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

SPONSOR Varela

ORIGINAL DATE

LAST UPDATED

2/05/08

2/13/08 HB 615/aHAFC/aHFl/aSFl

SHORT TITLE Distributions to Sole Community Provider Fund

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

See Narrative

Recurring Federal Funds

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

Taxation and Revenue Department (TRD)

Health Policy Commission (HPC)

SUMMARY

Synopsis of SFL Amendment #1

The Senate Floor amendment to House Bill 615 would make the provisions of the bill apply only

to distributions through June 30, 2009. Otherwise the amended bill is the same as amended by

House Floor amendment #1.

Synopsis of HFL Amendment #1

The House Floor amendment to House Bill 615 strikes most of the House Finance and

Appropriations Committee amendments. The amended bill would allow transfer of any county

local option gross receipts tax to the fund, not just the second 1/8 percent increment of the tax.

The amendment also replaces language in the original bill so that a distribution to the sole

community provider fund from revenue attributable to the county gross receipts tax will only

occur if approved by a county’s board of commissioners. The amount distributed each month

will be equal to 1/12 of the annual amount approved by the county.

House Bill 615/aHAFC/aHFl/aSFl – Page

2

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee Amendments to House Bill 615 clarify

technical issues raised on the original bill. The amendments clarify that the amount of county

local option gross receipts tax to be transferred by TRD to the sole community provider fund

monthly would be 1/12 of amount approved for the year. The amendments also clarify that the

amount transferred annually will be the amount approved by the county, not the amount

calculated by HSD.

Last, the amendments would make use of the second 1/8 increment of the county local option tax

for the sole community provider fund program option for counties that may want to fund the

program with another funding source.

Synopsis of Original Bill

House Bill 615 would provide that a portion of the revenue generated by the second 1/8 percent

increment of a county gross receipts tax be distributed to the sole community provider fund in an

amount equal to the county’s approved contribution for support of sole community provider

payments as calculated by HSD. Any revenue left over from the second 1/8 percent increment

after the transfer to the sole community provider fund will be transferred to the county for

support of indigent patients, as under current law.

Because the bill contains an emergency clause its provisions will take effect immediately upon

signing by the governor.

FISCAL IMPLICATIONS

If the bill passes with the emergency clause, the provisions of the bill are expected to take effect

in the distributions made by TRD in March 2008, which will affect revenues accrued to January

2008. The Senate Floor amendment will provide that the provisions of the bill are effective only

until the June 2009 distribution, which is for revenue accrued to May 2009.

The bill addresses concerns that a federal regulation could prevent New Mexico from using

county matching funds for the sole community provider fund program because they require an

intergovernmental transfer. If that federal regulation is allowed to take effect, the state would be

forced to find state matching funds of approximately $51.7 million in FY09 or stand to lose an

estimated $126.7 million in federal matching funds.

SIGNIFICANT ISSUES

The bill would change the distribution path of county local option gross receipts tax revenue so

that revenue would be transferred directly from TRD to the sole community provider fund at

HSD. Currently, TRD distributes revenue to counties, and counties that approve an amount for

the sole community provider fund transfer funds to HSD through an intergovernmental transfer.

Currently, a federal regulation has been adopted that disallows use of intergovernmental transfers

of this type. Congress currently has imposed a moratorium on the rule until June 30, 2008, but if

the rule is allowed to take effect after that point, this legislation will be necessary to prevent loss

of federal matching funds.

House Bill 615/aHAFC/aHFl/aSFl – Page

3

The sole community provider fund program is a part of Medicaid. The program’s state match is

provided by counties via an intergovernmental transfer to HSD. Federal funding for the program

is allocated to each state to supplement the gap between the state’s Medicaid provider rates paid

to hospitals and the actual costs of hospitals. This gap has been widening in recent years, causing

the cost of the program to grow. As the cost of the program grows, counties find it more difficult

to make the maximum matching payments to maximize federal funds.

By February 15 of each year, hospitals that qualify for the sole community provider fund

program submit a request to their county for funding in the upcoming fiscal year. HSD separately

calculates the maximum amount each county is approved to receive based on the amount of

federal funds allotted to the state and a formula that adjusts the previous year’s amount for

inflation and supplemental payments. Under current law, amounts are approved by counties and

hospitals receive the lesser of the amount calculated by HSD or the amount approved by the

county. The amount approved by counties is often less than the amount calculated by HSD due

to counties’ difficulty in providing matching funds.

HSD reports that in FY08, the sole community provider fund program will pay out $138.2

million. Of that, $39.5 million will be from the county/state share and $98.7 million will be from

the federal government. HSD estimates the program will total $178.4 million in FY09, with

$51.7 million in county/state funding and $126.7 million federal funds.

ADMINISTRATIVE IMPLICATIONS

The bill will require coordination between TRD and HSD so that TRD knows how much revenue

to distribute for each county to the sole community provider fund and how much left over

revenue to distribute to the counties.

TECHNICAL ISSUES

The House Floor amendments address the fact that the amount of each county’s revenue that

would be distributed to the community sole provider fund would be approved by counties

annually, while revenue distributions made by TRD to the fund would be made monthly.

The House Floor amendments also clarify that the amount distributed to the sole community

provider fund will be based on the annual amount approved by the county, not the amount

calculated by HSD. The amount approved by the county and the amount calculated by HSD are

two separate amounts that may not be equal.

The bill could still be amended further to clarify what amount should be transferred to the sole

community provider fund in a month in which revenue available for transfer is less than 1/12 of

the annual amount approved by a county.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Starting in FY09, the state could be forced to find over $50 million for the state portion of

Medicaid matching or lose about $126 million in federal Medicaid matching if a federal rule

disallowing intergovernmental transfers is allowed to take effect.

SS/mt:bb