HB0586

HOUSE BILL 586

50th legislature - STATE OF NEW MEXICO - first session, 2011

INTRODUCED BY

Mimi Stewart

AN ACT

RELATING TO PUBLIC FINANCE; ENACTING THE PREMIUM TAX OFFSET ACT; AUTHORIZING THE ISSUANCE AND SALE OF PREMIUM TAX OFFSET CERTIFICATES FOR THE PURPOSE OF DECREASING THE UNFUNDED LIABILITY OF THE EDUCATIONAL RETIREMENT FUND; MAKING AN APPROPRIATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. [NEW MATERIAL] SHORT TITLE.--Sections 1 through 7 of this act may be cited as the "Premium Tax Offset Act".

SECTION 2. [NEW MATERIAL] FINDINGS AND PURPOSE.--

A. The legislature finds that:

(1) a high quality public education system is absolutely necessary for the future of New Mexico;

(2) intrinsic to a high quality education are teachers who are confident that they can pursue a career in public education with the knowledge that a viable and healthy pension system will be available on retirement;

(3) the educational retirement system in New Mexico, while in good financial health for the short term, is in critical need of additional money if it is to avoid a large unfunded liability in the future; and

(4) the current revenue shortfall makes it unlikely that the critical monetary need of the educational retirement system can be satisfied with funding from conventional sources.

B. The purpose of the Premium Tax Offset Act is to provide a mechanism for satisfying in part the unfunded liability of the state educational retirement system by authorizing the issuance and sale of premium tax offset certificates to investors who will receive an offset against future premium tax liability and depositing the proceeds from the sale of the certificates into the educational retirement fund.

SECTION 3. [NEW MATERIAL] DEFINITIONS.--As used in the Premium Tax Offset Act:

A. "board" means the state board of finance;

B. "fund allocation date" means the date that the manager receives the sale proceeds from investors and delivers the premium tax offset certificates, issued by the state, to the investors;

C. "full offset amount" means the full face amount of all the premium tax offset certificates issued by the state and delivered to the investors;

D. "investor" means a person liable for premium taxes who invests in premium tax offset certificates;

E. "manager" means the person selected pursuant to Section 5 of the Premium Tax Offset Act to represent the state in marketing, negotiating the terms of and, with the approval of the board, selling premium tax offset certificates;

F. "premium tax" means:

(1) the premium tax levied pursuant to Subsection B of Section 59A-6-2 NMSA 1978; or

(2) the health insurance premium surtax levied pursuant to Subsection C of Section 59A-6-2 NMSA 1978; and

G. "premium tax offset certificate" means an instrument issued by the state and sold to an investor and that grants to the investor an offset against premium taxes due in a total value equal to the face value of the certificate, with a final maturity date of ten years from the date that the certificate is first eligible to be utilized and at an amortized rate of ten percent per year.

SECTION 4. [NEW MATERIAL] BOARD--ADDITIONAL DUTIES.--In addition to its other duties, within thirty days of the effective date of this act, the board shall determine whether the issuance and sale of premium tax offset certificates are in the best interests of the state and the best interests of members under the Educational Retirement Act. If the board determines that premium tax offset certificates should be issued, the board shall:

A. determine the full offset amount of the certificates to be issued; provided that the full offset amount shall not exceed four hundred million dollars ($400,000,000);

B. pursuant to the Procurement Code and Section 5 of the Premium Tax Offset Act, select and contract with a manager;

C. oversee the activities of the manager and receive and review reports submitted by the manager;

D. upon the recommendation of the manager, review the terms of the irrevocable purchase commitments negotiated by the manager and, if it agrees that the terms are in the best interest of the state and the best interests of members under the Educational Retirement Act, authorize the manager to proceed with the sale of the premium tax offset certificates;

E. upon the agreement of the manager to sell the certificates, issue the certificates in the name of the state; and

F. promulgate such rules as are necessary to carry out the provisions of the Premium Tax Offset Act.

SECTION 5. [NEW MATERIAL] MANAGER--SELECTION--DUTIES.--

A. After determining that premium tax offset certificates should be issued, the board shall, within sixty days of the determination, pursuant to the Procurement Code, issue a request for proposals to select a manager. The request for proposals shall require that the manager, or one of the manager's principals, partners, subsidiaries or subcontractors, including a principal or partner of a contractor, shall have, at a minimum, the following qualifications:

(1) experience in structuring, marketing and pre-selling insurance premium tax credit sale obligations; (2) experience during the previous calendar year with underwriting government securities transactions in New Mexico; and

(3) experience during the previous calendar year in managing a minimum of three hundred financing transactions nationwide.

B. The fee to be paid a manager for marketing, negotiating and selling premium tax offset certificates shall be determined as part of the procurement process but shall not exceed one and one-half percent of the full offset amount. In addition, an annual management fee may be negotiated and paid to the manager if the board determines that the manager is needed during the term of the certificates.

