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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

2-20-2007

3/16/07 HB

SHORT TITLE Tribal College Affordability Scholarships

SB 355/SECS/aHFL#1

ANALYST Dearing

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

*None

N/A

College Affordability

Fund

*Please see narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB308/aHEC; SB573/aSEC

SOURCES OF INFORMATION

LFC Files

Responses Received From

Higher Education Department (HED)

Indian Affairs Department (IAD)

SUMMARY

Synopsis of House Floor Amendment # 1

Action on the House Floor amends Senate Bill 355/SECS such that;

1. On page 2, line 13, after “time", insert “later than one hundred twenty days".

2. On page 5, line 19, after “appropriations", insert a semicolon.

3. On page 5, strike lines 20 through 25 and insert in lieu thereof "donations to the fund; and

income from investment of the fund except as provided in Subsection C of this section.".

4. On page 6, lines 3 and 4, strike "college affordability endowment".

5. On page 6, line 5, after "specified", insert "distributions,"

6. On page 6, lines 14 through 20, remove the brackets and line-through.

Senate Bill 355/SECS

/aHFL#1 – Page

2

7. On page 6, line 14, after "Until", insert "fifty percent of the annual income from investment of

the college affordability endowment fund is equal to or exceeds two million dollars ($2,000,000),

an annual distribution of two million dollars ($2,000,000) shall be made from the college

affordability endowment fund to the college affordability scholarship fund. Thereafter, until".

8. On page 6, line 18, after "fund" strike the remainder of the line, strike line 19, strike line 20 up

to the ending quotation mark and insert in lieu thereof a period and "After the corpus of the

endowment fund is two hundred fifty million dollars ($250,000,000), all of the income from

investment of the fund shall be distributed to the college affordability scholarship fund.".

House Floor Amendment makes substantial changes to Senate Bill 355/SECS. Under these

amendments, the language remains in the College Affordability Scholarship act to maintain the

endowment-building retained earnings framework of 50% to build principal, 50% available for

scholarships in any year. However, there is a new provision providing that, until the endowment

fund distribution (the 50% disbursement of earned interest) to the scholarship fund meets or

exceeds $2 million, an annual distribution of $2 million shall be made to the scholarship fund

from the endowment by default.

*The effective date of House 355/SECS as amended by floor action is July 1, 2007. Clarification

is necessary to determine whether the nonrecurring, $2 million appropriation recommended for

the scholarship fund in House Bill 2 will substitute for the default distribution mentioned above,

for FY08. If the entire endowment is invested with the State Investment Council (average 8%

return) at or prior to the beginning of FY08, interest earnings should substantially exceed $2

million during the year, making any default distribution unnecessary in that year.

Synopsis of Bill

The Senate Education Committee Substitute for Senate Bill 355 amends the College

Affordability Act such that 100% of the interest in the fund is available for scholarships in any

given year. As amended, the college affordability endowment fund shall become a non-reverting

fund. All annual interest from investment of the endowment fund will flow into the scholarship

fund for expenditure. Language requiring the fund to be self-supporting through retained

earnings is stricken.

SB355/SECS carries no appropriation from the General Fund. The bill would amend Sections

21-21L-1 through 21-21L-8 NMSA 1978, the College Affordability Act, to extend eligibility for

need-based scholarships to students attending the State’s Tribal colleges. The proposed

legislation amends the Act to re-define the duration of eligibility for recipients. SB355/SECS

adds or amends the Act’s language to define eligible student, scholarship and Tribal college.

FISCAL IMPLICATIONS

There are significant fiscal implications to this proposed statutory change of fund

mechanics. Under the change, there will be a 100% increase in available scholarships the

first year, however, without additional appropriations, the endowment fund would no

longer keep pace with inflation, nor provide for growth in the number of scholarships

available in out-years. Due to significant average inflation in the cost of Higher Education,

the program would lose purchasing power each year, resulting in either fewer grants, or

less valuable grants.

