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
Sen. Gonzales/Reps. Borrego and
Gonzales
LAST UPDATED
ORIGINAL DATE 2
/11/2025
SHORT TITLE
Public Employees Retiree Health Care
Funds
BILL
NUMBER
Senate Joint
Resolution 2
ANALYST Simon
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected Election Costs $35.0 to $50.0 $35.0 to $50.0 Nonrecurring General Fund
Retiree Health
Liabilities to the
State
Up to
$1,360,017.6
Nonrecurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
Retiree Health Care Authority (RHCA) State Investment Council (SIC)
SUMMARY
Synopsis of Senate Joint Resolution 2
Senate Joint Resolution 2 (SJR2) proposes an amendment to the New Mexico Constitution
creating a vested property right for public employees who meet minimum service requirements
of the state’s Retiree Health Care Authority (RHCA). The proposed amendment would provide
the retiree healthcare fund could only be used to benefit members and retirees and provides
RHCA’s board with the “sole and exclusive fiduciary duty and responsibility” for administration
and investment of the fund and for adopting actuarial assumptions. The amendment makes clear
future modifications to enhance the soundness of the healthcare plans are permitted.
The joint resolution provides the amendment be put before the voters at the next general election
(November 2026) or a special election called for the purpose of considering the amendment. The
amendment would only be effective if approved by voters.
FISCAL IMPLICATIONS
Under Section 1-16-4 NMSA 1978 and the New Mexico Constitution, the Secretary of State
(SOS) is required to print samples of the text of each constitutional amendment in both Spanish Senate Joint Resolution 2 – Page 2
and English in an amount equal to 10 percent of the registered voters in the state. SOS is required
to publish the samples once a week for four weeks preceding the election in newspapers in every
county in the state. Further, the number of constitutional amendments on the ballot may impact
the ballot page size or cause the ballot to be more than one page, also increasing costs. The
estimated cost per constitutional amendment is $35 thousand to $50 thousand, depending on the
size and number of ballots and if additional ballot stations are needed.
SJR2 would supersede current statutory provision related to retiree healthcare benefits. When
setting up the authority in the 1990s, the Legislature included provisions attempting to limit state
liabilities for the retiree healthcare program. Section 10-7C-3 NMSA 1978 states:
The legislature does not intend for the Retiree Health Care Act to create a trust
relationship among participating employees, retirees, employers and the authority
administering the Retiree Health Care Act nor does the legislature intend to create
contract rights which may not be modified or extinguished in the future; rather the
legislature intends to create, through the Retiree Health Care Act, a means for
maximizing health care services returned to the participants for their participation under
the Retiree Health Care Act.
Further, the law currently states:
The legislature further finds and declares that nothing in the Retiree Health Care Act shall
prohibit the legislature from increasing or decreasing participating employer and
employee contributions, eligible retiree premiums or group health insurance coverages or
plans, and that participation in the Retiree Health Care Act by retired and active public
employees shall not be construed to establish rights between the retired and active public
employees and the state for health care benefits which cannot be modified or
extinguished in the future to meet changes in economic or social conditions.
SJR2 would overturn these provisions and create a vested property right with due process
protections under the federal and state constitutions. As a result, SJR2 could commit taxpayers to
continuing to fund these benefits. When the authority was created, retired public servants began
receiving benefits without any material pre-funding of plan costs. While both active employees
and their employers make contributions to the retiree healthcare fund, the fund has never held all
of the assets it needs to pay future benefits. As of June 30, 2024, RHCA reported $1.784 billion
in unfunded liabilities, for which the state’s share is currently 23.8 percent, or about $405
million. The remainder, about $1.360 billion, is allocated to local government and school
districts that participate in the plans. RHCA has been successful at building the fund’s value over
time. Growing from $579 million in FY17 to $1.6 billion in FY24. The plan’s funded ratio
increased from 11 percent to 47 percent.
