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

SPONSOR Salazar

ORIGINAL

DATE LAST

UPDATED

2/19/07

3/17/07 HB 914/aHBIC

SHORT TITLE Northern NM Economic Development Fund

SB

ANALYST Propst/Lucero

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

Fund

FY07

FY08

FY09

or Non-Rec

Affected

$20,000.0

$20,000.0 Recurring Northern New Mexico Economic

Development Fund

(Parenthesis ( ) Indicate Revenue Decreases)

* The earmark sunsets June 30, 2014. Because of this extended period, both the General Fund

loss from July 2007 through June 2014 and the General Fund gain from July 2014 forward would

be classed as recurring.

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07 FY08 FY09 3 Year Total Recurring

or Non-Rec

Fund

Affected

Personnel

$367.6 $367.6

$735.2

Other Costs

(Including Start-

Up Costs)

$42.0

$42.0

Total:

$409.6 $367.6

$777.2

Recurring

General

Fund

Duplicates SB 767

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

Department of Finance and Administration (DFA)

SUMMARY

Synopsis of House Business and Industry Committee Amendment

House Business and Industry Committee amendment to House Bill 914 addresses many of the

concerns raised in the original bill. The HBIC amendment:

House Bill 914/aHBIC – Page

2

1.

Removes the word “other" on page 2 line 3. This resolves the concern that distributions

from the fund were limited to money other than the distribution pursuant to Section 7-1-

6.55 NMSA 1978.

2.

Replaces “in communities in" on page 2 line 5 with “to political subdivisions that are

members of" which clarifies the definition of which communities and geographic

boundaries are eligible for disbursements from the fund.

3.

Adds on page 2, line 6 “and for costs of administering the fund" allowing the Local

Government Division (LGD) of the Department of Finance and Administration (DFA) to

use a portion of the fund for administrative costs.

4.

Adds on page 2, line 11 language which limits the administrative distribution to LGD to

no more than three percent of the money appropriated to the fund. If there is no

appropriation to the fund, then LGD can expend up to three percent of the balance in the

fund at the beginning of that fiscal year for administrative purposes.

5.

On page 2, line 17, replaces the word “From" and replaces it with a new subsection “A"

which allows for an exception to distributions from the fund should there be a reduction

in the state gross receipts tax generated by virtue of the Los Alamos National Laboratory

(LANL).

6.

Clarifies that the distributions made to the fund are “from net receipts attributable to the

gross receipts tax collected from a department of energy national laboratory that is

located in the north central New Mexico economic development district". This ties the

underlying revenue stream to the LANL gross receipts tax collected. This seems to

relieve the obligation to continue to provide $20 million to the fund from the general fund

should gross receipts tax collections from LANL be reduced.

7.

As mentioned above in item 5, the amendment provides for an exception to distributions

to the fund “[i]n any month that there is insufficient revenue to make a full distribution

pursuant to Subsection A of this section, the distribution shall be reduced to an amount

equal to the net receipts attributable to the gross receipts tax collected from a department

of energy national laboratory that is located in the north central New Mexico economic

development district for that month. A shortfall in the distribution may subsequently be

made up from the gross receipts tax collected in excess of the amount required to make a

distribution pursuant to Subsection A of this section".

Synopsis of Original Bill

House Bill 914 creates the Northern New Mexico Economic Development Fund and annually

appropriates $20,000.0 to the fund from the General Fund in FY08 through FY14. This non-

reverting fund would consist of future distributions, other appropriations, gifts, grants and

donations, as well as income from investment of the fund. Money in the fund could not be

transferred to another fund. The annual appropriation provided in HB 914 would be funded via a

monthly disbursement from the tax administration suspense fund of $1,666.667.

The fund would be used to provide grants to communities in the North Central New Mexico

Economic Development District, which we understand to be a regional governmental entity

created pursuant to the Joint Powers Agreement Act. According to its website, the district

currently encompasses the following counties: Colfax, Los Alamos, Mora, Sandoval, Rio Arriba,

San Miguel, Santa Fe, and Taos. (The north central New Mexico Economic Development

District website can be found at http://www.ncnmedd.com/index.htm.)

