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

SPONSOR Gardner

ORIGINAL DATE

LAST UPDATED

1/24/08

HB 267

SHORT TITLE State Budget Provisions & Increases

SB

ANALYST Wilson

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

$0.1

Recurring

General Fund and

other funds

(Parenthesis ( ) Indicate Expenditure Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08

FY09

FY10 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$0.1

$0.1

$0.1

$0.1 Recurring General

Funds and

others

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Board of Architects (BA)

Department of Finance & Administration (DFA)

Environment Department (ED)

SUMMARY

Synopsis of Bill

House Bill 267 will prohibit any state agency from requesting budget increases to expend

money collected from penalty assessments in a fiscal year if the money is derived from penalties

assessed during the same fiscal year.

Furthermore, this bill will prohibit any state agency from requesting budget increases to expend

money collected from penalty assessments in a fiscal year if the money is derived from penalties

assessed during the same fiscal year.

House Bill 267– Page

2

FISCAL IMPLICATIONS

The bill contains no appropriation but will affect future funding for state agencies authorized to

assess and budget penalty assessment revenue.

The AGO states that it is conceivable that they will submit a budget or budget adjustment request

asking for the appropriation and expenditure of any civil “penalties" collected as a result of

litigation or other official efforts. It is unclear as to the possible impact of this bill on such

requests.

The New Mexico Environment Department administers two special revenue funds that derive

revenue from penalties -- the Solid Waste Facility Grant Fund (SWFGF) and the Hazardous

Waste Emergency Fund (HWEF). HB 267 in its current form will have no fiscal impact on

programs and grants administered from the SWFGF. Expenditures from the HWEF in

emergency situations as occurred during the State’s response to the Cerro Grande Fire in 2000

could be statutorily limited.

SIGNIFICANT ISSUES

The AGO provided the following:

Annual state agency budget requests are generally governed by NMSA Section 6-3-7

(1978 comp.). The bill appears to prohibit state agencies from submitting budget requests

containing provisions authorizing those agencies to spend money derived from

“penalties" during the same fiscal year in which those penalties are collected. It also

appears to prohibit state agencies from requesting budget increases if the agency intends

to use money derived from penalties assessed in the same fiscal year. However, the bill

does not provide for the diversion of penalties from the funds into which they are

deposited, but prohibits their expenditure in the same fiscal year in which they are

collected. The bill appears to allow the submission of budgets or budget adjustment

requests proposing to spend penalties collected in prior fiscal years.

The bill does not define “penalties". Under many state law provisions, the term includes

“fines" and is generally applied to criminal violations. Fines collected as a result of

criminal penalties are deposited into the Current School Fund established in Article XII,

Section 4 of the New Mexico Constitution. However, the term “penalties" could also

include civil assessments, fees, or other punitive collections. For example, state law

provides penalties for dishonored checks given to state agencies and civil penalties for

tax law violations. See NMSA Sections 7-1-70; 65-1-36.1; 7-1-69.

The bill could conflict with other state laws allowing the expenditure of revenue collected

from penalties and other sources. For example, NMSA Section 7-1-6 of the Tax

Administration Act establishes several funds consisting of revenue (including penalties)

collected by the Taxation and Revenue Department. That section authorizes disbursement

of those funds for specified departmental expenses and refunds.

Certain professional licensing boards are authorized to collect “penalties" which are then

deposited into non-reverting funds and normally appropriated to the boards for

expenditure in carrying out the provisions of their licensing acts. For example, the Board

House Bill 267– Page

3

of Medical Examiners is entitled to receive a civil “penalty" from a health care facility

failing to report a malpractice case settlement as provided in NMSA Section 61-6-16

(1978). Those penalties, and others collected by the Board, are deposited into a non-

reverting “New Mexico Medical Board fund" which presumably is included in the annual

budget request. It is unclear as to the impact of this bill on those budgeting and

expenditure procedures.

DFA provided the following:

The bill could significantly impact the budgets of state agencies that use revenue derived from

penalty assessments to fund operations. If an agency has statutory authority to keep these funds,

the bill just delays the agencies ability to use the funds until a subsequent fiscal year and will

require some kind of supplemental funding in the initial year of implementation. If the agency

does not have authority to keep these funds for subsequent year expenditure, the agency might

require recurring funding from other sources, potentially from the general fund in order to

maintain the same level of operations. The general fund will benefit from additional reversions

to the fund. In addition, in some cases penalties are assessed by one agency and are designated

by statute to be used to fund specific programs within other agencies. This bill could not only

affect the assessing agency, but affect programs funded by specific assessments.

The bill could affect the agencies ability to meet its statutory requirements if alternative

funding is not available to supplement the loss of penalty revenues it uses for operations.

ED notes the sole source of revenue for the HWEF is penalties assessed under the State

Hazardous Waste Act. Uses of the HWEF are defined in 74-4-8 NMSA 1978, and include

“cleanup of hazardous substance incidents", which are in turn defined at 74-4-3.J NMSA 1978.

While most hazardous substance incidents involve little more than fuel spills from transportation

accidents or clandestine drug laboratories, larger incidents can compel the State to engage in a

huge cleanup effort necessary to protect human health and the environment. The most recent

such incident was the Cerro Grande Fire in 2000, in which a wildfire overcame portions of the

Town of Los Alamos and Los Alamos National Laboratory (LANL). The ED deployed

personnel and contractors with HWEF monies to remove hazardous materials from destroyed

buildings before reoccupation, conduct sampling at removal sites, monitor emissions and runoff

from LANL, conduct air monitoring and soil sampling, and develop risk assessments for future

uses of affected properties. This work – conducted mostly on an emergency basis while the fire

was still burning – cost approximately $1 million. BAR authority was sought on an emergency

basis, and its approval allowed the State to respond in a timely fashion protective of human

health, property, and the environment. Restrictions on budget authority such as those envisioned

in HB 267 could severely compromise the State’s ability to effectively respond to disasters such

as that which occurred in Los Alamos in 2000.

ADMINISTRATIVE IMPLICATIONS

DFA notes

t

he bill limits the ability of an agency, the State Budget Division and the Legislative

Finance Committee from using revenues available in a fiscal year from penalty assessments to

fund agency expenditures. In years of declining revenues, the State Budget Division and

Legislative Finance Committee should have the ability to recommend the use of all available

resources as needed.

House Bill 267– Page

4

The Board of Architects notes that this bill will add an

additional layer of accounting for their

agency revenues and will require

separate accounting for penalty money obtained during a fiscal

year.

DW/nt