Senate Bill 355/SECS

/aHFL#1 – Page

3

This proposed change to the mechanics of the fund would significantly alter future scholarship

capacity. The original language specified that 50% of earned interest would be retained in the

fund, increasing the fund’s balance by 50% of interest in each year. Existing statute provides for

this framework to remain in place until the fund reaches $250 million.

Under the existing statute, the endowment fund could provide $20 million in annual scholarships

when it reaches its intended terminal value.

The attached table, appendix A. shows the net benefit to maintaining the fund’s current retained

earnings framework. The beginning FY08 values in the table include an LFC recommended $50

million special nonrecurring appropriation for the College Affordability Act in FY08.

Over a 30-year period, maintenance of the current statute would provide eighty-two million

($82,000,000) in excess scholarship grants than the framework proposed in SB355/SECS.

Additionally, the endowment value would have increased to two-hundred, fifty-four million

($253,767,000) midway through the 23

rd

year.

The current framework provides net future benefit exceeding two-hundred, thirty-six million

($236,000,000) above the SB355/SECS proposal.

*Alternatives to the proposal in SB355/SECS include allocating 4%, or $2 million of $50

million recommended special appropriation to the scholarship fund to increase the number

of scholarships available in FY08.

Under the current legislation, students at Tribal colleges are ineligible for scholarship awards

from the fund. The proposed amendments would allow the NM Department of Higher Education

to allocate funds from the College Affordability Fund to eligible Tribal colleges for distribution

as scholarships. Expanding eligibility to include Tribal students would have no significant

impact on the fund. The allocation of funding distributed to public higher education institutions

would incorporate Tribal colleges’ new eligibility.

*The proposed amendment strikes language stipulating only 8 consecutive semesters of

eligibility for recipients. There would be no additional costs of extending the term of eligibility

past 8 consecutive semesters, however, there would be fewer total grants available to new

recipients each year if the duration is extended. As currently proposed, the change to duration of

eligibility would have no affect over the next three years since the program’s first grant awards

were in Fall 2006. As proposed, eligible recipients would no longer have to be in a degree

program.

*The proposed amendment leaves language intact within the Act stipulating a maximum award

amount of $1000 each semester. Both the number of total awards, and the minimum dollar

amount of each award are not provided in either the existing Act, nor in the proposed version.

Setting these levels will remain a department decision through its rule promulgation process.

Because of this, the possibility exists that increased eligibility might place demand pressure on

the department to increase the total available awards, necessitating a reduction in the dollar

amount of awards.

Many significant elements of administration of the Act would be left to rulemaking by the

Higher Education department. The amended version would remove the 4-year cap on duration

of eligibility, as well as a necessity that students remain in degree seeking programs. Because of

this there is significant concern that rules created by the department could have a negative impact

Senate Bill 355/SECS

/aHFL#1 – Page

4

on recipients’ persistence to graduation. These two items have the potential to reduce the service

capacity of the fund in both total numbers and effectiveness.

SIGNIFICANT ISSUES

Enacted during the 2005 regular legislative session and endowed through a $49 million

appropriation in Laws, 2006 Chapter 109, the College Affordability fund was invested in June

2006 with the local government investment pool with the State Treasurer’s office. LFC

recommends investment of the fund with the State Investments Council to increase the annual

rate that is earned; treasury funds are held in overnight fed-funds accounts and bear significantly

less interest than return potential at the SIC. Provisions for distribution of this scholarship

money to students have been developed within the department, however these have not yet been

compiled within New Mexico Administrative Code (NMAC).

The current language in the College Affordability Act restricts the scholarship recipients to eight

consecutive semesters. The Higher Education department states that this does not allow part-

time students to receive the scholarship long enough to graduate and that the issue is particularly

problematic for part-time students at community colleges wishing to continue through to a

bachelor's degree.

Proposed amendments to the Act would keep intact language that terminates the awards when

students fail to achieve satisfactory academic progress, withdrawal, or fail to remain at half-time.

