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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 Papen

ORIGINAL DATE

LAST UPDATED

1/29/07

3/17/07 HB

SHORT TITLE MFA Oversight of Regional Housing Authorities

SB

519/aSPAC/aSFC/

aHBIC

ANALYST Leger/Kehoe

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$2,900.0

Nonrecurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Mortgage Finance Authority (MFA)

SUMMARY

Synopsis of HBIC Amendment

The House Business and Industry Committee amendment proposes the following:

Item 1, strikes Senate Public Affairs Committee number 1.

Item 2, strikes Senate Finance Committee number 1.

Item 3, expands the title of the bill to require reporting requirements and allow transferring of

bonding capacities.

Item 4, provides the following:

1) that the New Mexico Mortgage Finance Authority shall have the authority to issue bonds,

notes, interim certificates, debenture or other obligations rather than the regional housing

authority or a nonprofit corporation created by an authority; and makes grammatical changes to

the definition of “housing project", “low-income person", and “slum";

2) that a regional authority created by the Regional Housing law shall operate only within the

Senate Bill 519/aSPAC/aSFC/aHBIC– Page

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area of its housing region;

3) that no more than three commissions shall be appointed to a regional authority from any one

county;

4) that the executive director of a regional housing authority is subject to approval by the New

Mexico Mortgage Finance Authority;

5) that each regional housing authority shall submit a copy of its audit to the Legislative Finance

Committee, the New Mexico Mortgage Finance Authority, and the New Mexico Mortgage

Finance Authority Act Oversight Committee within 30 days following the receipt of the audit by

the authority;

6) that the Department of Finance and Administration (DFA) shall review each regional

authority’s audit for approval, and upon finding of non-approval by DFA, that the regional

authority’s powers may be suspended by DFA until the conditions that resulted in non-approval

are remedied to the satisfaction of DFA;

7) provides that effective October 1, 2007, every regional authority shall submit a quarterly

report of its activities to DFA, the Mortgage Finance Authority Act Oversight Committee and the

Legislative Finance Committee, and requires that each report provide a complete operating and

financial statement covering its operations since the previous report was presented;

8) removes the power of authorities to acquire real property by exercise of power of eminent

domain;

9) removes provision allowing any two or more cities or authorities to join or cooperate with one

another to exercise, jointly or otherwise, any of their powers for the purpose of financing,

including the provision of security for or the issuance of bonds or contracting with respect to a

housing project located within the area of operation of any one or more of the cities or

authorities, and removes their authority to authorize by resolution another authority to act on its

behalf to exercise, as its agent, any power granted to the city or authority, nor may the authority

act in the name of the city, the authorizing authority or in its own name;

10) requires Board of Finance and New Mexico Mortgage Finance Authority approval of any

resolutions creating nonprofit corporations to carry out the provisions of the Regional Housing

law, including the authority’s articles of incorporation and by laws or any other subsequent

changes;

11) Adds a new section to provide for financial and operations oversight. The provision provides

than no regional authority shall enter into any contract, memorandum of understanding or other

agreement with a value greater than $50,000 or transfer, sell or liquidate any real or personal

property with a value greater than $20,000 without the approval of DFA. The provision further

provides that each regional authority and each nonprofit corporation submit a proposed operating

budget for the subsequent fiscal year to DFA for approval by July 1 of each year. Effective July

1, 2007, no authority shall operate according to Regional Housing Law if its budget has not been

approved by DFA. Further, operations of an authority shall be conducted pursuant to the

approved operating budget except that: 1) budget adjustments totaling less than five percent of

the operating budget may be made with prior notice to the DFA; and 2) budget adjustments

Senate Bill 519/aSPAC/aSFC/aHBIC– Page

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totaling five percent or more of the operating budget must get prior approval by DFA. Prior to

each fiscal year, the New Mexico Mortgage Finance Authority must conduct a needs assessment

of the programs of each regional authority and work with and advise each authority on

developing a plan to meet the assessed needs and in conjunction with the state housing plan.

12) Includes a temporary provision requiring that no later than July 1, 2007, each nonprofit

corporation exercising a power or performing any act under the Regional Housing Law shall

submit its bylaws and articles of incorporation to the New Mexico Mortgage Finance Authority

for approval. After September 1, 2007, a nonprofit corporation shall conduct no business under

the Regional Housing Law unless its bylaws and articles of incorporation have been approved;

by September 1, 2007, each executive director of a regional housing authority shall be approved

by the New Mexico Mortgage Finance Authority or shall be deemed to have resigned; on

September 1, 2007, the position of each commissioner of a regional housing authority who has

not been appointed or reappointed by the governor after April 1, 2007 shall be deemed vacant;

and notwithstanding any requirement of the Regional Housing Law for the sale of housing

projects or units with housing projects for a specific purpose, with the prior approval of DFA, a

regional housing authority may sell any property held on April 1, 2007, that is not suitable for

the purposes of the Act.

The amendment provides for an appropriation of $200 thousand to the state auditor for

expenditure in fiscal years 2007 and 2008 for the purpose of conducting an accounting of all

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

auditor is required no later than December 1, 2007, to provide results of the accounting to the

Legislative Finance Committee, the Mortgage Finance Authority Act Oversight committee and

to DFA.

Sections 11-3A-11, 11-3A-14 through 11-3A-18 and 11-3A-27 (Laws 1994, Chapter 132,

Sections 11, 14 through 18 and 27, as amended) are repealed.

Synopsis of SFC 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 SPAC Amendment

The Senate Public Affairs Committee amendment to SB 519 makes technical changes to

language; striking the word unexpected and inserting the word unexpended.

The change addresses the suggestion within the technical issues of this FIR.

Synopsis of Original Bill

Senate Bill 519 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

Senate Bill 519/aSPAC/aSFC/aHBIC– Page

4

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

carrying out the provisions of SB 519.

Declaring an emergency.

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 SB 519 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

Senate Bill 519/aSPAC/aSFC/aHBIC– Page

5

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,

(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 SB519 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

Senate Bill 519/aSPAC/aSFC/aHBIC– Page

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Section 4 of SB519 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,

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.

TECHNICAL ISSUES

MFA suggests the following correction be made:

line 8, page 6 (Section 4, Subsection C): “Any unexpected or unencumbered balance . . ." should

be changed to read “Any unexpended or unencumbered balance . . . "

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

According to MFA, if SB519 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/LK:mt