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F I S C A L I M P A C T R E P O R T

SPONSOR Silva

ORIGINAL DATE

LAST UPDATED

01/26/07

03/12/07 HB 253/aHTRC/aSFC

SHORT TITLE NMFA Economic Development Fund Projects

SB

ANALYST Kehoe

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

N/A

(See Fiscal Narrative)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

Attorney General’s Office (AGO)

Economic Development Department (EDD)

SUMMARY

Synopsis of SFC Amendment

The Senate Finance Committee amendment to House Bill 253, as amended, adds a provision to

require certain requirements for entities to qualify for assistance from the economic development

revolving fund. In order to qualify for assistance from the fund, “eligible entities shall waive

state and federal confidentiality laws or provisions, including the provisions of Section 6-25-27

NMSA 1978 to the extent needed to comply with the annual reporting requirements. The

authority shall report annually to the NMFA Oversight Committee, the governor and the

Legislature for each project approved during the previous calendar year such information as may

be required to allow evaluation of the effectiveness of the program, including the name of the

company, the project location, the amount of the state loan and the number of jobs created, as

well as the status of all outstanding loans." The amendment makes other technical adjustments

to the bill.

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amendments to House Bill 253 seek legislative

authority for the New Mexico Finance Authority to provide financial assistance to an additional

60 private projects from the economic development revolving fund. Amendment number 118

House Bill 253/aHTRC/aSFC -- Page

2

does not specify the type of project, but rather seeks legislative authority for a project identified

only as a “mixed-use development" project in Grant County

Synopsis of Original Bill

House Bill 253, introduced for the New Mexico Finance Authority Oversight Committee,

authorizes the New Mexico Finance Authority to provide financial assistance for 69 private

projects in 25 counties from the economic development revolving fund in the form of loan

participations with private lenders not to exceed five million dollars ($5,000,000) per project

subject to certain terms and conditions as set forth by NMFA.

FISCAL IMPLICATIONS

Laws 2003, Chapter 349, enacted the Statewide Economic Development Finance Act authorizing

creation of a Statewide Economic Development Finance Program (Smart Money), creation of the

economic development revolving fund, and authorizing NMFA to issue certain Economic

Development Bonds and make loan participation and loan guarantees on behalf of entities

engaged in qualifying economic development projects. The fund was not initially capitalized.

However, Laws of 2005, Chapter 347, appropriated $10 million for the “Smart Money" loan

participation program to capitalize the economic development revolving fund. The 2006

Legislature authorized 48 projects to potentially receive financial assistance from the economic

development revolving fund. To date, NMFA has obligated $4.3 million for business attraction,

retention and expansion projects in Alamogordo, Albuquerque and Raton. The NMFA indicates

it has ten additional projects in line for the remaining funds totaling $5.7 million.

The 69 projects authorized within House Bill 253 would allow the private entities seeking $675

million in business financing to be eligible to receive financial assistance from the economic

development revolving fund. House Bill 252, a companion bill to House Bill 253, seeks a

general fund appropriation of $30 million to fund the projects authorized in this bill. The

executive capital outlay recommendation supports the $30 million to fund the Smart Money

program.

The NMFA will leverage the capital by partnering with private banks and institutions so that

loans from the fund finance no more than 49 percent of a total project. The program is designed

to match the risk-need with appropriate financing arrangements. In a rural area, for example,

local lenders may be constrained by legal lending limits and out-of-area lenders may be

uncomfortable with the location. Regardless of the reason, the program will bridge the gap and

give businesses in all areas of the state access to affordable capital. Some projects may only

need introductions to lenders while others may need direct guarantees.

