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.

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

SPONSOR HVEC

ORIGINAL DATE

LAST UPDATED

2/13/08

HJR 8/HVECS

SHORT TITLE Land Grant Fund Education Distribution, CA

SB

ANALYST Schardin

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

$34,897.2

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

$34,897.2

$56,765.1 Recurring General Fund

$7,061.6

$11,451.7 Recurring Other LGPF

Beneficiaries

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to HB241 and HB311, Conflicts with SJR 18

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of HVEC Substitute

The House Voters and Elections Committee substitute for House Joint Resolution 8 would ask

voters to amend the New Mexico Constitution to temporarily increase the distribution from the

land grant permanent fund (LGPF) to 6.5 percent of the fund’s five-year average market value.

Under current law, the distribution is equal to 5.8 percent through FY12, 5.5 percent from FY13

through FY16, and 5.0 percent thereafter. The resolution would increase the distribution to 6.5

percent from FY09 through FY19, and then would return to 5 percent. Unless a special election

is called prior, the proposal would be sent to voters on November 4, 2008 (see Technical Issues).

House Joint Resolution 8/HVECS – Page

2

FISCAL IMPLICATIONS

The LFC’s fiscal impact analysis assumes that the resolution would be passed by voters on

November 4, 2008. Under that scenario, the increased distribution from the LGPF would go into

effect at that date, resulting in a fiscal impact for the last eight months of FY09 (see Technical

Issues). However, the fiscal impact could begin sooner if a special election is scheduled. The

LFC estimate also assumes investments of the LGPF corpus will earn 8.2 percent net of fees, and

that contributions to the fund will follow the state’s consensus oil and gas price and volume

forecast.

The figure below illustrates that increasing the distribution rate to 6.5 percent will result in

higher distributions from FY09 through FY19, but lower distributions from then on. From FY09

through FY19 the fiscal impact of the resolution grows larger each year because it increases the

distribution to 6.5 percent, while under current law the distribution would gradually phase back

down from 5.8 percent to 5 percent. In FY20, the percent distribution would return to 5.0

percent, the same as it would be under current law. However, because the corpus of the fund will

be smaller due to higher distributions in FY09 through FY19, distributions from the fund will be

smaller in FY19 than under current law. This means that in FY20 and every year thereafter, the

general fund and all other LGPF beneficiaries will receive less revenue from the LGPF than they

would under current law.

Cha nge in Annual Distributions to All Bene ficiaries

Resulting from HV EC Substitute for HJR8

-$300

-$200

-$100

$0

$100

$200

Nominal

Real

Source: LFC Files. Real distributions calculated based on 3 percent discount rate.

The figure below illustrates the projected difference in the LGPF’s nominal market value that

will result from temporarily increasing the fund’s distribution rate to 6.5 percent of its five-year

average market value.

Projected Market Value of LGPF, at Calendar Year End

$0

$50

$100

$150

$200

Current Law

HVEC Substitute for HJR 8

Source: LFC Files

House Joint Resolution 8/HVECS – Page

3

The table below contains the estimated fiscal impact of the resolution in both nominal and real

terms through FY2050.

General Fund Other Beneficiaries Total

General Fund Other Beneficiaries Total

FY2009

$34,897,232 $7,061,593 $41,958,825

$34,897,232 $7,061,593 $41,958,825

FY2010

$56,765,164 $11,451,694 $68,216,859

$55,111,810 $11,118,150 $66,229,960

FY2011

$60,707,018 $12,209,546 $72,916,565

$57,222,187 $11,508,669 $68,730,856

FY2012

$64,130,892 $12,858,707 $76,989,599

$58,688,851 $11,767,539 $70,456,390

FY2013

$96,792,749 $19,407,646 $116,200,395

$85,999,104 $17,243,442 $103,242,546

FY2014

$99,429,557 $19,936,344 $119,365,901

$85,768,809 $17,197,266 $102,966,075

FY2015 $100,658,763 $20,182,809 $120,841,573

$84,300,130 $16,902,785 $101,202,915

FY2016 $100,651,362 $20,181,325 $120,832,687

$81,838,768 $16,409,264 $98,248,032

FY2017 $163,403,423 $32,763,567 $196,166,989

$128,992,171 $25,863,862 $154,856,033

FY2018 $163,854,679 $32,854,047 $196,708,726

$125,580,968 $25,179,891 $150,760,859

FY2019 $162,721,221 $32,626,780 $195,348,001

$121,079,870 $24,277,389 $145,357,259

FY2020 ($46,640,151) ($9,351,687) ($55,991,838) ($33,693,838) ($6,755,858) ($40,449,695)