C. Pursuant to the rules and direction of the board and on behalf of the state, the manager shall:

(1) solicit investors for the purchase of premium tax offset certificates;

(2) negotiate the price and other terms of the sale of the premium tax offset certificates; provided that:

(a) the final maturity date of each certificate shall be ten years from the date that the certificate is eligible to be utilized; and

(b) the premium taxes due by an investor shall be offset by an amount equal to ten percent of the face value of the certificate per year for ten consecutive years;

(3) obtain executed irrevocable purchase commitments from investors for the full offset amount;

(4) after the approval by the board of the executed irrevocable purchase commitments, enter into agreements for the sale of the premium tax offset certificates;

(5) accept payment from the investors for the premium tax offset certificates and, after withholding the fee to be retained by the manager, deposit the proceeds from the sale into the educational retirement fund;

(6) within thirty days of the fund allocation date, submit a report to the board, the superintendent of insurance, the governor and the legislative finance committee with the following information:

(a) the name and address of each investor from whom an investment was received, including the identification number used by the investor to pay premium taxes;

(b) the amount of each investor's investment;

(d) such other information as is required by rule of the board; and

(7) if retained by the board after the issuance of the premium tax offset certificates, no later than April 30 of each year, provide to the board an audited financial statement of the manager's activities during the previous calendar year, including the opinion of an independent certified public accountant.

SECTION 6. [NEW MATERIAL] PREMIUM TAX OFFSETS--UTILIZATION--EFFECTS.--

A. Each investor that makes an investment in a premium tax offset certificate shall earn vested offsets against future premium taxes equal to the face amount of the certificate issued to the investor and evidencing the investment of cash in the offsets. Tax offsets shall be vested on the fund allocation date and shall be available to the investor annually.

B. Each investor investing in the premium tax offset certificates may:

(1) take the vested tax offsets against premium taxes otherwise due each year in accordance with the terms of the premium tax offset certificate, beginning with the first annual return filed following the purchase date of the certificate and continuing for the next ten consecutive years; and

(2) reduce its estimated quarterly payments of premium tax liability in each year for which offsets are available by the same proportion as the annual offset amount is to the total annual premium tax otherwise due.

C. The offsets against taxes that are used by an investor with respect to any year shall not exceed the full tax liability of the investor for that year.

D. Any offsets against taxes that an investor is permitted to use under Subsections A and B of this section, but is unable to use because of Subsection C of this section, may be carried forward indefinitely and used to offset the investor's liability in any subsequent year in which the investor has sufficient tax liability, including in a year in which the investor also uses tax offsets that are allocated to that year pursuant to Subsection B of this section.

E. An investor that has invested in premium tax offset certificates is not required to reduce the amount of tax liability included by the investor in connection with the ratemaking for any insurance contract written because of a reduction in the investor's assessment derived from the offsets granted under the certificate.

F. If the premium taxes that an investor does not pay by virtue of the offsets earned under the Premium Tax Offset Act would constitute a credit against another tax or assessment if paid, the investor shall continue to earn the credit as though the offset taxes were paid by cash.

G. An investor may transfer the offsets it receives from the investment in premium tax offset certificates to another investor; provided that the transferor delivers to the superintendent of insurance within thirty days of the transfer a written notice indicating the name of the transferee, the amount of offsets being transferred and the year or years to which the offsets are allocable as provided in Subsection B of this section.

H. For statutory accounting purposes, an investor may treat the transferable premium tax offsets as an admitted asset, pursuant to the national association of insurance commissioners accounting practices and procedures manual and statement of statutory accounting principles no. 94.

SECTION 7. [NEW MATERIAL] STATE PLEDGE--CERTIFICATES IRREVOCABLE.--The state pledges that the premium tax offsets evidenced by premium tax offset certificates are irrevocable and that an investor, legally holding title to a certificate, shall be entitled to the offset evidenced by the certificate. The state further pledges that any law authorizing premium tax offsets or the transfer of such offsets shall not be repealed or amended in a manner that jeopardizes the offsets or the transferability of the offsets without the consent of the investors owning the offsets.

SECTION 8. Section 59A-6-2 NMSA 1978 (being Laws 1984, Chapter 127, Section 102, as amended) is amended to read:

"59A-6-2. PREMIUM TAX--HEALTH INSURANCE PREMIUM SURTAX.--

A. The premium tax provided for in this section shall apply as to the following taxpayers:

(1) each insurer authorized to transact insurance in New Mexico;

(2) each insurer formerly authorized to transact insurance in New Mexico and receiving premiums on policies remaining in force in New Mexico, except that this provision shall not apply as to an insurer that withdrew from New Mexico prior to March 26, 1955;

(3) each plan operating under provisions of Chapter 59A, Articles 46 through 49 NMSA 1978;

(4) each property bondsman, as that person is defined in Section 59A-51-2 NMSA 1978, as to any consideration received as security or surety for a bail bond in connection with a judicial proceeding, which consideration shall be considered "gross premiums" for the purposes of this section; and

(5) each unauthorized insurer that has assumed a contract or policy of insurance directly or indirectly from an authorized or formerly authorized insurer and is receiving premiums on such policies remaining in force in New Mexico, except that this provision shall not apply if a ceding insurer continues to pay the tax provided in this section as to such policy or contract.

