BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  3

DATE:  February 19, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB - 737

SPONSOR: Representative Russell

BILL SHORT TITLE: Change the distribution formula for a portion of the state shared gross receipts tax to be based on local income.

DESCRIPTION: This bill takes away .225% of taxable gross receipts distributed to municipalities and redistributes that amount on a new formula based on aggregate personal income attributed to a particular municipal jurisdiction. The amount of the alternative distribution is .275% of total AGI for the jurisdiction. The bill provides for a hold-harmless, in which any municipality will receive no less than it would under the gross receipts tax distribution. The untested formula of 7-1-6.4 NMSA that provides for a general fund makeup for bond repayment jeopardized by the decrease from 1.225% to 1.0% is expanded to include this situation. The income that will be used to populate the alternative calculation table is based on the taxable year two years prior to the calendar year in which the distribution is being made. Thus, distributions to municipalities beginning February 1, 2002 will be based on tax returns for the 2000 tax year, filed in the spring, summer and fall of 2001. The cut-off date for the calculation is returns filed before November 30.

EFFECTIVE DATE: January 1, 2002. Because of the alternative calculation is tested against the gross receipts tax distribution of January 2002 GRT collections, the first municipal warrant to reflect the change will be of February collections mailed to local governments on March 15, 2002. 

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:

		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(2,020)	(4,840)	Recurring	General Fund	
Worst Case	(1,400)	(3,360)	Non-recurring	General Fund	
	2,020	4,840	Recurring	Municipalities	
Best Case	1,400	3,360	Non-recurring	Municipalities	

This fiscal impact analysis is based on gross receipts tax data projected to FY 2002 and FY 2003 and income tax data from 1998 tax returns with amounts inflated to TY 2000 and TY 2002 levels, respectively. An exhibit by municipality is appended to this review. The “worst case” and “best case” scenarios are created by timing and processing issues. (See TECHNICAL ISSUES #1 for more explanation). These are classed as “non-recurring” since they are not predictable as to timing or magnitude. 

ADMINISTRATIVE IMPACT: This proposal has been carefully designed to minimize administrative burden. The programming will not be trivial, but should be possible to accomplish without additional resources and within the time allowed. Because the new CRS TRIMS system is coming on line about June, 2001 and will require a number of fixes and additions in the first six months of life, this alternative distribution may be implemented on a personal computer. This will be accurate, but may delay the mailing of warrants by as much as three days. By June 2003, the alternative calculation can be fully automated, and warrant mailing will revert to the previous schedule.

TECHNICAL ISSUES:
1.	The fiscal impact of this bill cannot be estimated with any accuracy, because it depends on the way the calendar falls and how TRD equipment is behaving in any particular month. Each month, the actual amount of gross receipts tax collections attributable to a rate of .225% is compared to  1/12 or .275% of a certain number. The .225% side of the comparison is subject to economic, filing frequency, calendar and processing vagaries. It could happen – circumstances creating the problem have occurred in the past -- that a city for one month would benefit from the alternative income-based calculation because some gross receipts were not received or processed timely.  In the next month the gross receipts comparison would set the distribution, since the money not distributed as gross receipts tax the previous month would be available for distribution. 
2.	Ordinarily, tax returns are due April 15 with four and six-month extensions of time to file available. Six months after April 15 is October 15. Thus, a cutoff date of October 15 might be more in keeping with the spirit of administrative cooperation than November 30. October 15 would give the Department 30 days to process and perfect returns postmarked October 15, two weeks to engineer the extract of PIT records by ZIP code and city, and 30 days or more to embed the income table in the CRS system prior to a production deadline of February 12. Waiting until November 30 for a primary cutoff would crowd the process unnecessarily.
3.	The Department does not now ask for the precise address information needed.  It will only be able to make a rough approximation of the basic data required in this proposal – the aggregate income (AGI) of city residents. Most ZIP codes embrace areas within and without municipal boundaries. We will extract income data for a ZIP code and apportion it as best we can between the inside and outside areas. This puts a lot of weight on the methodology. In the future forms can be re-designed.  An alternative is to assume that this misallocation between inside and outside will be about the same for all communities of roughly the same size. Thus, rather than multiplying the aggregate allocated income by .275% and comparing to the amount that the municipality would receive under the gross receipts tax formula, a more successful approach would be to allot relative shares of the fixed pie created from the .225% of taxable gross receipts. The Department would be happy to work with the sponsor to craft this amendment. On the other hand, every variable needed to implement the proposed scheme was available and used in preparing the fiscal impact estimate for this bill.

