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2/12/06 HB
SHORT TITLE Tax Increment For Development Act
REVENUE (dollars in thousands)
Estimated Revenue
or Non-Rec
*see narrative for details
(Parenthesis ( ) Indicate Expenditure Decreases)
Duplicates HB 462
LFC Files
Responses Received From
Economic Development Department (EDD)
Attorney Generals Office (AGO)
Taxation and Revenue Department (TRD)
Synopsis of Bill
Senate Finance Committee substitute for Senate Bill 495 creates a mechanism for providing fi-
nancing tools for public infrastructure to specific development areas. The “Tax Increment for
Development Act” (TIDA) enables local development districts to reserve any incremental reve-
nue from a base revenue that is derived from development projects. The incremental revenue
can be spent on public infrastructure for the district. SB 495 establishes the rules and procedures
for creating a “tax increment development district” (TIDD) and what authorities a TIDD has for
making decisions and allocating resources.
The Senate Finance Committee substituted Senate Bill 495 incorporates language of the Senate
Public Affairs Committee amendment. New material is as follows:
Changes part of the definition of “public improvements” [Section 3 – R – 19]. Original
bill stated: “any other improvement that the governing body determines to be primarily
Senate Bill 495/SFCS– Page
for the use and benefit of the public” (italics added). The substitute removes the word
“primarily” which may allow a very liberal interpretation of “public improvement.” (page
Changes the word “shall” to “may,” as relates to the formation of the district [Section 4 –
A]. This changes the requirement of a resolution from the governing body if a qualified
petition is filed. (page 11)
Removes the reference to “operations” and “maintenance” costs of public improvements
from the tax increment district plan [Section 4 – B – 8, page 13]. The plan would only
have to demonstrate that the incremental tax would pay for the cost of construction.
Removes Section 6 – F which stated that inadvertent failure to comply with the require-
ments of notice provisions [those relating to the formation of the district] shall not invali-
date the formation of the district. In other words, the notice provisions have to be fol-
lowed. (page 18)
Removes the provision that polling places must be open at least six hours on election day.
There are no suggested hours of operation. (page 22)
Adds a provision that another election on the formation of a district cannot be held in the
twelve months following a failed election. (page 25)
Removes a provision that allows the district board to impose fees and charges for a public
purpose on real property located in the district and collect administrative fees. (page 30)
Adds a provision that tax increment districts do not have the power of eminent domain.
(page 32)
Adds a provision that a casino cannot be in the district and increment financing cannot be
used to finance public improvements related to a casino. (page 33)
Removes local option county emergency and infrastructure taxes from the base available
for increment financing. (page 36)
Allows a district formed by a county access to state gross receipts taxes as municipalities
are. (page 36)
Directs the State Board of Finance to rule on whether providing state gross receipts taxes
to a district is in the best interest of the state. (page 38)
Removes a provision that said a change in the location of the polling place will not in-
validate a bond election. (page 45)
Adds section that requires approval from the NM Finance Authority before any bonds se-
cured by state gross receipts taxes are issued. (page 53)
Amends other parts of NMSA 1978 to conform with the Tax Increment for Development
Other amendments adopted by the Senate Public Affairs Committee that are included in the sub-
stitute are:
Makes any property tax levy last no longer than four years.
Allows a rescission vote within the four year period to rescind the property tax levy
by one-third of the number of voters who voted in the election.
Allows only one petition for rescission in the four year period.
Stipulates that any affected taxing entity that is not the district taxing entity cannot
dedicate more than 75 percent of the increment to financing bonds.
The result of the amendment is to ensure that there is a way to repeal the tax increment district
and protects a portion of the incremental tax going to a taxing authority other than the tax incre-
ment district.
The effective date is the date the bill becomes law.
Senate Bill 495/SFCS– Page
Currently, there are no TIDDs, so there is no fiscal impact with SB 495. There will be no state
impact since the incremental tax revenues are incremental from the base local distributions from
the state, except as noted in the Technical Issues section below.