FY2021 ($56,641,043) ($11,356,938) ($67,997,982) ($39,726,888) ($7,965,528) ($47,692,416)

FY2022 ($65,939,052) ($13,221,256) ($79,160,309) ($44,901,286) ($9,003,032) ($53,904,318)

FY2023 ($74,066,323) ($14,850,833) ($88,917,156) ($48,966,565) ($9,818,150) ($58,784,715)

FY2024 ($80,523,714) ($16,145,586) ($96,669,300) ($51,685,108) ($10,363,237) ($62,048,345)

FY2025 ($85,104,780) ($17,064,123) ($102,168,903) ($53,034,485) ($10,633,797) ($63,668,283)

FY2026 ($88,652,946) ($17,775,556) ($106,428,502) ($53,636,490) ($10,754,504) ($64,390,994)

FY2027 ($92,139,679) ($18,474,671) ($110,614,350) ($54,122,350) ($10,851,922) ($64,974,273)

FY2028 ($95,621,261) ($19,172,754) ($114,794,015) ($54,531,469) ($10,933,954) ($65,465,423)

FY2029 ($99,149,555) ($19,880,202) ($119,029,758) ($54,896,705) ($11,007,186) ($65,903,891)

FY2030 ($102,766,266) ($20,605,379) ($123,371,645) ($55,241,932) ($11,076,406) ($66,318,338)

FY2031 ($106,498,110) ($21,353,640) ($127,851,751) ($55,580,565) ($11,144,305) ($66,724,870)

FY2032 ($110,358,432) ($22,127,663) ($132,486,095) ($55,917,707) ($11,211,904) ($67,129,611)

FY2033 ($114,354,981) ($22,929,000) ($137,283,981) ($56,255,073) ($11,279,549) ($67,534,622)

FY2034 ($118,494,485) ($23,759,000) ($142,253,485) ($56,593,626) ($11,347,431) ($67,941,057)

FY2035 ($122,783,035) ($24,618,885) ($147,401,920) ($56,933,846) ($11,415,647) ($68,349,493)

FY2036 ($127,226,437) ($25,509,820) ($152,736,256) ($57,275,949) ($11,484,242) ($68,760,191)

FY2037 ($131,830,473) ($26,432,962) ($158,263,435) ($57,620,035) ($11,553,233) ($69,173,268)

FY2038 ($136,601,037) ($27,389,495) ($163,990,532) ($57,966,153) ($11,622,633) ($69,588,786)

FY2039 ($141,544,198) ($28,380,634) ($169,924,832) ($58,314,335) ($11,692,446) ($70,006,781)

FY2040 ($146,666,219) ($29,407,636) ($176,073,856) ($58,664,602) ($11,762,677) ($70,427,279)

FY2041 ($151,973,581) ($30,471,801) ($182,445,382) ($59,016,970) ($11,833,329) ($70,850,299)

FY2042 ($157,472,996) ($31,574,473) ($189,047,469) ($59,371,452) ($11,904,405) ($71,275,858)

FY2043 ($163,171,414) ($32,717,047) ($195,888,461) ($59,728,064) ($11,975,908) ($71,703,972)

FY2044 ($169,076,037) ($33,900,967) ($202,977,004) ($60,086,817) ($12,047,841) ($72,134,657)

FY2045 ($175,194,329) ($35,127,729) ($210,322,058) ($60,447,724) ($12,120,205) ($72,567,930)

FY2046 ($181,534,021) ($36,398,883) ($217,932,904) ($60,810,800) ($12,193,005) ($73,003,804)

FY2047 ($188,103,125) ($37,716,035) ($225,819,160) ($61,176,056) ($12,266,241) ($73,442,297)

FY2048 ($194,909,943) ($39,080,852) ($233,990,794) ($61,543,506) ($12,339,917) ($73,883,423)

FY2049 ($201,963,076) ($40,495,056) ($242,458,132) ($61,913,163) ($12,414,036) ($74,327,199)

FY2050 ($209,271,438) ($41,960,435) ($251,231,874) ($62,285,040) ($12,488,600) ($74,773,640)

Fiscal Impact of HJR 8: Nominal

Fiscal Impact of HJR 8: in 2009 dollars

Fiscal Impact of HJR 8 (HVEC Substitute)

SIGNIFICANT ISSUES

The 2007 funding formula study task force sponsored the original House Joint Resolution 8 as a

way of providing additional funding for a new public school funding formula.