The fund would be administered and grants from the fund made by the Local Government

House Bill 914/aHBIC – Page

3

Division of the Department of Finance and Administration. HB 914 requires the Local

Government Division to develop grant award criteria in cooperation with the North Central New

Mexico Economic Development District.

Grants could be made for (i) water and wastewater projects; (ii) airport construction or

expansion; (iii) solid waste facilities; (iv) public transportation equipment and vehicles;

(v) telecommunications systems; and (vi) other economic development projects.

FISCAL IMPLICATIONS

HB 914 would earmark $20,000.0 annually from the General Fund for the Northern New Mexico

Economic Development Fund (Fund). This represents approximately 34% of the gross receipts

tax we anticipate the State will receive in FY08 as a result of management of the Los Alamos

National Laboratory changing from the University of California, which qualified for a gross

receipts tax deduction because it was a 501(c) (3) organization, to Los Alamos National Security,

Inc., a private company. This earmark expires in FY14.

The LGD will administer the Fund and all distributions from it. HB 914, however, provides no

appropriation to the LGD to cover its costs of administration. The LGD suggested that HB 914

be amended to allow it to recover its actual administrative costs from the fund, up to a maximum

of 3% of the appropriations to the fund in a given fiscal year or, in years when there are no

appropriations to the fund, 3% of the fund balance at the beginning of the fiscal year.

The LGD estimates that it would need the following additional staff to discharge its new duties

under HB 914: four Management Analysts-Advanced and two Financial Coordinators-Advanced.

The personnel cost figures in the “Estimated Additional Operating Budget Impact" subsection of

Section II are based upon the current median salary at the Local Government Division for these

positions; i.e.,

$42,448 per year for a Management Analyst-Advanced and $56,669 for a

Financial Coordinator-Advanced. Benefit costs were calculated at 30% of annual salary. Other

costs could include start-up costs, such as computers, furnishings, and the like, for these new

positions as well as on-going operational costs, such as telephone charges, postage, duplication,

rule-making costs, etc. Start-up costs are estimated at $7.0 per position, for a total of $42.0 in

FY08. Other costs cannot be reasonably anticipated at this time, but would not exceed the annual

cap proposed.

This bill creates a new fund and provides for continuing appropriations. The LFC has concerns

with including continuing appropriation language in the statutory provisions for newly created

funds, as earmarking reduces the ability of the legislature to establish spending priorities.

SIGNIFICANT ISSUES

DFA notes that HB 914 proposes that the State share its “windfall gain" from the new taxability

of the Los Alamos National Laboratory. This gross receipts taxability derives from the

management by Los Alamos National Security – a private company – instead of the University

of California, which qualified for a gross receipts tax deduction because it was a 501(c) (3)

organization. HB 914 would earmark approximately 34% of this anticipated revenue for

infrastructure projects in eight counties. If HB 914 is enacted, it can be anticipated that

individual local governments or consortiums of local governments will seek to have other State

revenue (e.g., oil and gas taxes) be earmarked for their regions because of their proximity to the

taxable transactions.

House Bill 914/aHBIC – Page

4

The LGD would award grants from the Fund, based upon criteria it develops in cooperation with

the North Central New Mexico Economic Development District. This vests discretion to award

over $20,000.0 annually in a single division of an executive agency. The LGD suggests that,

instead, HB 914 be amended to create a council comparable to the New Mexico Community

Development Council to make awards from the Fund. (The New Mexico Community

Development Council is created in the New Mexico Community Assistance Act, and given

power to determine the recipients and amounts of community development block grant awards.

Appropriately constituted, such a council would help ensure that grant awards are made based

upon a broad range of interests and perspectives.

Alternatively, functions envisioned for the LGD could instead be vested in the New Mexico

Finance Authority, whose membership already allows for a diverse range of interests and

perspectives.

The creation of the Fund has the potential to impact communities in a positive manner in

conformance with the mission statement of the Economic Development Department.

TECHNICAL ISSUES

DFA notes the following technical issues:

HB 914 does not define the “communities" that would be eligible to receive grants. In addition,

the membership in the North Central New Mexico Economic Development District is not set by

statute. Consequently, the underlying Joint Powers Agreement creating the district should be

consulted to determine whether existing members could be excluded against their will and

under

what circumstances (if any) other counties (e.g., Harding County or Bernalillo County) could

join the district. This is important because, if membership in this Joint Powers Agreement entity

is determined by existing and would-be members, local governments themselves – rather than

the Legislature – would determine who is eligible for grants from the fund.