The fiscal impact for local governments is the difference between the average growth in revenue
and the baseline revenue. SB 495 designates a baseline revenue equal to the amount of gross re-
ceipts tax and property tax revenue in the calendar year preceding the formation of the TIDD
plus any additional revenue that may have been generated by changes in the tax rate which the
TIDD have no control over. Statewide gross receipts tend to grow between 4 and 4.5 percent
annually (and it is different for every area – some TIDDs will have anemic or negative growth
possibly) and property values tend to appreciate around 3 percent. Establishing a base line as the
preceding year means that the municipality or county where the TIDD is located will miss out on
the natural growth of revenues. If enough TIDDs are developed in a particular county or mu-
nicipality, there will be significant impacts on the county or municipality.
When the TIDDs begin to form, the net impact will be zero, but the distribution will change. In
other words, the total revenue distribution will not change; some of the distribution will just be
diverted from the local government to the TIDD.
A TIDD is identical in concept to a Tax Increment Financing district (TIF) which has arisen as a
new economic development tool across the country. The TIF program is used in virtually all of
the states in some form or another and is primarily a tool to redevelop blighted or economically
distressed areas. SB 495 makes no distinction as to the economic vitality of a TIDD.
Fiscal impacts are uncertain and could be either positive or negative for existing state and lo-
cal revenue sources. Although the intention of tax increment financing is to have no impact
on existing revenue beneficiaries, the potential for a negative effect arises if the districts at-
tract businesses that would have otherwise located elsewhere in the state. In this case, the
proposal results in a shift of tax revenue from existing local and state government beneficiar-
ies to infrastructure financing for the districts. Positive revenue implications are possible if
the districts attract businesses that would not otherwise locate in the state. The latter are
most likely if the district attracts manufacturing and other export-oriented industries, rather
than retail businesses, for example.
The TIF method of financing is used in 47 other states. Denver's Stapleton development is a
salient example of applying sales tax generated from commercial properties to pay for streets,
sidewalks, street trees, drainage, and other public infrastructure necessary to attract hundreds
of millions in private residential and commercial investments.
1. Establishment of TIDD. To establish a TIDD in county or municipality, interested parties
must file a petition signed by at least 50 percent of the property owners in the proposed district.
The local governing body (eg., city council, county commission) then adopts a resolution to form
the district that includes, among other things, the geographic boundaries and the rationale for
forming the TIDD.
Senate Bill 495/SFCS– Page
A TIDD can be established in either a county or a municipality. The incremental revenue from
gross receipts taxes defined in the bill is derived from the revenue associated with either the
county or the municipality. In other words, if a TIDD is approved by a municipality, the county
revenues are not affected. This is not the case with property tax which will impact municipalities
and counties regardless of the body that approved the TIDD. School districts are not included in
the definition of “governing body” and so the property taxes that will go to these entities will not
be affected.
The TIDD must be approved by the governing body (ie, county or municipality) so the TIDD
should fit into their master infrastructure plans for parks, streets, etc.
The TIDD would have the ability to levy a property tax up to 5 mills. The amendment stipu-
lates that this levy can only be for four years.
2. Tax Increment Development Plan. The Tax Increment Development Plan (“Plan”) is a nec-
essary part of creating the TIDD. The plan should include the following:
a map of the boundaries
the time needed to complete the project
estimate of the cost of the project
whether the project will be financed with gross receipts tax increment bonds or property
tax increment bonds or both
estimate of the incremental revenue generated and how the revenue will be allocated
the land necessary for the project
the number and type of jobs created
the affordable housing created
any public school improvements
innovative planning techniques that will be used
level of private investment.
3. Elections. Once the Plan is approved by the governing body, there can be an election to create
the TIDD, elect a board, and begin the financing of the Plan. If however the petition to create the
TIDD has been signed by every property owner in the TIDD and it waives the right to an elec-
tion, the governing board can create the TIDD and appoint the board.