HED will continue to make the determination for academic progress criteria through the

promulgation of rules.

ADMINISTRATIVE IMPLICATIONS

Many significant elements of administration of the Act are left to rulemaking by the Higher

Education department.

CONFLICT

SB355/SECS amends Sections 21-21L-1 through 21-21L-7 NMSA 1978, the College

Affordability Act. SBCS355/SEC defines tribal colleges by name as follows.

D. "tribal college" means:

(1) the southwestern Indian polytechnic

institute;

(2) the Crownpoint institute of technology;

(3) the institute of American Indian arts; and

(4) the New Mexico campus of Dineh college."

SB355/SECS makes other technical adjustments to change language to make the Act parallel

with the statutory change from the Commission on Higher Education (CHE), to the Higher

Education Department (HED), and to incorporate its own proposed definitions.

TECHNICAL ISSUES

Senate Education Committee Substitute for Senate Bill 355 carries no appropriation from the

General Fund, however, as proposed, the short-title suggests otherwise.

Senate Bill 355/SECS

/aHFL#1 – Page

5

The proposed Enactment of Senate Education Committee Substitute for Senate Bill 355 would

make the following changes to the provisions of Sections 21-21L-1 through 21-21L-8 NMSA

1978.

*Section 21-21L-8 (c) requiring the fund to be self-supporting through retained earnings is

stricken.

*

Clauses in Section 21-21L-6 amended to strike maximum duration of eligibility of 8

consecutive semesters.

*Language is added throughout the bill such that the fund becomes a non-reverting fund.

Clauses throughout SB355/SECS change language to make the Act parallel with the statutory

change from the Commission on Higher Education (CHE), to the Higher Education Department

(HED), and to incorporate new proposed definitions.

Section 21-21L-3 (b) defining “returning adult" is stricken.

Section 21-21L-3 (c) defining “student" is stricken.

Clauses in Section 21-21L-3 (b), (c) and (d); add definitions that define eligible student,

scholarship and Tribal college

New Section 21-21L-3 (b); new section defining “eligible student" is added. Creates a change

from previously used semester reference to “any time later than 120 days following high-school

graduation or acceptance of general educational development certificate;" includes New Mexico

resident in criteria.

Clause 21-21L-4 (a); requiring an eligible student be a resident of New Mexico for the purpose

of tuition payment is stricken.

*

Clause 21-21L-4 (b); amended to remove necessity of enrollment in degree program as criteria.

*

Clauses in 21-21L-5 (d) and (e); add tribal colleges to list of institutions making and

administrating awards.

Clauses in Section 21-21L-8 (a) and (b); add minor linguistic changes.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Sections 21-21L-1 through 21-21L-8 NMSA 1978, the College Affordability Act would remain

in statute in their current form.

ATTACHMENT

PD/csd

1

2008

2009

2010

2011 2012 2013 2014 2015 2016 2017

2

Available for Investment, SBCS355/SEC

99, 0 00, 0 00

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99, 0 00, 0 00

$

99 , 000 , 000

$

99, 0 00, 0 00

$

3

Available for scholarship, SBCS355/SEC

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

4

5

Available for Investment Status Quo

10 2, 96 0, 00 0

$

107 , 078 , 400

$

111 , 361 , 536

$

115 , 815 , 997

$

120 , 448 , 637

$

125 , 266 , 583

$

130 , 277 , 246

$

13 5, 48 8, 33 6

$

140 , 907 , 869

$

14 6, 54 4, 18 4

$

6

Available for Scholarship Status Quo

3, 9 60, 0 00

$

4, 11 8, 40 0

$

4, 28 3, 13 6

$

4, 45 4, 46 1

$

4, 63 2, 64 0

$

4, 81 7, 94 5

$

5, 01 0, 66 3

$

5, 2 11, 0 90

$

5, 41 9, 53 3

$

5, 6 36, 3 15

$

7

8

Diff. (Existing law -Proposed)

