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.

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(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

State Department of Education (SDE)

LFC Files

SUMMARY

Synopsis of Bill

Senate Bill 238 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 around $3.6 million, assuming a 10 percent return on investment. This would grow over time as additional dollars are diverted to school capital and away from the permanent fund.

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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