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 Expenditure Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

LFC Files

New Mexico Public Schools Insurance Authority (PSIA)

Risk Management Division (RMD)

SUMMARY

Synopsis of Bill

This bill would allow state educational institutions described in Article 12, Section 11 of the New Mexico constitution to exit the RMD's public liability fund (PLF) and to self insure or purchase insurance outside of the fund. It requires the governing body to reimburse the PLF for any amount paid on behalf of the institution exceeding the sum of the total premiums paid to the PLF by the institution plus interest earned on the premiums, providing reimbursement does not create financial hardship on the institution. If RMD and the governing body cannot agree on a reimbursement plan, the plan would be developed through hiring a single arbitrator. If an entity exits the PLF, reentry is prohibited for two years. SDE would be required to withhold budget approval if appropriate amounts to cover risk have not been budgeted by an educational entity.

Significant Issues

This bill would give educational institutions greater flexibility in arranging liability insurance through self insurance or insurance by non-RMD liability insurance providers. For example, according to PSIA, none of the state colleges or universities participate in the PSIA risk program currently, but this bill would allow these entities to participate in this program.

According to RMD, the bill would decentralize the state's risk management program, impairing the state's ability to analyze, control and prevent loss. It does not assure the presence of a level of expertise or experience required to successfully self insure and administer risk management functions, thus raising the potential for additional claim payment costs and claim administration costs. RMD further wrote that the bill does not mandate that equal or superior coverage be obtained or that equal or lesser coverage cost be achieved. The cost of arbitrating the inevitable differences between RMD and educational institutions will be a financial burden to both entities and to taxpayers. RMD anticipates that the cost of duplication of claim adjustment and administration would be high.

FISCAL IMPLICATIONS

According to RMD, service duplication and increased claim costs would result in an increase of taxpayer liability in excess of $1 million annually. RMD reports that local public bodies experienced a $500.0 increase in coverage costs when they left the PLF.

ADMINISTRATIVE IMPLICATIONS

RMD anticipates that this bill will negatively impact that agencies loss prevention, claim control and fund administration activities.

PSIA anticipates a need for additional analysis in the event that any educational institutions applied to enter the PSIA program. Additional work would be performed by the PSIA staff and vendors.

DH/gm