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HB 451
SHORT TITLE Greenfield Tax Increment Districts
APPROPRIATION (dollars in thousands)
or Non-Rec
100.0 Nonrecurring
General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
REVENUE (dollars in thousands)
Estimated Revenue
or Non-Rec
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to HB276, SB398
Conflicts with SB434
LFC Files
Response Received From
Department of Finance and Administration (DFA)
Economic Development Department (EDD)
Synopsis of Bill
House Bill 451 would make several changes to the Tax Increment for Development Act (5-15
NMSA 1978).
Defines “greenfield tax increment for development district" as a tax increment for
development district (TIDD) that has not been previously developed and is not currently
House Bill 451 – Page
served by municipal or county public infrastructure and whose plan primarily relies on new
residential and commercial structures rather than the renovation of existing structures.
Require a city or county to notify the Department of Finance and Administration, the
Taxation and Revenue Department, and the Legislative Finance Committee about TIDD
related actions including adoption of a TIDD ordinance or resolution and public notice of
Change the election statute for TIDD boards to require one of the TIDD board members to be
the Secretary of DFA or designee.
Changes the maximum state increment percentage to 50 percent for non-greenfield TIDDs
and 20 percent for greenfield TIDDs with the opportunity to increase the increment if certain
conditions are met.
Land, infrastructure and capital for public school facilities
Transit-oriented development
20 percent affordable/workforce housing
Adds a restriction on the Board of Finance (BOF) approval of the increment to ensure that
the value of projected revenues meets or exceeds costs of providing services to the TIDD.
Allow Board of Finance to ask applicants to fund an independent review of their fiscal and
economic study.
Revert excess revenue not required for debt service on long term bonds to taxing entity.
Requires legislative authorization of TIDD bonds to include the maximum value authorized.
Creates new reporting requirements of the TIDD
Accounting for all revenues and expenditures
Identify and report on all incentives and capital outlay appropriations the TIDD
Creates a Tax Increment Financing task force made up of DFA, TRD, NMFA, New Mexico
Association of Counties, New Mexico Municipal League, AFSCME, NM chapter of
American Planning Association, LFC, affected neighborhoods, and members of the public at
large. The task force shall evaluate the implementation and effect of the Tax Increment for
Development Act and the consequences of approving additional greenfield TIDDs. The
focus will be on long term impacts on the general fund, local government finances, other
states’ experience, and other issues.
House bill 451 appropriates $100 thousand from the general fund to legislative council service
for costs associated to the TIDD task force.
There is an emergency clause so the bill takes effect upon signature of the Governor.
The appropriation of $100,000 contained in this bill is a nonrecurring expense to the general
fund. Any unexpended or unencumbered balance remaining at the end of FY09 shall revert to the
general fund.
HB451 would not affect either of the two TIDDs currently in existence: Mesa del Sol and
Westland DevCo (a.k.a. SunCal). Since the limitation on greenfield development applies to
future applicants, there is no way to calculate a fiscal impact.
House Bill 451 – Page
HB451 is a response to the experience of the last two years since the Tax Increment for
Development Act has been in place and how it has been used and interpreted by the many
players working on the Mesa del Sol process and the Westland DevCo process. Along the way
there were many features of the legislation where there was no clear guidance and it became
apparent to many participants and observers that the legislation could be improved. Particularly
from the state’s point of view there are very few oversight and accountability mechanisms to
safeguard the state’s investment in these developments. In unincorporated areas of a county, this
means that the state is financing upwards of 90 percent of local government infrastructure with
very little input into the process and approvals.
Task force. The Tax Increment for Development Act was passed in the 2006 session and had not
been considered by any interim committees before its passage. The statute was based on other
laws such as the public improvement district act and the metropolitan redevelopment act but
there was little in the way of public input into the design of the law. Now, there have been three
TIDDs approved under the law (Mesa del Sol, Westland DevCo, downtown Las Cruces) and
many in the state feel that there is reason to revisit it and see if there are ways to improve it.
State economists feel that the task force would help in creating and implementing a common
framework to evaluate TIDDs and the fiscal and economic analyses TIDD applicants provide.