Section 2 of HB 914 enacts a new section of the Tax Administration Act, Section 7-1-6.55

NMSA 1978, which requires a monthly distribution from the tax administration suspense fund of

$1,666.667, pursuant to Section 7-1-6.1 NMSA 1978. Unlike other regular distributions from the

tax administration suspense fund required by Sections 7-1-6.2 through 7-1-6.54, this new

distribution is not tied to the underlying revenue stream, in this case the State gross receipts tax

generated by virtue of the Los Alamos National Security, Inc. managing the Los Alamos

National Laboratory. Among other things, this means that, should anticipated laboratory gross

receipts tax revenue fall short, distributions to the Northern New Mexico Economic

Development Fund will come from other General Fund revenue that potentially bears no

connection to the region being benefited.

Section 2 of HB 914 authorizes a disbursement to the Northern New Mexico Economic

Development Fund but does not expressly appropriate money to the fund. Moreover, Section

1(B) of HB 914 provides that “all other money in the fund is appropriated to the division to make

grants for infrastructure projects in communities in the north central New Mexico economic

development district." The “other" before “money" could be read as limiting the appropriation

for grants to money other than the distribution pursuant to Section 7-1-6.55 NMSA 1978.

House Bill 914/aHBIC – Page

5

DUPLICATION

SB 767 is a duplicate.

AMENDMENTS

DFA suggested the following amendments:

Lack of Definitive Definition of Eligible Communities and Geographic Boundaries.

Assuming the

Legislature wanted to target the existing members of the North Central New Mexico Economic

Development District, HB 914 could be amended to provide that all political subdivisions within

the following counties are eligible to receive grants from the fund: Colfax, Los Alamos, Mora,

Sandoval, Rio Arriba, San Miguel, Santa Fe, and Taos.

Local Government Division Administrative Costs.

HB 914 vests responsibility for a $20,000.0

program in the LGD without appropriating to it any money with which to meet the new

responsibility. HB 914 should be amended so as to appropriate to the LGD from the Fund an

amount sufficient to cover its actual administrative costs from the fund, with such expenses being

capped at 3% of the appropriation to the fund in a given fiscal year or, in years when there are no

appropriations to the fund, 3% of the fund balance at the beginning of the fiscal year. This money

should be appropriated to the Division. Any unreserved unallocated balance for administrative

costs remaining at the end of the fiscal year should revert to the Fund or to the General Fund.

Distribution Limited to Los Alamos National Laboratory Gross Receipts Tax Revenue.

Section 2

of HB 914 ought to be amended to (i) require that the proposed monthly distribution be paid

exclusively from State gross receipts tax generated by virtue of the Los Alamos National Security,

Inc. managing the Los Alamos National Laboratory; (ii) that, in the event there is insufficient

revenue to make a full distribution, the amount of the distribution shall be reduced to the amount of

available revenue; and (iii) monthly shortfalls can be made up in subsequent months, revenue

allowing.

Clarifying “Other Economic Development Projects".

Clarification should be considered that would

outline allowable expenditures under “other economic development projects". In addition, to the

extent it is envisioned that such projects will be pursuant to the Economic Development Act, “other

economic development projects" should be amended to read “other economic development

projects, such projects to be in accordance with the Economic Development Act, to the extent

applicable."

Creating Council to Award Projects/New Mexico Finance Authority.

A council, analogous to the

New Mexico Community Development Council, should be created to award grants. Alternatively,

the functions envisioned for the Local Government Division could instead be vested in the New

Mexico Finance Authority.

Appropriation Language.

Section 2 of HB 914 could be amended by adding the following

language after the existing text: “This amount is appropriated to the northern New Mexico

economic development fund for expenditure in accordance with all applicable laws and

regulations." Similarly, language giving the authority for the LGD to spend up to 3% of the

balance of the fund for administration should be adopted (see above). Section 1(B) of HB 914

could be amended by striking “other" on page 2, line 3, so that the pertinent text would read “all

House Bill 914/aHBIC – Page

6

money in the fund is appropriated to the division to make grants for infrastructure projects in

communities in the north central New Mexico economic development district."

WEP/DL/mt