The amended bill allows for a rescission election for any property tax levy associated with
the TIDD and stipulates that the levy can only be in place for four years.
4. Incremental Gross Receipts and Property Tax. The incremental revenues are the amount of
revenues generated within the boundaries of the TIDD less the amount generated during the base
year. In other words, the amount of revenue, either property or gross receipts, is kept constant at
the base year regardless of whether there was growth before. Likewise, if the development is a
new development, the base is effectively zero or very close to zero and so almost all revenue will
go to the TIDD. There is an allowance for increases in the tax rate in the larger area.
5. Constitutional Issues On Bonding. EDD has indicated that there have been constitutional
questions about the bonding powers in previous legislation. SB 495 appears to resolve the issue
of putting a bond to a vote except that there’s a provision that allows elections to be waived if the
petition is signed by all property owners in the district. It is unclear how the Attorney General
will view this section. (Section 8-B, page 20).
6. Other Significant Issues. Prior to the issuance of any bond based on the incremental reve-
Senate Bill 495/SFCS– Page
nues, the property owners within the district must contribute 20 percent of the costs of the public
infrastructure unless the area is covered under the Metropolitan Redevelopment Code. These
costs may be reimbursed with the proceeds of the incremental revenue.
Page 34: Section 14-B-7 refers to the state portion of the gross receipts tax as a possible source
for the incremental tax distributed to a TIDD formed by a municipality. State gross receipts
taxes are not referred to in the county section. Section F (p. 36) indicates that state gross receipts
can be included in the increment if approved by the Board of Finance. It is unclear if the Board
of Finance has the authority to approve the appropriation of gross receipts tax revenues.
Section 8-A-2 calls for the election of district board members. Section 10-B indicates that the
board is appointed by the governing body or is the governing body but no reference to the
elected district members.
Section 19-B (page 50) does not specify how the property owners in a TIDD will be reimbursed
if the area is not a metropolitan redevelopment project. It should be clear that they will be reim-
bursed after debt service payments are met.
Section 12, Subsection B provides that districts are not subject to the Procurement Code,
even though they are political subdivisions of the state and have most powers of a municipal-
The Department does not currently collect gross receipts tax by district. The bill states that an
estimated increment will be stated in the increment development plan, but does not describe
whether the calculation of base GRT revenue is computed once or is to be updated on a
yearly basis. The bill also does not state who is to determine this amount and how it will be
certified. This process is crucial to the functioning of the entire proposed program.
The bill does not state if the district will receive funds from increases in the local option
gross receipts tax rate.
Intent of proposed Section 16 1(C) is unclear. The section states:
Upon general reassessment of taxable property valuations in a county, including all or part of
a tax increment development area in which a property tax increment has been pledged for
property tax increment financing, the portions of valuations for assessment shall be propor-
tionately adjusted in accordance with that reassessment or change.
TRD reports that the administration of the gross receipts tax provision would be difficult, time
consuming and expensive. Currently, TRD has no accessible information to determine where a
business is located other than the municipality or county. Getting the information would require
major revisions to forms and systems.
Senate Bill 495/SFCS– Page
The ability to waive the election for the creation of the board on the petition of the landowners
leaves out the other residents and may pose constitutional questions.
The ability to have the district board director serve as director of multiple boards may appear to
be a conflict.
AGO response (note: not an AGO decision or ruling):
There needs to be a clearer explanation why the bill is needed when the state already has the
“Public Improvement District Act” in NMSA 1978, Section 5-11-1 to –27.
It is unclear whether the citizens of the governing body and the governing body have re-
ceived a bargained for exchange in giving up tax revenues and paying additional taxes in ex-
change for the District’s services. If not, this might be a violation of the anti-donation clause
of the state Constitution (except if this bill is seen as implementing legislation and done in
accord with Article IX, Section 14(D)).
Section 8(G) is very confusing. Do non-qualified electors get their vote counted.
