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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 Altamirano

ORIGINAL DATE

LAST UPDATED

2/08/07

2/19/07 HB

SHORT TITLE Higher Education Capital Outlay Act

SB 653a/SEC

ANALYST Kehoe

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

Indeterminate

Indeterminate

Short-Term Severance

Tax Bond Capacity

(see Fiscal Impact)

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

Indeterminate

Indeterminate

Higher

Education

Capital Outlay

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08 FY09 3 Year

Total

Cost

Recurring

or Non-

Rec

Fund

Affected

Total

(See

Administrative

Implications)

(Parenthesis ( ) Indicate Expenditure Decreases)

Senate Bill 653/aSEC – Page

2

SOURCES OF INFORMATION

LFC Files

Responses Received From

Higher Education Department (HED)

SUMMARY

Synopsis of SEC Amendment

Senate Education Committee amendment to Senate Bill 653 increases the membership of the

higher education capital outlay council from 11 to 12 to include the director of the Legislative

Education Study Committee, or the director’s designee.

Synopsis of Original Bill

Senate Bill 653 enacts the Higher Education Capital Outlay Act, creates the higher education

capital outlay council and higher education capital outlay fund, provides a process for correcting

outstanding deficiencies at state institutions, and provides for a process for prioritizing future

critical capital outlay projects. The bill further authorizes the issuance of short-term severance

tax bonds and appropriates the bond proceeds to the newly created fund.

FISCAL IMPLICATIONS

Senate Bill 653 creates the higher education capital outlay fund in the treasury. The fund,

consisting of appropriations, gifts, grants, donations, and bequests shall be administered by the

Department of Finance and Administration. Money in the fund would be appropriated to the

proposed Higher Education Capital Outlay Council for the purpose of making grants to

institutions for capital outlay projects approved by the Council.

The bill authorizes the Board of Finance to issue one-time short-term severance tax bonds with a

term that does not extend beyond the fiscal year in which they are issued in an amount not to

exceed $90 million upon certification by the higher education capital outlay council that the need

exists. The proceeds from the sale of the bonds will be appropriated to the higher education

capital outlay fund for the correction of outstanding health, safety and infrastructure deficiencies

at public post-secondary educational institutions, but only after all other severance tax bonds and

supplemental severance tax bonds to be issued in fiscal year 2007 have been issued.

Each year the legislature has an estimate of senior long term severance tax bond capacity and

senior severance tax note capacity. The higher education projects would come from the

severance tax bond notes which are used to bond additional capacity generated above and

beyond the long-term senior amount and debt service amounts in FY07. For example, in FY07,

the severance tax bond capital available is $135 million for long term bonding and $197 million

for notes. The calculation assumes that all of the available capacity will be used. However, with

excess revenues and vetoes last year, there was an additional $145 million that was transferred to

the severance tax permanent fund. Except for 2006, the transfer has been very small in recent

years. Revenue forecasters are estimating zero excess revenues at the end of the fiscal year in

2007, so the amount could be zero, but again, the amount available for these additional sponge

Senate Bill 653/aSEC – Page

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notes in this bill would have to be determined by the excess amount in the fund above and

beyond what is issued by statute and what needs to be set aside for the next two debt service

payments at the end of the fiscal year.

In the last several years, capital improvements for higher education facilities have been financed

by local general obligation bonds, revenue bonds issued by the universities, and state severance

tax bonds and general funds. Additional amounts are derived from other sources such as federal

funds, grants, foundations or institution fund balances.

The Legislature authorizes the funding of larger, more costly capital improvements for higher

education projects from general obligation bond capacity available only in even-years. Local

funds, which are usually local general obligation bonds issued by the two-year colleges, have

contributed significantly towards capital needs at their campuses to pay for campus

improvements such as childcare centers, student activity buildings and student recreational

facilities. University system revenue bonds are generally used to pay for projects such as

dormitories, student union buildings, stadiums, parking garages, UNM Hospital, other

revenue-generating facilities or for capital improvements.

Senate Bill 2 and House Bill 7 each contain an appropriation of $43 million based on a recent

facility condition assessment commissioned by the Higher Education Department. The funds

would address the most critical and immediate needs for buildings, sites, campus utilities, and

road infrastructure for higher education institutions listed on the attachment.

SIGNIFICANT ISSUES

Senate Bill 653 creates a Higher Education Capital Council similar to the Public School Capital

Outlay Council. The Council shall consist of 11 members consisting of the following members,

or their designees: secretary of finance and administration, the governor, the directors of the

Legislative Finance Committee and Legislative Council Service, the secretary of Higher

Education Department, a representative of a two-year institution appointed by the New Mexico

Association of Community Colleges, and a representative of a four-year institution appointed by

the Council of University Presidents, two members appointed by the president pro tempore of the

Senate, and two members appointed by the Speaker of the House of Representatives.