B. Except as provided in Subsection F of this section, each such taxpayer shall pay in accordance with this subsection a premium tax of three and three-thousandths percent of the gross premiums and membership and policy fees received or written by it, as reported in Schedule T and supporting schedules of its annual financial statement on insurance or contracts covering risks within this state during the preceding calendar year, less all return premiums, including dividends paid or credited to policyholders or contract holders and premiums received for reinsurance on New Mexico risks.

C. Except as provided in Subsection F of this section, in addition to the premium tax imposed pursuant to Subsection B of this section, each taxpayer described in Subsection A of this section that transacts health insurance in New Mexico or is a plan described in Chapter 59A, Article 46 or 47 NMSA 1978 shall pay a health insurance premium surtax of one percent of the gross health insurance premiums and membership and policy fees received by it on hospital and medical expense incurred insurance or contracts; nonprofit health care service plan contracts, excluding dental or vision only contracts; and health maintenance organization subscriber contracts covering health risks within this state during the preceding calendar year, less all return health insurance premiums, including dividends paid or credited to policyholders or contract holders and health insurance premiums received for reinsurance on New Mexico risks. Except as provided in this section, all references in the Insurance Code to the premium tax shall include both the premium tax and the health insurance premium surtax.

D. For each calendar quarter, an estimated payment of the premium tax and the health insurance premium surtax shall be made on April 15, July 15, October 15 and the following January 15. The estimated payments shall be equal to at least one-fourth of either the payment made during the previous calendar year or eighty percent of the actual payment due for the current calendar year, whichever is greater. The final adjustment for payments due for the prior year shall be made with the return, which shall be filed on April 15 of each year, at which time all taxes for that year are due. Dividends paid or credited to policyholders or contract holders and refunds, savings, savings coupons and similar returns or credits applied or credited to payment of premiums for existing, new or additional insurance shall, in the amount so used, constitute premiums subject to tax under this section for the year in which so applied or credited.

E. Exempted from the taxes imposed by this section are:

(1) premiums attributable to insurance or contracts purchased by the state or a political subdivision for the state's or political subdivision's active or retired employees; and

(2) payments received by a health maintenance organization from the federal secretary of health and human services pursuant to a contract issued under the provisions of 42 U.S.C. Section 1395 mm(g).

F. The amount of the premium tax due plus any health insurance premium surtax due from a taxpayer who is an investor under the Premium Tax Offset Act shall be the tax otherwise due pursuant to Subsections B and C of this section less an amount equal to the offset that may be taken for the appropriate tax period by the investor pursuant to premium tax offset certificates held by the investor and issued under the Premium Tax Offset Act."

SECTION 9. Section 59A-6-5 NMSA 1978 (being Laws 1984, Chapter 127, Section 105, as amended) is amended to read:

"59A-6-5. DISTRIBUTION OF DIVISION COLLECTIONS.--

A. All money received by the division for fees, licenses, penalties and taxes shall be paid daily by the superintendent to the state treasurer and credited to the "insurance department suspense fund" except as provided by:

(1) the Law Enforcement Protection Fund Act;

(2) Section 59A-6-1.1 NMSA 1978; and

(3) the Voter Action Act.

B. The superintendent may authorize refund of money erroneously paid as fees, licenses, penalties or taxes from the insurance department suspense fund under request for refund made within three years after the erroneous payment. In the case of premium taxes erroneously paid or overpaid in accordance with law, refund may also be requested as a credit against premium taxes due in any annual or quarterly premium tax return filed within three years of the erroneous or excess payment.

C. The "insurance operations fund" is created in the state treasury. The fund shall consist of the distributions made to it pursuant to Subsection D of this section. The legislature shall annually appropriate from the fund to the division those amounts necessary for the division to carry out its responsibilities pursuant to the Insurance Code and other laws. Any balance in the fund at the end of a fiscal year greater than one-half of that fiscal year's appropriation shall revert to the general fund.

D. At the end of every month, after applicable refunds are made pursuant to Subsection B of this section, the treasurer shall make the following transfers from the balance remaining in the insurance department suspense fund:

(1) to the "fire protection fund", that part of the balance derived from property and vehicle insurance business;

(2) to the insurance operations fund, that part of the balance derived from the fees imposed pursuant to Subsections A and E of Section 59A-6-1 NMSA 1978 other than fees derived from property and vehicle insurance business; and

(3) to the general fund, the balance remaining in the insurance department suspense fund derived from all other kinds of insurance business.

E. The distributions of premium taxes to the law enforcement protection fund and the fire protection fund pursuant to this section shall be calculated:

(1) without considering the effect of any offsets taken pursuant to premium tax offset certificates held under the Premium Tax Offset Act; and

(2) as if the amount of the offsets were paid in cash by the taxpayer at the time that the premium taxes were due."

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