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 Nava

ORIGINAL DATE

LAST UPDATED

2/12/08

HB

SHORT TITLE Permanent Fund Money for Funding Formula

SJR 18

ANALYST Schardin

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

415,850.9 Nonrecurring

General Fund

(See Narrative for Impacts in FY10 and Beyond)

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08 FY09

FY10

415,850.9

Nonrecurring

General Fund

(4,826.3)

Recurring

General Fund

84,149.1

Nonrecurring

Other LGPF Beneficiaries

(973.7)

Recurring

Other LGPF Beneficiaries

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with HJR8, Relates to HB241 and HB311

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

State Land Office (SLO)

State Investment Council (SIC)

Attorney General’s Office (AGO)

Public Education Department (PED)

Senate Joint Resolution 18 – Page

2

SUMMARY

Synopsis of Bill

Senate Joint Resolution 18 would ask voters to amend the state constitution to allow a $500

million supplemental distribution from the Land Grant Permanent Fund (LGPF) in FY09. This

distribution would occur in addition to the scheduled distribution of 5.8 percent of the five-year

average market value of the LGPF that will take place under current law.

The provisions of the resolution would become effective upon approval by the voters of the state

at the next general election (November 4, 2008) or any special election called prior to that date.

FISCAL IMPLICATIONS

The fiscal impact of this resolution depends on when the supplemental distribution of $500

million from the LGPF would take place. The bill states that the distribution would take place in

FY09, but does not state a specific date. For the purposes of this analysis, it is assumed the

resolution would be approved by voters on November 4, 2008 and the distribution would occur

on or before December 31, 2008. 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 the resolution will result in an additional $500 million

distribution to all LGPF beneficiaries in FY09. Beneficiaries will receive lower distributions in

FY10 and beyond because the fund’s five-year average market value will be smaller as a result

of the $500 million distribution. This means that in FY10 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.

Chan

g

e i n Annual Distri buti ons to All Bene ficia ries

Resul ting from SJR18

-$300

-$200

-$100

$0

$100

$200

$300

$400

$500

Real

Nom inal

Sourc e: LFC Files. Real dis tributions calculated based on 3 percent disc ount rate.

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

will result from distributing an additional $500 million from the LGPF by December 31, 2008.

The difference widens as time passes because of the lost compound interest on the $500 million

that would otherwise have remained in the LGPF corpus for reinvestment.

Senate Joint Resolution 18 – Page

3

Projected Market Value of LGPF, at Calendar Yea r End

$10

$15

$20

$25

$30

$35

Current Law

SJR 18

Source: LFC Files

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 $415,850,921 $84,149,079 $500,000,000 $415,850,921 $84,149,079 $500,000,000

FY2010

($4,826,343) ($973,657) ($5,800,000)

($4,685,770) ($945,298) ($5,631,068)

FY2011 ($10,025,589) ($2,016,371) ($12,041,960)

($9,450,079) ($1,900,623) ($11,350,702)

FY2012 ($15,570,316) ($3,121,961) ($18,692,277) ($14,249,045) ($2,857,037) ($17,106,082)

FY2013 ($20,307,959) ($4,071,893) ($24,379,852) ($18,043,359) ($3,617,824) ($21,661,183)

FY2014 ($26,108,160) ($5,234,875) ($31,343,034) ($22,521,128) ($4,515,649) ($27,036,777)

FY2015 ($27,547,290) ($5,523,431) ($33,070,721) ($23,070,422) ($4,625,786) ($27,696,208)

FY2016 ($28,835,897) ($5,781,806) ($34,617,703) ($23,446,223) ($4,701,137) ($28,147,360)

FY2017 ($27,274,367) ($5,468,708) ($32,743,074) ($21,530,637) ($4,317,048) ($25,847,685)

FY2018 ($28,268,648) ($5,668,068) ($33,936,717) ($21,665,565) ($4,344,102) ($26,009,667)

FY2019 ($29,246,137) ($5,864,062) ($35,110,199) ($21,761,873) ($4,363,413) ($26,125,286)

FY2020 ($30,248,287) ($6,065,000) ($36,313,287) ($21,852,006) ($4,381,485) ($26,233,491)

FY2021 ($31,303,418) ($6,276,562) ($37,579,980) ($21,955,588) ($4,402,254) ($26,357,842)

FY2022 ($32,419,228) ($6,500,289) ($38,919,517) ($22,075,916) ($4,426,381) ($26,502,297)

FY2023 ($33,588,471) ($6,734,731) ($40,323,203) ($22,205,937) ($4,452,451) ($26,658,387)

FY2024 ($34,801,270) ($6,977,906) ($41,779,176) ($22,337,611) ($4,478,852) ($26,816,463)