Notably, the proposed constitutional amendment does not include protections against
underfunding the plans, which are present in the current constitutional provisions for the pension
plans. That provision states:
The legislature shall not enact any law that increases the benefits paid by the system in
any manner or changes the funding formula for a retirement plan unless adequate funding
is provided.
While this provision provides the Legislature flexibility to change how the plan is funded, it
could present problems depending on how the courts interpret the member’s vested property
right. Should the constitutional protections created by SJR2 lead to findings public employees Senate Joint Resolution 2 – Page 3
are entitled to receive a certain level of benefit in retirement, the lack of a provision to prevent
underfunding may present challenges to the board to address the underfunding. However, the
exclusion of this provision is likely critical due to a current distribution to the retiree healthcare
fund from the tax suspense fund. For FY26 the fund will receive $58 million, but that amount
increases by 12 percent per year. By FY31, that amount will grow to $102 million, making it one
of the state’s largest tax expenditures, comparable to the medical and healthcare services GRT
deduction or the film and television production tax credit.
Analysis from RHCA notes the plan’s current liability and suggest, if the fund is used for a
purpose other than intended, it could lead to rising costs for the state. Should the fund be used for
other purposes:
Both retirees and active employees would likely pursue lengthy legal action against the
state to protect their benefits. Safeguarding these funds is also essential for maintaining
the financial stability of the participating governmental entities. Misusing the fund could
deplete resources, increase liabilities, and negatively impact the bond ratings of these
entities, which include state, county, and city governments.
SIGNIFICANT ISSUES
Created in 1990, RHCA was designed to enable public sector retirees to access the health
insurance market. Legislative findings included in the act noted “public employees face a severe
problem in securing continuing medical insurance” and the purpose of the act was to provide
benefits to retirees and their dependents using both the retiree healthcare fund and copayments
from members. While the Legislature acknowledged the expectation of future benefits, it
provided those expectations could be modified from year-to-year, provided the modifications
were “reasonably calculated to result in the least possible detriment to the expectation.”
Currently, state law requires the state investment officer to invest the authority’s long-term
reserves and requires the state treasurer to invest other reserves. This differs from how New
Mexico’s pension funds manage investments, which involves hiring in-house investment staff.
The resolution provides both that the trust fund be invested and administered as provided by law,
to the extent consistent with the resolution. However, the resolution also provides the board the
“sole and exclusive fiduciary duty and responsibility for the administration and investment of the
trust fund.” While the board does not appear to contemplate shifting from an investment
portfolio managed by SIC, it is unclear if the current statutory requirement that SIC manage
investment would be consistent with this section if a future board were to wish to hire
independent investment managers. Analysis from SIC notes RHCA is currently the largest client
for the system’s government client pooled investment, and the board takes an active role in
managing its investment portfolio.
While SJR2, if approved by the voters, would institute protections for retiree healthcare benefits
similar to those provided for pension recipients, the current method for setting benefits levels
varies. Retirement benefits are based on statutory formulas, set by the Legislature and signed by
the governor. Current law allows the board to “promulgate and adopt rules and regulations
governing eligibility, participation, enrollment, length of service and any other conditions or
requirements for providing substantially equal treatment to participating employers.” (See 10-
7C-7 NMSA 1978). This provides the board with the necessary tools to manage the plan’s
liabilities, something the board has carefully managed. Additionally, the board is given the
power to set premium rates for the plan. (See 10-7C-13 NMSA 1978). However, should the Senate Joint Resolution 2 – Page 4
benefits provided by the plan be elevated to a constitutionally protected right, the Legislature
may wish to consider whether benefits could be changed without an act of the Legislature.
ALTERNATIVES
While analysis from RHCA briefly notes the resolution, if approved by the voters would “affirm
certain property rights,” much of the RHCA analysis focuses on the prohibition on diverting
funds in the retiree healthcare fund for another purpose. If the intent of the resolution is to
prohibit diversions, this could presumably be accomplished without creating a new property
right.
JWS/hg/sgs