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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 Beffort

ORIGINAL DATE

LAST UPDATED

02/01/07

03/16/07 HB

SHORT TITLE Approval for Agency Prior Year Obligations

SB 298/aSPAC/aHAFC

ANALYST Weber

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB 373

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

Department of Finance and Administration (DFA)

SUMMARY

Synopsis of HAFC Amendment

The HAFC amendment strikes all Senate Public Affairs Committee amendments.

Synopsis of SPAC Amendment

The following amendments were recommended.

1. On page 1, lines 18 and 19, remove the brackets and strike-through and on line 2, strike

"Appropriations" and insert in lieu thereof ", appropriation".

2. On page 2, lines 4 through 6, remove the brackets and strike-through and on line 6, after

"years" insert "upon approval by the department. The department shall make quarterly reports to

the legislative finance committee concerning all authorizations of payment for prior fiscal

years.".

This amendment allows Medicaid to continue to be exempted from the provisions of Section A.

However, this change requires the Department of Finance and Administration to have prior

Senate Bill 298/aSPAC/aHAFC – Page

2

knowledge of and approve the practice. DFA must then notify LFC.

Synopsis of Original Bill

Senate Bill 298 amends Section 6-10-4 in Public Finances by striking Section B. Section 6-10-4

defines the circumstances that allows for payment of prior year’s expenditures with current

year’s appropriation. Section B exempts the Human Services Department from the provisions

and allows payment of prior year’s expenditures with current year appropriations without

approval from the Department of Finance and Administration as required in Section A

FISCAL IMPLICATIONS

HSD notes the possibility of “significant" additional operating expenses but does not quantify or

define any specific expense.

SIGNIFICANT ISSUES

HSD notes the following.

By removing the exemption granted to the Human Services Department that allows payment of

prior year obligations from a current year appropriation, the result is likely to be (as it was prior

to the exemption) that HSD will require deficiency or supplemental appropriations to meet its

Medicaid obligations. Medicaid obligations often occur up to two years after the end of the

fiscal year. Payment for claims that are submitted long after the close of the fiscal year may

result in the HSD exceeding its appropriation for that fiscal year; HSD may already have

reverted funding which should be used to pay those obligations. Furthermore, there would be a

delay in effecting Medicaid payments since HSD would have to follow established Department

of Finance procedures of certifying and approving prior year payments against current fiscal year

budget. This would have a detrimental impact on the program’s ability to accurately project

Medicaid expenditures and budget needs and may be an impediment to drawing federal funds.

HSD continues that removing the exclusion granted to the Medicaid program to pay prior year

expenses from the current year budget will likely result in delayed payments to vendors and will

increase the administrative cost to both HSD and the Financial Control Division of the

Department of Finance and Administration (FCD). FCD will have to certify with the help of the

agency whether or not prior year budget and cash exist to pay any late Medicaid obligations

which could occur as long as two years after the close of the fiscal year. Removal of the existing

exemption would require that the agency follow a cumbersome process for thousands of

transactions.

The Department of Finance and Administration echoes the comments of HSD.

As the HSD comments, this section allows HSD to circumvent the requirement of a deficiency or

supplemental. In addition, HSD can effectively create its own appropriation by incurring non-

entitlement liabilities in one year and paying from the following year appropriation without

action by the Legislature. The practice is common with $3.9 million from FY05 and prior

charged to FY06, $6.4 million from FY06 charged to FY07. General fund expenditures such as

$450 thousand to set up a risk fund for the Small Employers’ Insurance Program, $3 million of

Senate Bill 298/aSPAC/aHAFC – Page

3

Value Options reimbursement increases and $660 thousand to supplement the Santa Fe County

share of the Sole Community Provider Hospital Fund for St. Vincent Hospital are examples of

non-entitlement use of FY06 funds. Section B allows HSD to proceed with initiatives such as

these without disclosure or approval by the Legislature.

This procedure diminishes the Legislature’s appropriation power. This practice on the part of

HSD can be eliminated if 6-10-4B is amended out of the statute. It may be argued that this

special authority is required since there are many outstanding Medicaid invoices at the end of

any fiscal year and it will facilitate payment. However, current accounting practices require an

accrued accounts payable as part of the independent audit and using this information authority

can be granted by Financial Control with the authority from Section A the same as any other

agency. This does not address the concern raised by the possibility of exceeding the prior year

budget authority and thereby jeopardizing Medicaid payments to providers. However, accurate

projections coupled good management will produce reasonable supplemental that will alleviate

the possibility of this disastrous result.

ALTERNATIVES

If the possibility of exceeding budget authority with the resultant threat of non-payment of

providers is an overriding issue then the following language may be considered in Section B.

B.

Appropriations to the human services department for Medicaid payments may be

expended by that department for Medicaid obligations for prior fiscal years upon

approval by the department. The department shall make quarterly reports to the

legislative finance committee concerning all authorizations of payment for prior fiscal

years.

This will provide the requested flexibility while introducing an additional level of oversight and

transparency.

MW/mt:nt