Policy questions like these should be considered: (a) Should municipalities and counties out-
source their responsibilities of building infrastructure. (b) Why should the governing body
have the option to appoint itself as the District board. (c) Since the Districts are not subject
to the Procurement Code, is this an end run around procuring constructive services via open
procurement. (d) Should municipalities and counties out-source their rights to impose and
collect tax revenues.
TRD provides an example of tax increment financing for a blighted area (although SB 495 does
not establish financing for just blighted areas):
Illustration: Tax Increment Financing
A traditional case of tax increment financing in which urban blight causes real property val-
ues to fall is portrayed graphically in Illustration 1. Due to the declining land values, lack of
jobs and associated problems, the associated municipality designates the area a TIF district.
Base property values are frozen, as represented by the horizontal line. The tax base available
to the city and all of the other taxing jurisdictions remains constant. The valuation increment
-- shown by the rising line -- grows as new infrastructure attracts new industry to the area and
taxable value of new and existing structures expands. The resulting tax increment is used to
pay off public indebtedness associated with the project. Once the infrastructure is paid off,
the project is complete, and the value new value is taxed by the various jurisdictions – and
residents of the taxing jurisdictions experience higher degrees of income than existed prior to
development of the district. One measure of benefits of the project consists roughly of the
difference between the line entitled "value increment due to improved infrastructure" and the
one entitled "expected value" multiplied by tax rates.
To understand why TIF financing may be less successful than suggested by Illustration 1,
simply consider some alternative configurations of the associated lines. If, for example, the
expected value of existing properties is increasing rather than declining as suggested in Illus-
tration 1, net benefits of the project would be less than shown in Illustration 1. In addition, if
business attracted to the tax increment area is financed by industrial revenue bonds, the re-
This discussion is taken largely from David Swenson and Liesel Earthington's paper entitled "Do Tax Increment
Finance Districts in Iowa Spur Regional Economic Development and Growth." Department of Economics, Iowa
State University, April 2002. See
Senate Bill 495/SFCS– Page
sulting new construction would not be subject to taxes, thus limiting the tax increment. In-
creases in the "value increment to new structure" would also be diminished, thus decreasing
net benefits to the district. Moreover, as indicated above, the new businesses and residents
may simply come from neighboring jurisdictions with the result that the increase in value in
the district is offset by decreasing value elsewhere in the municipality and no net benefits ac-
crue to the municipality that initiated the district.
Taxable Value
Per Parcel
Illustration 1: Tax Increment Financing and
Infrastructure Development Impact on Declining
Property Values
Taxable Value
Per Parcel
Due to
Base Value
Value Loss
In reporting the jobs associated with a Tax Increment Development Plan, the construction jobs
associated with a project could be excluded from the report. This way only jobs created by in-
creased economic activity due to the project will be counted rather than the construction jobs.
TRD has noted that allowing a new local option gross receipts tax that could be used in the TIDD
may accomplish the same goal of providing dedicated revenue to a TIDD. This would, however,
be an increase in the taxes on those in the TIDD.
For a description of some of the literature suggesting that TIF is sometimes ineffective, please see the paper refer-
enced above by Swenson and Earthington of Iowa State University, as well as: "Tax Increment Financing: Private
Financing at the Expense of Local Community", by Danny Santavisci, Illinois State University:; "The First Comprehensive Report on the
State of Tax Increment Financing in Chicago", by Chris Swartz, published by "The Neighborhood Capital Group"; and "The Effect of Tax Increment Financing on Economic Develop-
ment" by Richard F. Dye and David F. Merriman, Institute of Government and Public Affairs, University of Illinois,
Chicago, 1999
Senate Bill 495/SFCS– Page
Duplicates HB 462.
What will the impacts be on school districts. Will there be a disincentive to invest in schools
within the TIDD by a school district if those incremental revenues are given to the TIDD.
How does the TIDD affect a community’s master plan for infrastructure.
What are the county/municipality’s responsibilities to the TIDD.
Does the State Board of Finance have the ability/authority to approve a resolution diverting gross
receipts tax revenues to a TIDD.