DFA is concerned that the language appropriating $100,000 needs to include the ability to hire
outside consultants or pay for econometric software so that economists under the auspices of the
task force can develop models for TIDD analysis.
A portion of the appropriation provided in the bill could be used, perhaps, to analyze the
economic consequences of the two existing projects -- SunCal and Mesa del Sol -- using
a computable general equilibrium model of the state and regional economies. The most
advanced model available to State analysts is the Policy Insight Model v. 9.5 provided by
REMI (Regional Economic Models, Incorporated) of Amherst, MA. The State
Department of Transportation owns a seven-region version of this model and at least two
economists on staff at LFC, DFA, TRD and DOT have some level of familiarity with this
sophisticated model. DFA economists can redo the analysis of the SunCal project as an
exemplar of a large-scale, greenfield TIDD project. This comprehensive analysis can be
used as the base case for risk analysis if some of the assumptions in the current analysis
or the redone analysis are allowed to vary.
Separating the Task Force's duties into a technical analysis and a policy analysis based on
the technical analysis seems appropriate. A collateral benefit is that a comprehensive
technical analysis will lead to recommendations on standardized methodology that can be
applied to all future TIDD applications.
DFA also recommends that one of the task force goals should be to define what the term “best
interests of the state" means as this is essentially the only criteria BOF has to approve a diversion
of state revenue.
House Bill 451 – Page
The task force is made up of a diverse group of interested parties though it does not seem to
include a member of the developer community which would make it more inclusive. The task
force is charged with evaluating:
The long term fiscal impact on the general fund
The long term fiscal impact on local government finances
The amount of state and local GRT committed to TIDDs
Other states’ experience, particularly with using state level tax revenue
Consequences of TIDDs not following the procurement code
Economic development incentives in TIDDs
Likely consequences if a TIDD fails
Treatment of changes to the TIDD boundaries and board
Other avenues for providing financing for public infrastructure for new developments.
Greenfields. HB451 would limit the amount of incremental state gross receipts tax (GRT) to 20
percent with additional amounts if the development satisfies certain conditions. A “greenfield"
is essentially raw land where there has been no development before. With the exception of
downtown Las Cruces, all of the TIDD applications seen so far have been in greenfields rather
than redevelopment areas. The concern is that it is much easier to develop greenfields,
particularly those adjacent to developed areas, than existing areas and therefore should not
require much in the way of subsidies. Infill areas, areas within service areas that may be blighted
or have fallen into disuse, are much more expensive and so are less attractive to developers. It is
for these areas that tax increment financing was first established in California in the 1950s.
By placing additional hurdles on greenfields, there is much more assurance that the development
will satisfy key state and local interests: affordable housing, transit oriented development, and
investments in school facilities.
State Notification. There is no uniform method of notification to appropriate state entities that a
county or municipality has passed an ordinance allowing TIDDs. At present, state agencies
(Board of Finance (BOF), New Mexico Finance Authority (NMFA), Taxation and Revenue
Department (TRD), and LFC) rely on word of mouth and the media to find out about
municipalities and counties who are considering or who have passed TIDD legislation. It is
important to have enough time to do a thorough analysis at the state level which means the
state agencies should receive notification as soon as legislation or an application is
approved. Dona Ana and Bernalillo Counties, the Cities of Las Cruces and Albuquerque, and
the Town of Bernalillo have passed ordinances or policies to allow TIDDs.
An example of why this is necessary: LFC staff heard about the City of Farmington passing a
TIDD ordinance and upon investigation on the City’s website, there has been discussion about an
ordinance and a particular project but it was pure chance that this information was uncovered.
State Representation. Currently, there is no state representative directly charged with
monitoring TIDDs and changes to the development plan of a TIDD after approval of the Board
of Finance (BOF) and the authorization of the legislature to issue bonds although the New
Mexico Finance Authority (NMFA) does review the indenture agreement for the bonds when
they are issued. As an example, the City of Albuquerque has approved changes to the Mesa del
Sol TIDD master development plan with no input from the state that include use of proceeds and
incremental revenues. It is unclear how it will affect the state’s increment and the allowable uses
House Bill 451 – Page
but it illustrates the point that the state which provides the bulk of the financing for tax increment
districts through the gross receipts has the least input into the process. It is necessary for
appropriate oversight of state funds to have a state official participate in the process.
