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F I S C A L I M P A C T R E P O R T

SPONSOR Rawson

ORIGINAL DATE

LAST UPDATED

2/20/07

HB

SHORT TITLE Contributions Against State Agencies

SB 797

ANALYST Wilson

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

Significant Recurring

Workers

Compensation

Fund

Significant Recurring Public Liability

Fund

Significant Recurring Property Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates/Relates to Appropriation in the General Appropriation Act: HB 2 (appropriated

amounts for Risk Management Division assessments) will end up in conflict with this bill if the

actuarially required amount exceeded the amounts agencies were notified to request.

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

Significant Significant Recurring All funds

including

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Corrections Department (CD)

Department of Transportation (DOT)

General Services Department (GSD)

Public Education Department (PED)

Energy, Minerals & Natural Resources (EMNRD)

Senate Bill 797– Page

2

SUMMARY

Synopsis of Bill

Senate Bill 797

adds a section to the language that establishes and governs the Risk Management

Division (RMD). The added section provides that the agency assessed contributions shall equal

not less than 110% of the total incurred claims against that fund in the fiscal year before the

preceding fiscal year, if any particular fund is actuarially unsound at the beginning of a fiscal

year.

FISCAL IMPLICATIONS

Agencies do not have the capacity to respond to substantial increased rates except through the

appropriation process. If the added clause is not applied until the beginning of a fiscal year, the

appropriation and operating budget for an agency are already in place. Meeting increased costs

will require reducing programs or operations in other areas.

SB 797 will cause significant increases in the premiums assessed to all agencies, which will

impact the general fund as well as enterprise agencies and local public bodies. RMD costs will

increase to pay the actuarial firm to recalculate rates.

SIGNIFICANT ISSUES

RMD administers four major funds: group benefits, workers compensation, public liability, and

property. Only the group benefits fund is statutorily required to be actuarially sound pursuant to

Section 10-7B-7 (F) NMSA 1978. RMD rule 1.6.2.9 NMAC prescribes premium development

and sets a 40% maximum rate fluctuation per year.

As each claim is filed, an amount is established as a reserve which represents the maximum

potential payout and includes payment to investigators, adjustors and attorneys. The only

payments made prior to a settlement award to the claimant are court costs and fees to contract

investigators, adjustors, and attorneys.

RMD rates are synchronized with the annual budget request cycle, which means premium

assessments are calculated in May or June, published July 1, incorporated into agency budgets on

September 1, and funding is determined by the legislature in January/February/March. The

period covered by the rates is July 1 (a year after rates are published) to June 30 (two years after

the rates are published).

To ameliorate the impact of high loss years, rates for public liability and public property are

based on payouts in the previous five years. The five year recovery period stabilizes premiums

and increases predictability of budget requirements.

The term “actuarially sound" is not defined. If that means requiring all RMD fund balances to

meet 100% of the maximum potential liability for all open cases, premiums would double, triple

or more, depending on the fund.

Senate Bill 797– Page

3

The goal of GSD is to reach 50% of actuarial soundness. The public liability fund is at 37% of

the amount of the reserves for all open claims. Public property is at approximately 50%.

ADMINISTRATIVE IMPLICATIONS

Additional staff time would be required to redefine rates, actuarial contracts would have to be

amended, and premiums would be increased to all agencies.

DW/nt