OTHER IMPACTS AND ISSUES:
1.	The impetus behind this bill is to flow additional revenue to cities, towns and villages whose aggregate personal income significantly exceeds its gross receipts tax base. The general characteristic of “winners” under this proposal is that of “bedroom” communities. When a city is a bedroom community, residents of the community trade where they work and the bedroom community has “leakage” of gross receipts tax revenue to the trade or market center. When a city is a regional trade center, rural residents in surrounding areas trade at stores in the municipality. This creates gross receipts tax revenue greater than the income-weighted expectation. In smaller cities, the demand for government services is driven by the number of residents, the number of tourists, the age of the population (for example, a very young population and a very old population create demand for recreation and transportation services respectively) and a number of other factors. But the amount of gross receipts taxable consumption is not a very accurate means of measuring demand for government services. This bill is, perhaps, the “camel’s nose in the tent” – an experiment to see who, in practice, benefits from this approach.
2.	

Name	Expected	Best Case	Name	Expected	Best Case	Name	Expected	Best Case	
Alamogordo	$90,416	$107,446	Eunice	$32,163	$32,163	Mountainair	$20,487	$20,487	
Albuquerque	$203,305	$1,896,880	Farmington	$0	$239,962	Pecos	$18,217	$18,217	
Angel Fire	$0	$9,326	Floyd	$3,399	$3,399	Portales	$28,393	$32,299	
Artesia	$1,240	$37,335	Folsom	$1,693	$1,693	Questa	$32,432	$32,432	
Aztec	$44,454	$44,454	Fort Sumner	$9,174	$9,174	Raton	$9,414	$22,660	
Bayard	$45,278	$45,278	Gallup	$0	$94,256	Red River	$0	$5,500	
Belen	$0	$34,555	Grady	$3,255	$3,255	Reserve	$3,115	$3,115	
Bernalillo	$108,878	$108,878	Grants	$3,410	$25,461	Rio Rancho	$1,382,207	$1,382,207	
Bloomfield	$98,819	$98,819	Grenville	$0	$118	Roswell	$196,494	$203,889	
Bosque Farms	$147,994	$147,994	Hagerman	$2,790	$2,841	Roy	$1,246	$1,246	
Capitan	$20,150	$20,150	Hatch	$0	$3,176	Ruidoso	$0	$35,251	
Carlsbad	$134,021	$136,574	Hobbs	$0	$114,115	Ruidoso Downs	$0	$13,772	
Carrizozo	$29,997	$29,997	Hope	$1,586	$1,586	San Jon	$0	$972	
Causey	$8,117	$8,117	House	$0	$258	San Ysidro	$571	$944	
Chama	$239	$3,131	Hurley	$20,116	$20,116	Santa Clara 2/	$41,612	$41,612	
Cimarron	$8,657	$8,657	Jal	$44,522	$44,522	Santa Fe	$0	$434,428	
Clayton	$0	$8,102	Jemez Springs	$20,951	$20,951	Santa Rosa	$0	$8,128	
Cloudcroft	$0	$3,446	Lake Arthur	$4,627	$4,627	Silver City	$1,267	$43,059	
Clovis	$28,388	$90,225	Las Cruces	$66,394	$269,824	Socorro	$59,474	$59,474	
Columbus	$1,863	$1,863	Las Vegas	$2,331	$37,786	Springer	$21,321	$21,321	
Corona	$753	$753	Logan	$11,975	$11,975	Sunland Park	$7,751	$11,072	
Corrales	$480,152	$480,152	Lordsburg	$13,624	$13,624	T or C	$11,810	$16,927	
Cuba	$0	$2,933	Los Alamos	$467,125	$467,125	Taos	$0	$49,729	
Deming	$3,395	$30,926	Los Lunas	$0	$29,881	Taos Ski Valley	$0	$3,661	
Des Moines	$2,316	$2,316	Los Ranchos	$135,562	$135,562	Tatum	$2,962	$3,047	
Dexter	$0	$2,176	Loving	$27,494	$27,494	Texico	$17,981	$17,981	
Dora	$3,083	$3,083	Lovington	$86,824	$86,824	Tijeras	$0	$3,926	
Eagle Nest	$0	$1,141	Magdalena	$4,514	$4,514	Tucumcari	$0	$15,662	
Edgewood 1/	$437,552	$437,552	Maxwell	$3,267	$3,267	Tularosa	$59,989	$59,989	
Elephant Butte	$0	$2,023	Melrose	$12,957	$12,957	Vaughn	$0	$1,231	
Elida	$1,221	$1,221	Mesilla	$26,942	$26,942	Virden	$0	$30	
Encino	$4,901	$4,901	Milan	$1,699	$7,035	Wagon Mound	$515	$697	
Espanola	$0	$42,119	Moriarty	$0	$10,519	Willard	$3,528	$3,528	
Estancia	$0	$3,475	Mosquero	$408	$409	Williamsburg	$9,293	$9,293	
						Total	$4,844,066	$8,201,198	
Based on 1998 PIT data, brought to TY 2000 levels; based on FY 2000 Gross Receipts data brought to CY 2002 levels.