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

SPONSOR Lujan, B.

ORIGINAL DATE

LAST UPDATED

2/25/07

3/02/07 HB 1180/aHTRC

SHORT TITLE Public-Private Facility Bond Financing

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

NFI

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with HB 330, HB 968, SB 313

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Higher Education Department (HED)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HTRC Amendment

By changing the definition of a “local government", the House Taxation and Revenue

Committee amendment to House Bill 1180 limits participation in the provisions of the public-

private facilities revenue bond act to “home rule" municipalities, municipalities with a

population of at least 25 thousand in the most recent decennial census, and class A and H

counties.

Municipalities with populations over 25 thousand include Alamogordo, Albuquerque, Carlsbad,

Clovis, Farmington, Hobbs, Las Cruces, Rio Rancho, Roswell, and Santa Fe. Additional home

rule municipalities are Gallup and Grants. Class A and H counties are Bernalillo, Dońa Ana, San

Juan, Santa Fe, and Los Alamos.

House Bill 1180/aHTRC – Page

2

Synopsis of Original Bill

House Bill 1180 creates the public-private facilities revenue bond financing act. The purpose of

the act is to provide a program to help local governments acquire and finance public facilities to

be used in partnership with private entities. A “private partner" is defined as a corporation,

limited liability company, partnership, joint venture, syndicate, association or other person

engaged in an “eligible enterprise."

An “eligible enterprise" is defined as 1) an industry that manufactures, processes or assembles

agricultural or manufactured products, 2) a commercial enterprise for storing warehousing,

distributing or selling agricultural or mining products, 3) a business involved in supplying

services, office space or other facilities to the general public or to governmental agencies or a

specific industry, 4) a business that produces film or other visual or electronic media, or 5) a

business that develops, redevelops or improves real property.

The act will allow local governments to issue bonds to finance all or part of the costs of a

“project," which is defined as land and land improvements, buildings and building

improvements, machinery and equipment, operating capital and other personal property

necessary to complete the project. Local governments will be allowed to acquire, own, lease, or

otherwise dispose of its interest in a project. Bonds issued pursuant to the act will be exempt

from state tax, will not be general obligations, and may be issued for terms of up to 30 years.

Bonds will be payable from “net project revenue," which is defined as revenues derived from the

lease, operation, sale or other disposition of a project after deducting reasonable costs of

operating and maintaining the project. Local governments may also choose to repay bonds from

the municipal share of state gross receipts tax collections, municipal local option gross receipts

taxes, the first or third 1/8 increment of the county local option gross receipts tax, or the county

infrastructure or county capital outlay gross receipts tax.

Bond proceeds will be restricted for use only for the purpose for which the bonds were issued

and for costs of acquisition, construction or other project improvement. Uses include

construction, architectural, engineering, appraisal and attorney fees, the project’s purchase price,

the costs of extending utility service to the project, bond issuance expenses, and bond interest.

Prior to issuance of bonds, a local government will be required to determine the amount

necessary in each year to pay bond principal and interest, the amount necessary in each year to

pay into any reserve funds deemed necessary, and the estimated cost maintenance cost for

projects for projects that the local government will be responsible for maintaining.

Issuing bonds will require a local government to adopt an ordinance that declares the bonds

necessary. The ordinance must be approved by 75 percent of a municipality’s governing body or

66 percent of a county’s governing body. The local government must also determine that the

project will generate net project revenues sufficient to pay principal and interest of the bonds.

Local governments that issue bonds will be allowed to lease the project to a private partner if the

rents provided in the lease will be great enough to pay principal and interest on project bonds,

accumulate and maintain any reserve deemed advisable, pay the costs of maintaining and

insuring the project, and provide a revenue stream to the local government that is adequate to

serve its interests in doing the project. Upon expiration of the lease, the project may be sold to

House Bill 1180/aHTRC – Page

3

the leasing private partner of its fair market value.

The bill also provides that bonds issued pursuant to the new act may be refunded by a local

government at any time.

Projects entered pursuant to the new act will be exempt from the procurement code. Instead, the

projects will be subject to similar provisions deemed necessary by a local government. Local

government property related to this new act will also be exempt from state statutory restrictions

on disposal of property. Finally, local governments leasing projects pursuant to the new act will

not require approval from the State Board of Finance.

Because the bill has no effective date, its provisions will become effective 90 days after the

legislature adjourns on June 15, 2007.

FISCAL IMPLICATIONS

The bill does not change the amount of local option gross receipts tax New Mexico’s local

governments are authorized to impose. The bill does allow local governments to increase the

amount of debt they carry.

SIGNIFICANT ISSUES

DFA notes it is unclear whether income from the bonds issued pursuant to the new act will be

exempt from federal taxation. If projects built with the bonds authorized in this bill received

federal tax-exempt status projects will be less expensive to service.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 1180 conflicts with House Bill 330, House Bill 968 and Senate Bill 313 which also

amend Sections 13-6-2 and 13-6-2.1 NMSA 1978.

OTHER SUBSTANTIVE ISSUES

Due to the dependence of some local economies on a few industries, local gross receipts tax

collections may be volatile. Local governments could encounter problems making debt service

payments if they rely too heavily on gross receipts tax revenues instead of net project revenues.

SS/nt:csd