Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Heaton

ORIGINAL DATE

LAST UPDATED

1/23/08

HB 198

SHORT TITLE State Investment and Retirement Committee

SB

ANALYST Aubel

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

$150.0

Recurring Legislative Cash Balance

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

State investment Council (SIC)

Retiree Health Care Authority (RHCA)

Educational Retirement Board (ERB)

State Treasurers office (STO)

No Response

Department of Finance and Administration (DFA)

Public Employees Retirement Association (PERA)

Legislative Council Services (LCS)

SUMMARY

Synopsis of Bill

House Bill 198 establishes a standing joint interim legislative committee to monitor the

investment and financial management practices used by the state’s agencies for public funds,

retirement plans, and the retiree health care insurance program. The committee shall consist of

five voting members from the House of Representatives and five voting members from the

Senate, in numbers appropriately weighted to align with current party ratio of each legislative

body. In addition, five non-voting members or their designees will include the Chief Investment

Officers from the SIC, ERB, PERA, State Treasurer and the Secretary of the Department of

Finance and Administration. The committee will perform the function it has for three years to

House Bill 198 – Page

2

oversee investment and financial practices of the state’s institutional funds and develop

recommendations to improve state investment practices and to strengthen actuarial soundness of

the funds. The agencies managing the funds are to provide assistance and information to the

committee as requested.

FISCAL IMPLICATIONS

HB 198 appropriates $150 thousand from legislative cash balances to the Legislative Council

Service to pay for technical and legal assistance, equipment and supplies, and for reimbursing the

per diem and mileage expenses of the committee. Any unexpended or unencumbered balance

remaining as the end of fiscal year 2009 shall revert to legislative cash balances. The expense

will be recurring.

SIC notes that the committee, through input and monitoring, should assist New Mexico’s

investment agencies pass legislation that could have a positive impact on fund returns. An

example is the 2005 Prudent Investor Rule that allowed greater diversification for state funds.

SIGNIFICANT ISSUES

HB 198 will provide for a permanent interim committee to oversee approximately $38 billion

invested by the state endowment funds, state pension funds, and State Treasurer as well as

monitor issues relating to the Retiree Health Care Authority. It will replace the State Permanent

Fund Task Force that met during the interim in 2004 and 2005 and replace the Investments and

Pension Committee that met during the interim in 2006 and 2007.

The State Investment and Retirement Systems Oversight Committee will have the following

functions:

1.

Monitor and oversee the investment and financial management practices used by state

investing agencies;

2.

Undertake a continuing analysis of the financial and actuarial status of the retiree health care

insurance program of the RHCA and the retirement systems, including benefit structures;

3.

Develop recommendations to improve state investment practices and to ensure the financial

and actuarial soundness of the retirement funds;

4.

Make referrals of matters needing further attention to appropriate authorities;

5.

Review and analyze proposed legislation received in the interim;

6.

Report to the legislature prior to the start of each regular session any recommendations that

the committee may have for legislative action.

The increasing complexity of both investment portfolios and financial markets makes legislative

review imperative for informed policy decisions relating to investments and pensions. The SIC

maintains that the committee creates a very useful forum for state investment agencies to discuss

issues relating to the state funds with legislative representatives as well as each other.

PERFORMANCE IMPLICATIONS

SIC notes that past activities of the interim legislative committees examining policies and

practices of the state’s permanent and pension funds have resulted in positive legislation

benefiting the New Mexico by allowing its investment agencies to further diversify their

House Bill 198 – Page

3

portfolios with alternative asset classes and modern investment tools.

ADMINISTRATIVE IMPLICATIONS

Staff for the State Investment and Retirement Systems Oversight Committee shall be provided

by the Legislative Council Service. In addition, HB 198 will have a minor impact on the related

investment and pension agencies to generate additional data, reports and presentations for

committee hearings.

OTHER SUBSTANTIVE ISSUES

SIC and ERB state some concern that the bill would be interpreted beyond its intention of

monitoring to include advising, supervising, or directing the agencies in the performance of their

duties, and that oversight in this context might infer a fiduciary responsibility. However, HB 198

does not include language other than overseeing, or monitoring, the activities of the various

investment and pension agencies to perform the essential public service of being informed of

these agencies’ policies, investment performance, fund solvency and related issues. In addition,

SIC expressed some concern over possible issues relating to the committee’s request for

information, including a possible conflict with the Inspection of Public Records Act or a possible

conflict with confidentiality agreements with fund managers. However, similar language in

statute exists for interim committees to request information from agencies with no apparent

conflicts.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Oversight of the various state funds and pension plans will be marginalized. Expenses incurred

by the Legislative Council Service for a “task force"-type legislative interim investment and

pension oversight committee will remain unfunded. Improved legislation resulting from

informed legislators may be curtailed. The forum for improved communication among the

various investment and pension agencies will not be provided.

MA/jp