NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Department of Finance and Administration

New Mexico Finance Authority

State Department of Education (SDE)

LFC Files

SUMMARY

Synopsis of SWMC Amendment

The SWMC amendment strikes the HTRC amendment which reduced the percentage of severance tax bonds that could be used for severance tax bond debt service from 75 percent to 62.5 percent. It changes the percent that could be used for severance tax bond debt service to 68.75 percent. It expands the possible uses of supplemental bonds from public schools to public schools and post secondary institutions.

Fiscal Impact of SWMC Amendment

The fiscal impact of the SWMC amendments is to increase the dollars available for public schools and post secondary facilities from what would have been available under the bill as amended by HTRC. The bill would allow for about $180 million in projects over a 5-year period. This compares to $119 million that would have been possible if the HTRC amendment had remained in effect, and $241 million that would have been possible under the original provisions of the bill. The table at the top of page one shows the change in annual distributions between the bonding fund and permanent funds.

Synopsis of HTRC Amendment

The HTRC amendment shifted responsibility for the issuance of bonds from the NMFA to the state Board of Finance and reduced the percentage of severance taxes that could be used for severance tax bond debt service from 75 percent to 62.5 percent.

Fiscal Impact of HTRC Amendment

The fiscal impact of the HTRC amendment is to reduce the additional revenue available for debt service by half. This would reduce additional the bonding capacity $241 million to $119 million over five years. Conversely, it will increase the revenues reverting to the permanent fund.

Synopsis of Bill

House Bill 255 amends the severance tax bonding act to allow the issuance of supplemental severance tax bonds. Money in the severance tax bonding fund first would be pledged for the payment of principal and interest on severance tax bonds and second pledged for the principal and interest on supplemental severance tax bonds. Unlike severance tax bonds, which are issued by the Board of Finance, the supplemental severance tax bonds would be issued by the New Mexico Finance Authority (NMFA). The amount of supplemental bonds that the NMFA could issue would be constrained so that the aggregate debt service for both severance tax bonds and supplemental severance tax bonds could not exceed 75 percent of the annual revenue deposited into the severance tax bonding fund in the preceding fiscal year. The principal amount of bonds allowed would be further restricted to a maximum of $40 million in any fiscal year. Use of bond proceeds is effectively limited to school capital by a provision that restricts the NMFA to issuing and selling supplemental severance tax bonds only when so instructed by resolution of the public school capital outlay council.

FISCAL IMPLICATIONS

This bill would have the effect of increasing the amount of dollars available for capital spending. It would accomplish this by increasing the percentage of severance tax revenues that can be used to pay debt service on bonds from 50 percent to 75 percent. The additional dollars that are being made available to school capital, absent the proposed changes, would flow into the severance tax permanent fund. That is, additional bonding dollars come at the expense of a smaller distribution to the Severance Tax Permanent Fund. Based on the latest estimates provided by the Board of Finance, Severance Tax Bonding Fund revenues in FY 2000 and 2001 are projected to be $143.5 and $143.4 million. Assuming that the regular, senior severance tax bonds take half of this for debt service payments for those bonds, this leaves roughly $36 million available to be pledged for debt service on the new bonds. There is no immediate impact on the general fund, but there will be starting in FY2001 as the general fund will forego the interest earnings that would have been earned on these dollars had they been deposited in the permanent fund. The foregone revenue in that year would likely be somewhere about $830 thousand, assuming a 2.3 percent distribution from the severance tax permanent fund (2.3 percent is the rate assumed in the 5 year revenue estimate). This would grow over time as additional dollars are diverted to school capital and away from the permanent fund, and as the percentage rate distribution from the permanent fund increases as the phase-in period for the constitutional amendment governing permanent fund distributions is completed. The 5 year revenue estimate assumes that higher permanent fund distributions will begin in FY 2001 when the distribution from the fund will be 8.7 percent.

ADMINISTRATIVE IMPLICATIONS

The State Department of Education staff reports that this legislation would not significantly change the amount of time that they dedicate to the Public School Capital Outlay Council.

The cost of issuing bonds would be covered by bonds issues.

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