The NMFA will estimate the overall economic impact of each project by analyzing the long-term

economic diversification, the increase in revenue to the state, job creation, and geographical

location to determine priority of funded projects. EDD expects the economic impact of the

original $10 million appropriation to create one thousand jobs, $75 million in new plant and

equipment, $420 million in new wages and salaries over the next decade, and $50 million in

added state income and gross receipts taxes

House Bill 253/aHTRC/aSFC -- Page

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SIGNIFICANT ISSUES

In June 2006, NMFA approved Los Alamos National Bank request for the Authority’s

participation for up to 49 percent in each of two loans not to exceed $5 million to Advent Solar,

Inc. located at Mesa Del Sol Development in Albuquerque. The financing is for an equipment

loan in the amount of $3 million and a revolving line of credit for working capital in the amount

of $2 million. Advent solar is a new manufacturer of innovative solar cells and modules. Its

technology was originally developed and licensed by Sandia National Laboratories. According

to NMFA, the company anticipates creating an additional 900 full-time jobs over the next 10

years with an average salary of $46,000, stimulating the creation of an additional 962 indirect

jobs and a total of $530 million in new wages and an estimated $432 million in new taxable

gross receipts.

In June 2006, NMFA approved International Bank request for the Authority’s 49 percent

participation in three loans for Western Wood Products, Inc., in an aggregate amount not to

exceed $2 million for construction of a pressure treatment facility in Raton. The proposed

treatment plant will allow Western Wood Products, Inc. to participate in direct sales of finished

products to commercial and consumer markets. The facility will comply with Environmental

Protection Agency standards. The company expects to create 27 full-time jobs and increase

wages from the current $8.00 per hour to an average of $12-$15 per hour. According to the

company’s economic analysis, the new facility will generate an additional 24 indirect jobs, for a

total of $13.5 million in new wages paid over the next ten years.

In April 2006, NMFA approved Alamogordo Federal Savings request for the Authority’s 25

percent participation in three loans for PreCheck, Inc. in an aggregate amount not to exceed $4.5

million to finance the construction and equipping of a new facility in the Mesa Village

subdivision in Alamogordo and to provide working capital. The company performs background

and payroll verification checks and performs credentialing for medical institutions nationwide.

The Legislature appropriated a $1.5 million capital appropriation requested by the governor for

infrastructure improvements for public areas neighboring the project, the City of Alamogordo

pledged a contribution of $625 thousand toward the project over the next five years, and the

developer and company will donate 1.5 acres of land to the city to build a fire station. The

company expects to create at least 200 jobs over the next five years beginning at average salaries

of $28,500 annually.

In accordance with the Act, NMFA has adopted rules, regulations and policies for administration

of the Smart Money program. In administering the loan participation program, NMFA will

generally rely on the bank’s underwriting process and assign a risk premium comparable to that

assigned by the private lender (e.g., bank lends at Prime plus 200 basis points, NMFA will likely

lend at treasury plus 200 basis points.). NMFA will review the bank’s interest rate and risk

analysis, perform its own quantitative analysis to assure conformance with banking industry

standards and NMFA policies. To ensure the integrity of loans and protect the State’s money, a

claw back provision will be required in the loan participation agreement that will include an

interest rate escalator that can be enacted if the business is not meeting stated economic impact.

Periodic reporting to NMFA by the originator is required.

ADMINISTRATIVE IMPLICATIONS

EDD reports the funding of these projects will require additional outreach and marketing costs to

House Bill 253/aHTRC/aSFC -- Page

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the EDD to attract Smart Money participants.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 253 duplicates Senate Bill 221 in its entirety.

House Bill 252 proposes an appropriation of $30 million to fund projects authorized by House

Bill 253.

OTHER SUBSTANTIVE ISSUES

EDD reports the approval of these 69 projects will provide NMFA the tools to utilize the $30

million in HB 252 and seek investors for the New Markets Tax Credit application. The Smart

Money program will seek to provide capital to businesses in the underserved areas of New

Mexico. Smart Money is designed to bridge a company’s financial gap and give businesses

access to affordable capital.

There are over 164 Smart Partner banks located throughout the State. EDD serves as the primary

interface with business and economic developers and determines business eligibility. NMFA’s

role is the primary interface with the Smart Partner Banks. NMFA analyzes and structures

applications for funding submitted by Smart Partner Banks and serves as the state’s fiduciary

agent in this loan transaction.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

EDD believes failure to pass this bill will limit the ability of local communities to create jobs and

new investment with the expansion of existing businesses and the attraction and start-up of new

businesses.

LMK/nt