, 2010 as follows:

•

$2 million each to University of New Mexico, New Mexico State University and New

Mexico Institute of Mining and Technology, with 50 percent matching funds;

•

$1.5 million to the University of New Mexico School of Medicine, with 50 percent

matching funds;

•

$500 thousand each to New Mexico Highlands University, Eastern New Mexico

University, Western New Mexico University and Northern New Mexico State School,

with 40 percent matching funds;

•

a total amount of endowments of $2.5 million for New Mexico Military Institute,

community colleges, branch community colleges and technical and vocational

institutions, with a 30 percent matching fund requirement. This amount is to be

CS/Senate Bill/260/aSEC/aSFC/aSFl #1/aSFl #2/aSFl #3 – Page

3

distributed according to rules developed by HED. These rules must ensure each eligible

institution an opportunity to receive an equitable share of the funds.

Eligible uses of endowment funds are expanded to lectureships, scholarships, graduate

assistantships and other purposes.

The Higher Education Department would report on amounts disbursed to each institution, the

amount of matching funds and their source and the purpose of the endowments to the legislative

finance committee by July 1 of 2008, 2009 and 2010.

On July 1, 2010, any funds remaining in the faculty endowment fund may be matched by any

public, post-secondary institution consistent with HED rules.

The bill repeals Laws of 2003, Chapter 379, Section 1 related to the faculty endowment program.

The bill makes other technical changes to state statute.

FISCAL IMPLICATIONS

The appropriation of $12 million contained in this bill is a non-recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of fiscal year 2012 shall

revert to the general fund. This bill provides for continuing appropriations from the faculty

endowment fund during that time.

It is not clear how private match funding requirements would be determined. Further, it is not

clear if these funds would be subject to the prudent man rule for investments due to the striking

of Laws of 2003, Chapter 379.

SIGNIFICANT ISSUES

Under current law, the three research institutions and the UNM School of Medicine are eligible

to participate in the endowed chair program, while six of the state’s universities are eligible to

participate in endowed professorships and endowed faculty development programs. Half of the

disbursements are to be for endowed chairs, 35 percent are designated for endowed

professorships and 15 percent are for endowed faculty development programs.

According to Volume II of the LFC budget recommendation: “The committee recommends

consideration of nonrecurring funding of up to $25 million for endowed chairs at the state’s four-

year and two-year postsecondary institutions. The endowed-chair funding achieves several

legislative objectives. The funding provides a mechanism for partnering with noninstitutional

funding organizations, attracting, retaining, and creating incentives for enhanced student

learning, scholarship, and research as well as supporting the multi-faceted missions of the state’s

institutions.

The surplus of nonrecurring general fund monies provides an opportunity to invest in this

initiative because the distributions from the endowment are used for operating purposes of the

endowed faculty positions.

CS/Senate Bill/260/aSEC/aSFC/aSFl #1/aSFl #2/aSFl #3 – Page

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Expansion of the program to two-year institutions will require changes to 21-1-27.1 NMSA 1978

to reward enhanced student learning activities of faculty at those institutions."

According to the Executive Budget in Brief “Path to Progress, Expanding Opportunity", January

2007: the executive proposal is to “retain and attract high-caliber faculty to the State’s higher

education institutions by creating endowed chairs, particularly in specialized, high-need fields.

Institutions must provide matching funds from private sources, which helps engage the private

sector and alumni."

OTHER SUBSTANTIVE ISSUES

In past years, in determining prior-year institutional draw downs from the faculty endowment

fund, the Commission on Higher Education, now the HED, has required the university to provide

a letter signed by the chair of the board of regents, the president, and the chief financial officer

declaring:

1)

that an endowment account has been established for receipt both of the monies from

the Fund and the non-governmental matching monies;

2)

which kind of endowment is being established (i.e., a chair, professorship, or faculty

development program);

3)

administration of the Fund meets the requirements of Section 21-1-38 NMSA 1978;

and

4)

identification of the source of the non-governmental monies and their permanent

commitment to the endowment.

Faculty endowment funds at institutions are contributing to strong bond ratings for those

institutions.

TECHNICAL ISSUES

The legislature may wish to consider adding the Department of Finance and Administration to

receive reported information on the program.

POSSIBLE QUESTIONS

1.

What is the most effective level of private contribution match to maximize non-state

matching funds, while enabling effective participation in the faculty endowment program

by various institutions.

2.

What guiding criteria for endowment management would be required.

AW/mt:nt