Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Muñoz
LAST UPDATED
ORIGINAL DATE 2/17/25
SHORT TITLE Defining State Reserves
BILL
NUMBER Senate Bill 227
ANALYST Gray/Torres
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected
No fiscal
impact
No fiscal
impact
No fiscal
impact
No fiscal
impact
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Agency Analysis Received From
New Mexico Attorney General (NMAG) Department of Finance and Administration (DFA)
Sources of Information
LFC Files
Because this bill has not been endorsed, LFC has not solicited any input from state, education, or
judicial agencies. This report could be updated if that analysis is received.
SUMMARY
Synopsis of Senate Bill 227
Senate Bill 227 (SB227) defines which state funds should be considered reserve funds.
Currently, state statute does not centrally define which funds are reserves and instead defines
reserves through a decentralized patchwork in each separate fund statute. SB227 adds the
government results and opportunity expendable trust as a reserve fund in FY26 and beyond while
providing a central definition of reserve fund in statute.
SB227 defines state reserves as the following funds:
Appropriation contingency fund,
General fund operating reserve,
Government results and opportunity expendable trust,
State-support reserve fund, and
Tax stabilization reserve.
This bill does not contain an effective date and, as a result, would go into effect 90 days after the
Legislature adjourns, or June 20, 2025, if enacted. Senate Bill 227 – Page 2
FISCAL IMPLICATIONS
By practice, each of the funds the bill includes in the definition of reserves are currently invested
very conservatively to reflect their reserve status. Accordingly, there will be no change in how
they are invested and there will be no revenue impact.
Under current law, the state will only count the government results and opportunity expendable
trust as a reserve fund for one year (FY25). SB227 would include the fund permanently in the
calculation of reserves, adding at least $500 million, if not more, to the reserve calculation in
FY26, depending on the final revenues and spending adopted during the 2025 and 2026
legislative sessions. This would boost the bottom-line reserve percentage by at least five percent.
SIGNIFICANT ISSUES
The New Mexico Constitution mandates a balanced budget, requiring the state to maintain
general fund reserves to offset potential shortfalls in revenue or unexpected expenditure
increases. These reserves serve as a safeguard to ensure fiscal stability and continuity of
government operations.
Best practices outlined by the Pew Charitable Trusts and the Volcker Alliance recommend that
reserve funds be highly liquid and subject to controlled obligations to ensure their effectiveness
in mitigating fiscal risk. Most of the funds designated as reserves in this bill meet these criteria.
However, the government results and opportunity expendable trust makes annual distributions
equal to 25 percent of the balance of the fund for programmatic uses and appropriations, likely
more than $125 million a year. Because this fund experiences large inflows and outflows, the
balance could fluctuate substantially, leading to volatility in the state's reported reserves. This
variability may create the appearance of financial instability, potentially affecting the state’s
creditworthiness as perceived by bond rating agencies, bond buyers, and the public. Given the
unpredictability of fund balances and the absence of restrictions ensuring their availability solely
for reserve purposes, these funds do not align with national best practices for state reserve
management.
The Department of Finance and Administration adds:
Strong reserves are essential to the state’s credit standing, particularly given its weaker
demographic metrics—such as income levels, population growth, and poverty rates—
compared to peer states, as assessed by bond rating agencies. Additionally, the state’s
reliance on historically volatile oil and gas revenues underscores the importance of
maintaining robust reserves. In recent years, the state has aimed for a 30% reserve level.
Reducing reserves significantly below this target, especially when revenues are at historic
highs, could be viewed negatively by rating analysts.
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