BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 22, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: SB-325

SPONSOR:  Senator Wilson

BILL SHORT TITLE: Renewable energy tax credits against corporate income tax obligations.

CONFLICTS, DUPLICATES, COMPANIONS: SB-645, HB-894
 
DESCRIPTION: 
This measure would provide renewable energy tax credits against corporate income tax obligations. The credits would associated with producing energy using various renewable sources, including solar light, solar heat, wind, geothermal, landfill gas, anaerobically digested waste biomass and fuel cells. Two types of credits would be available to taxpayers. A "renewable energy investment credit" for up to $50,000 would be available and result from expenditures on generating facilities with net production capacity of less than ten megawatts. A "renewable energy production credit" of $.015 per kilowatt hour for electricity produced from the types of facilities described above would also be available. The Public Regulatory Commission would be responsible for qualifying taxpayers for the credits. Total amount of the credits would apparently be limited to $8 million annually. They would be provided to taxpayers on a first-come, first-served basis. An appropriation of $100,000 is provided to the Public Regulatory Commission for the purpose of qualifying taxpayers for the credits.

EFFECTIVE DATE: July 1, 2001. 

FISCAL IMPACT (Thousands of dollars):  	Note: Parenthesis ( ) indicate a revenue loss:
	Estimated Impact on Revenues	Recurring or Nonrecurring	
Funds 	
		Full Year  	     Impact     t     	   Affected    .	
		(0-8,000.0)*	Recurring	General Fund	

*Uncertain, probably small; depends on the extent of participation by corporations. The proposed measure apparently (see the Technical Issues section below) limits total credits that may be issued under the program to $8 million annually -- about 4 percent of annual corporate income tax revenues. The General Fund loss may therefore range from an essentially negligible amount to probably $8 million annually.

APPROPRIATION IMPACT (Thousands of dollars):
	Estimated Impact on
Appropriations	
Recurring or
Nonrecurring Impact	
Funds
Affected	
	FY 2002			
	100	Nonrecurring	General Fund	

ADMINISTRATIVE IMPACT: 
The proposed statute would require changing tax forms and instructions, programming systems to allow the credits and similar functions. It could probably be performed by resources currently available to the Department. The Public Regulatory Commission (PRC) appropriation is only for one year. The credits would be a permanent program, however, hence the $100,000 appropriation provided to the PRC may be inadequate.

TECHNICAL ISSUES:
1) The proposal requires the Public Regulatory Commission to adopt regulations and provide forms for administering the statute. This is a curious place to vest such responsibility, because TRD is almost totally responsible for administering corporate income taxes. 
2) The measure applies a limit on the amount of investment credit available to any one taxpayer, but not in the amount of the production credit. Apparent intent is to allow the PRC to ration the credits.
2) As the measure is written, it is not totally clear that the $8 million limit applies only to the production credits or to the total amount that can be issued for both credits.
4) The investment credit intends to reward corporations that invest in the favored, small electric generating facilities. Yet the definition of "small energy producer" excludes anyone who owns electric generating facilities, including the "qualified energy resources". 
5) Although proposed measure allows unused portions of investment credits to be carried forward for five years, no similar provisions are made for production credits.
6) Many corporations operate through a system of subsidiary firms. If the intent is to limit the credits that may be taken by any one corporation, some provision should be included in the proposal that prevents the firm's subsidiaries form taking the credits.

OTHER IMPACTS AND ISSUES: 
New Mexico's experience with this type of credit has not been encouraging. The state's experience in subsidizing alternative energy industries is probably best illustrated by the Solar Energy Credits during the 1980's. Those personal and corporate tax credits helped promote and sustain a marginal industry which learned to deal in tax credits with as much success as their solar R & D efforts. In general, the state cannot afford to support an industry (whose time may not have arrived) in the long run. While certain "incubation" incentives may be beneficial, industries operating in a free market economy must find their own independent viability in the long run.