(3, 9 60, 0 00)

$

(3, 80 1, 60 0)

$

(3, 63 6, 86 4)

$

(3, 46 5, 53 9)

$

(3, 28 7, 36 0)

$

(3, 10 2, 05 5)

$

(2, 90 9, 33 7)

$

(2, 7 08, 9 10)

$

(2, 50 0, 46 7)

$

(2, 2 83, 6 85)

$

9

10

2018

2019

2020

2021 2022 2023 2024 2025 2026 2027

11

Available for Investment, SBCS355/SEC

99, 0 00, 0 00

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99, 0 00, 0 00

$

99 , 000 , 000

$

99, 0 00, 0 00

$

12

Available for scholarship, SBCS355/SEC

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

13

14

Available for Investment Status Quo

15 2, 40 5, 95 2

$

158 , 502 , 190

$

164 , 842 , 277

$

171 , 435 , 968

$

178 , 293 , 407

$

185 , 425 , 143

$

192 , 842 , 149

$

20 0, 55 5, 83 5

$

208 , 578 , 068

$

21 6, 92 1, 19 1

$

15

Available for Scholarship Status Quo

5, 8 61, 7 67

$

6, 09 6, 23 8

$

6, 34 0, 08 8

$

6, 59 3, 69 1

$

6, 85 7, 43 9

$

7, 13 1, 73 6

$

7, 41 7, 00 6

$

7, 7 13, 6 86

$

8, 02 2, 23 3

$

8, 3 43, 1 23

$

16

17

Diff. (Existing law -Proposed)

(2, 0 58, 2 33)

$

(1, 82 3, 76 2)

$

(1, 57 9, 91 2)

$

(1, 32 6, 30 9)

$

(1, 06 2, 56 1)

$

(78 8, 26 4)

$

(50 2, 99 4)

$

(2 06 ,3 14 )

$

10 2, 23 3

$

4 23, 1 23

$

18

19

2028

2029

2030

2031

2032 2033 2034 2035 2036 2037

20

Avail. for Investment, SBCS355/SEC

99, 0 00, 0 00

$

99 , 000 , 000

$

99,000,000

$

99,000,000

$

99 , 000 , 000

$

99 , 000 , 000

$

99 , 000 , 000

$

99, 0 00, 0 00

$

99 , 000 , 000

$

99, 0 00, 0 00

$

21

Avail. for scholarship, SBCS355/SEC

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7,920,000

$

7,920,000

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

7, 92 0, 00 0

$

7, 9 20, 0 00

$

22

23

Available for Investment Status Quo

22 5, 59 8, 03 9

$

234 , 621 , 960

$

244,006,839

$

263,527,386

$

284 , 609 , 577

$

307 , 378 , 343

$

331 , 968 , 610

$

35 8, 52 6, 09 9

$

387 , 208 , 187

$

41 8, 18 4, 84 2

$

24

Available for Scholarship Status Quo

8, 6 76, 8 48

$

9, 02 3, 92 2

$

9,384,878

$

19,520,547

$

21 , 082 , 191

$

22 , 768 , 766

$

24 , 590 , 267

$

26, 5 57, 4 89

$

28 , 682 , 088

$

30, 9 76, 6 55

$

25

26

Diff. (Existing law -Proposed)

7 56, 8 48

$

1, 10 3, 92 2

$

1,464,878

$

11,600,547

$

13 , 162 , 191

$

14 , 848 , 766

$

16 , 670 , 267

$

18, 6 37, 4 89

$

20 , 762 , 088

$

23, 0 56, 6 55

$

27

28

29

30

A

30-yr Excess with Current Statute

81,584,842

$

31

Excess endowment value

32

with existing framework

33

154,767,112

$

35

36 A

excess scholarship funding available under current statutory framework over 30-year horizon

Investment Growth

8.0%

midway between 2030-31

100% of interest would be available in years

2030-31 under the current statutory

framework. The endowment will have

reached intended terminal value of $250

million.