The funding formula study task force proposed the new funding formula contained in House Bill

241 to address concerns that New Mexico’s current funding formula does not meet the

constitutional requirement to provide a uniform system of free public schools sufficient for the

education of all school aged children. The funding formula study task force findings indicate that

New Mexico’s education system is currently under-funded by $332 million per year, or 14.5

percent.

House Joint Resolution 8/HVECS – Page

4

The LGPF was established by the Ferguson Act of 1898 and confirmed by the Enabling Act for

New Mexico in 1910. Together, these acts transferred about 9.2 million surface acres of federal

lands and 13.1 million of federal mineral interests to the territory of New Mexico. These lands

were to be held in trust for the benefit of public schools and 19 other state institutions.

The LGPF corpus consists of proceeds from the sale of state lands, royalties from natural

resource production, and 5 percent of the proceeds from the sale of federal public lands in New

Mexico. Rental, bonus and other public land income are also distributed to the state and the 19

other trust beneficiaries. The common school fund (a subset of the general fund) is the

beneficiary of around 83 percent of income from the LGPF. As of December 31, 2007, the

market value of the LGPF was $10.7 billion.

After adoption of a constitutional amendment in 1994, the distribution to LGPF beneficiaries was

4.7 percent of the fund’s five-year average market value. Then in 2003, the legislature passed

and the voters approved Senate Joint Resolution 6, which increased the base distribution to

LGPF beneficiaries from 4.7 to 5 percent of the fund’s five-year average market value, plus an

additional 0.8 percent in FY05 to FY12, and an additional 0.5 percent from FY13 to FY16. The

additional distributions from FY05 to FY16 were earmarked to implement and maintain

educational reforms. The 2003 resolution also included a safeguard for the LGPF corpus by

directing that in FY05 to FY16, the additional 0.5 and 0.8 percent distributions earmarked for

education would not occur if the fund’s five-year average market value fell below $5.8 million.

Finally, the 2003 resolution provided that the legislature could suspend the additional 0.5 and 0.8

percent distributions earmarked for education by a three-fifths majority vote.

The committee substitute for House Joint Resolution 8 would increase the distribution to 6.5

percent of the fund’s five-year market value from FY09 to FY19.

RELATIONSHIP

The committee substitute for House Joint Resolution 8 relates to House Bill 241, which includes

public school funding formula changes recommended by the funding formula study task force,

and to House Bill 311, which is also recommended by the funding formula study task force and

would increase the state gross receipts and compensating tax rates by 0.5 percent and distribute

the additional revenue to the public school fund.

The committee substitute for House Joint Resolution 8 conflicts with Senate Joint Resolution 18,

which amends the same section of the state constitution to make a one-time distribution of $500

million from the LGPF.

TECHNICAL ISSUES

The resolution would increase the distribution from the LGPF in FY09 from 5.8 to 6.5 percent. If

the resolution is approved by voters on November 4, 2008, it can only affect distributions in the

last eight months of FY09. If the resolution is passed by the voters, it is unclear whether

distributions in the first four months of FY09 will need to be adjusted retroactively. If the

resolution is interpreted to impact distributions in the first four months of FY09, the FY09 fiscal

impact of the bill would be higher.

House Joint Resolution 8/HVECS – Page

5

SLO argues that increasing payments from the LGPF is unconstitutional. Section 9 of the federal

Enabling Act of 1910, which has been deemed part of the New Mexico Constitution (State ex rel.

Interstate Stream Commission v. Reynolds), states that only the interest from the LGPF is to be

paid out to beneficiaries, and that it is unlawful to distribute any principal of the fund.

In addition, SLO finds fault with the resolution’s language, which provides that distribution from

the LGPF shall be used “to supplement the state’s efforts to provide a sufficient education

pursuant to Article 12, Section 1" of the New Mexico Constitution. SLO notes that the Enabling

Act restricts that monies distributed from the LGPF may only be spent on the specific benefit of

the common schools.

ALTERNATIVES

The resolution increases funding for public education in the next few decades at the expense of

future generations. Increasing current education funding by increasing taxes on or decreasing

services to the current population would be fairer, from an intergenerational standpoint.

POSSIBLE QUESTIONS

Although this proposal will increase funding available for public education from FY09 to FY19,

it will decrease funding available for public education in years to come. How will the state deal

with an education funding shortfall at that point.

SS/nt:bb