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)

Conflicts with: House Bill 501, Senate Bills 427, 515, and 533 make other proposals for the use of tobacco money.

SOURCES OF INFORMATION

Health Policy Commission

NM Attorney General Reports

LFC Files

SUMMARY

Synopsis of Bill

House Bill 525 provides a plan for the use of the money resulting from the settlement reached between the states' attorneys general and the tobacco industry. The bill establishes the following:

• •It creates a tobacco settlement trust fund to receive 35 percent of the money that will flow from the tobacco settlement. The fund is to be managed by the State Investment Council in the same way that it manages the Land Grant Permanent Fund. Money in the fund may not be expended for any purpose. However half of the interest earnings from the funds is distributed to the tobacco settlement health fund and half remain in the corpus of the permanent fund.

• •It creates a tobacco settlement health fund and provides that the fund will receive 65 percent of the money transferred to the state from the tobacco settlement plus half of the tobacco settlement trust fund's interest earnings. Money in the health fund is to be appropriated by the legislature with 90 percent of the money earmarked to health related programs and services and 10 percent earmarked to smoking prevention and cessation programs and services.

FISCAL IMPLICATIONS

It is unlikely that there will be a fiscal impact to FY99 or FY2000 from this legislation. While, the state is slated to receive a $14 million settlement payment this fiscal year and $38 million in FY2000, there is some uncertainty as to when those payments will actually be received. The NM attorney general's office has reported to staff that the uncertainty results from legal issues in the settlement that could delay final approval of the settlement until at least 80 percent of the settling states, representing 80 percent of the dollars included in the settlement, have achieved "state specific" finality. This might happen soon or it may be delayed until the end of FY2000.

The recurring revenue impact shown in the table under the subsequent years column represents the FY2001 impact. The loss to the general fund is the result of diverting the tobacco settlement dollars from the general fund to the tobacco settlement trust fund and the tobacco settlement health fund. The way in which the tobacco settlement dollars are divided between the two funds and the sharing of revenues from trust fund's interest earning was developed to provide a fairly constant revenue stream to the health fund while allowing the trust fund to develop a corpus sufficient to provide revenues when the tobacco settlement payments might end. (Note: the tobacco settlement actually calls for payments into perpetuity, but there are contingencies that would end the payments earlier.)

The attached spread sheet provides the expected long term outlook for the funds. The revenue assumption used in developing the spreadsheet is that actual revenues will be 10 percent lower than what is called for in the settlement. This is based on the contingency that allows for lower payments if cigarette sales decrease. Cigarette sales are expected to decrease as a result of recent average 25 percent increase in price. Trust fund growth assumes that the fund earns an average 8 percent return, the long-run historical average for the permanent fund. As a result of these assumptions, the Trust fund corpus has $631 million in FY2025, allowing an average $50.5 million distribution thereafter while maintaining the corpus whole.

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