The Council is required to review all applications for assistance from the higher education capital

fund, including a review of all existing five-year facility plans and the institution’s facility

condition index (represents the relative physical condition of facilities), verify all health, safety

or infrastructure deficiencies, develop a plan to correct the deficiencies, develop criteria for

assessing other critical capital outlay needs of each institution, prioritize critical needs, and

establish guidelines to ensure the allocations from the fund are expended in a prudent manner.

The council would also be responsible for monitoring the construction of facilities funded

through the proposed capital process.

To aid policymakers and institutions in evaluating and determining the current and future repair

and replacement costs of all higher education and special school facilities, HED contracted a

general facility-condition index assessment of buildings at all 27 state-funded institutions, a total

of 17.7 million gross square feet. According to the assessment, New Mexico’s higher education

and special schools facility condition index (FCI) average is 35.5 percent. The FCI is

determined by taking the total cost of the repairs divided by the current replacement cost for the

Senate Bill 653/aSEC – Page

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facility. The higher the FCI, the poorer the relative condition of the facility. For example, if a

building has a replacement value of $1 million and has $100 thousand of existing deficiencies,

the FCI is $100 thousand/$1 million or 0.10. The generally accepted rule of thumb in building

condition assessments is: Good - 0 to 5%; Fair - 5% to 10%; Poor - 10% and above.

An FCI greater than 10 percent is considered poor by national standards. A ranking of the listed

institutions in order of their FCI and deficiencies ranked from worst to best are attached.

The

assessment costs are ranked by priority—critical immediate needs, trending critical in 12 months,

necessary in three to five years, and necessary in five to 10 years. Over $1.1 billion is needed to

address the current backlog of deficiencies due to the aging conditions of the facilities. An

additional $1 billion is needed for renewal of facilities over the next five to 10 years.

PERFORMANCE IMPLICATIONS

While Senate Bill 653 addresses a process and prioritization of emergency capital needs and

deficiencies, the bill does not address a process, prioritization, or oversight of other capital outlay

projects funded by the Legislature. A body such as the council proposed in this bill could focus

on coordinating and prioritizing all funding allocations for all capital improvements at higher

education institutions

ADMINISTRATIVE IMPLICATIONS

Senate Bill 653 states the Department of Finance and Administration is responsible for

administering the higher education capital outlay fund. However, the bill does not provide a

mechanism or support for staffing the council in its mission to achieve the processes proposed by

this bill. The proposed Higher Education Capital Outlay Council would be responsible for

overseeing capital improvements or construction on 27 campuses throughout the state. The

Public School Facility Authority (PSFA), Legislative Council Service, Legislative Finance

Committee, and Legislative Education Study Committee currently assist in staffing the Public

School Capital Outlay Council. The PSFA, with 55 FTE, support the efforts of direct oversight

of the construction of facilities for 89 public school districts statewide.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 2 and House Bill 7 each contain an appropriation of $43 million to correct higher

education facility deficiencies statewide.

TECHNICAL ISSUES

Senate Bill 653 does not contain an emergency clause. Immediate enactment would allow all

necessary actions for sale and issuance of the bonds by the end of the fiscal year.

OTHER SUBSTANTIVE ISSUES

Results of the 2006 independent assessment indicate major investments totaling nearly $1.5

billion at our campuses is needed to maximize the useful life of the state’s assets and to make the

necessary health and safety improvements to meet the current and future needs of students,

faculty, staff, and to strengthen community relationships. Without adequate funding to address

the aging and rapidly deteriorating conditions on the state’s campuses, in particular the growing

Senate Bill 653/aSEC – Page

5

backlog of deferred maintenance, the mission of the post educational institutions is becoming

more difficult to achieve. Higher education facilities are a major tool required for the institutions

to carry out their mission and are critical to supporting academic excellence whether it be for

teaching, research or public activities.

The buildings and infrastructure at the state’s campuses require a substantial investment for

“deferred maintenance. Most campuses require extensive infrastructure replacements or

improvements for heating and cooling, water and sewer improvements, metering and energy

management systems, electrical distribution systems, fiber optic cabling and other

communications systems, and other improvements to eliminate fire and safety code deficiencies.

The backlog of repairs and renovations along with the lack of adequate funding has resulted in

the minimum performance of repairs and maintenance necessary to keep buildings at a “safe and

healthy" level for students and staff. More and more campuses are suffering from frequent

utility outages, unusable classrooms, a loss of students, and discouraged faculty members.

POSSIBLE QUESTIONS

1.

Which state entity will be responsible for providing staff support to the proposed Higher

Education Capital Outlay Council.

2.

What role will the Higher Education Department play in the prioritizing of capital outlay

deficiencies.

3.

Two-year institutions are now represented by two separate associations, the New Mexico

Association of Community Colleges, and the New Mexico Association of Independent

Community Colleges, should the appointment to the council be a joint appointment.

LMK/mt

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