FY2025 ($36,059,143) ($7,230,119) ($43,289,261) ($22,470,866) ($4,505,571) ($26,976,437)

FY2026 ($37,363,331) ($7,491,618) ($44,854,949) ($22,605,430) ($4,532,552) ($27,137,982)

FY2027 ($38,715,110) ($7,762,659) ($46,477,769) ($22,741,047) ($4,559,744) ($27,300,791)

FY2028 ($40,115,955) ($8,043,539) ($48,159,494) ($22,877,569) ($4,587,118) ($27,464,686)

FY2029 ($41,567,553) ($8,334,595) ($49,902,147) ($23,014,946) ($4,614,663) ($27,629,609)

FY2030 ($43,071,712) ($8,636,190) ($51,707,902) ($23,153,168) ($4,642,377) ($27,795,545)

FY2031 ($44,630,319) ($8,948,701) ($53,579,020) ($23,292,229) ($4,670,260) ($27,962,489)

FY2032 ($46,245,334) ($9,272,523) ($55,517,857) ($23,432,129) ($4,698,311) ($28,130,440)

FY2033 ($47,918,793) ($9,608,064) ($57,526,858) ($23,572,871) ($4,726,531) ($28,299,402)

FY2034 ($49,652,812) ($9,955,747) ($59,608,559) ($23,714,459) ($4,754,920) ($28,469,380)

FY2035 ($51,449,579) ($10,316,012) ($61,765,591) ($23,856,898) ($4,783,480) ($28,640,379)

FY2036 ($53,311,365) ($10,689,314) ($64,000,679) ($24,000,193) ($4,812,212) ($28,812,405)

FY2037 ($55,240,523) ($11,076,124) ($66,316,648) ($24,144,349) ($4,841,116) ($28,985,465)

FY2038 ($57,239,492) ($11,476,932) ($68,716,423) ($24,289,370) ($4,870,194) ($29,159,564)

FY2039 ($59,310,796) ($11,892,243) ($71,203,039) ($24,435,263) ($4,899,447) ($29,334,709)

FY2040 ($61,457,053) ($12,322,583) ($73,779,637) ($24,582,031) ($4,928,875) ($29,510,906)

FY2041 ($63,680,977) ($12,768,496) ($76,449,473) ($24,729,682) ($4,958,480) ($29,688,161)

FY2042 ($65,985,377) ($13,230,545) ($79,215,921) ($24,878,219) ($4,988,263) ($29,866,481)

FY2043 ($68,373,165) ($13,709,313) ($82,082,478) ($25,027,648) ($5,018,224) ($30,045,873)

FY2044 ($70,847,359) ($14,205,407) ($85,052,766) ($25,177,975) ($5,048,366) ($30,226,341)

FY2045 ($73,411,086) ($14,719,453) ($88,130,539) ($25,329,205) ($5,078,689) ($30,407,894)

FY2046 ($76,067,585) ($15,252,100) ($91,319,686) ($25,481,343) ($5,109,193) ($30,590,537)

FY2047 ($78,820,215) ($15,804,022) ($94,624,237) ($25,634,395) ($5,139,881) ($30,774,277)

FY2048 ($81,672,453) ($16,375,917) ($98,048,369) ($25,788,366) ($5,170,754) ($30,959,120)

FY2049 ($84,627,903) ($16,968,506) ($101,596,409) ($25,943,263) ($5,201,812) ($31,145,074)

FY2050 ($87,690,301) ($17,582,539) ($105,272,840) ($26,099,089) ($5,233,056) ($31,332,145)

Fiscal Impact of SJR 18

Fiscal Impact of SJR 18: Nominal

Fiscal Impact of SJR 18: in 2009 dollars

Senate Joint Resolution 18 – Page

4

SIGNIFICANT ISSUES

According to DFA, the $500 million nonrecurring distribution from the LGPF would be used to

implement the new public school funding formula proposed in House Bill 241. However, the

language in the bill does not specifically limit use of the funding for that purpose.

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.

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 amended the constitution to increase

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.

CONFLICT, RELATIONSHIP

Senate Joint Resolution 18 conflicts with House Joint Resolution 8, which would amend the

same part of the state constitution to permanently increase the percentage distribution from the

LGPF to its beneficiaries to 6.5 percent of the five-year average market value.

Senate Joint Resolution 18 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.

Senate Joint Resolution 18 – Page

5

TECHNICAL ISSUES

While the resolution would provide an additional $500 million distribution from the LGPF in

FY09, it does not state the specific date on which that distribution is to occur. The resolution

should be amended to state a specific distribution date.

In an analysis of House Joint Resolution 8, SLO argued 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.

While the title of the bill indicates that the one-time distribution from the LGPF will be used to

implement the new public school funding formula, the language of the bill does not state a

specific use of the $500 million.

SS/mt