The idea of state representation, however, on what is a local board raises issues about
jurisdiction. A useful example is the capital outlay process where funds are appropriated to local
governments for capital infrastructure. The local government division of the Department of
Finance and Administration is responsible for overseeing the projects and ensuring the money is
expended as intended by the legislature.
DFA supports this item and even suggests that the majority of the board be state representatives
since it is the state that is providing the bulk of the financing.
Allow BOF to ask applicant to pay for study. Currently, the governing entity to whom a
developer is applying can ask that the developer finance an independent study to validate the
application. BOF does not have this power and would need to finance a study on its own. DFA
and LFC economists have been the principal reviewers of the study which requires an enormous
resource commitment. An independent review commissioned by the city of Albuquerque for
Mesa del Sol was crucial to that body making its decision.
Revert excess revenues. This language clarifies what is to happen to excess revenues not needed
for debt service. Under current law, there is no precise guidance as to what happens if the TIDD
collects more revenues than needed. At the beginning of the TIDD, this will not be an issue
since all of the revenue will be used for debt service on short term notes (“sponge" bonds) but as
the build-out is completed and the long term bonds are in place, the TIDD may generate
revenues above what is needed to service the debt. This is another important reason to have state
representation on the TIDD board because if there is additional money available there may be an
incentive to modify the master development agreement to allow for additional infrastructure not
included in the original plan.
Detailed annual reporting. HB451 makes the reporting requirements of TIDD boards much
stronger. Under current law, a TIDD board only has to separately account for all revenues and
indebtedness based on gross receipts tax and property tax increments. HB451 would require the
TIDD board to account for all expenditures and the total value of state and local tax incentives in
the district. The TIDD board would be required to submit a report to the LFC, DFA and the
county and municipality in which the TIDD is located.
Depending on the number of TIDDs formed, the requirement that one board member is the
Secretary of DFA or designee may place a significant burden on the department. There should
be consideration to providing an FTE to DFA for the sole purpose of overseeing TIDDs to ensure
that the state is appropriately informed and represented in the development plans and use of the
bond proceeds.
Requiring notification of ordinances and hearings should not place a significant burden on local
House Bill 451 – Page
Below are other issues that merit consideration but are not part of this proposal.
Board governance. The governing body can designate itself as the board of directors or can
appoint a board of directors. If the board is appointed, three of the board members serve six year
terms and two serve four years initially. At the end of the terms, board members are re-elected
by property owners and qualified electors as defined in the statute.
To date there have been two proposals put forward: Mesa del Sol and Westland DevCo. In all of
the cases, the build out for the development is much longer than six years meaning that the
developers will be the majority property owners at a time when the board members are up for
election. This situation would allow the developer to elect a board of their choosing to manage
the TIDD financing. In the case of Mesa del Sol, the city has preempted this by designating the
council as the TIDD board. Board governance was a controversial issue with the Verde Group,
which withdrew its application, in Dona Ana County. This is particularly an issue for TIDD’s
created in unincorporated areas since the state increment will proved 80 to 90 percent of the
Reporting. Requiring detailed annual reporting that includes infrastructure completion status
and employment and wage data would be another option to consider to keep the legislature and
the executive informed about the progress and success of TIDDs.
Bond Financing. The language regarding the use of the tax increment should be strengthened.
Since the language allows for any type of debt service, short term or “sponge" notes can be used.
This allows the entire increment to be used rather than that needed to service long term bond.
The long term bonds are part of the development plan and it is unclear whether the legislative
intent was to allow short term notes. All of the applications received so far including the
successful Mesa del Sol involve the use of cash or short term financing for the bond proceeds not
needed to retire debt.
HB276 and SB398 authorize the Westland DevCo bonds to be issued. The total amount of
bonds authorized is $629 million.
SB434 places a moratorium on TIDD approvals for greenfield developments to give a task force
time to study the issue and make recommendation.
Currently it is onerous to follow all of the local government actions to determine when and
where the next TIDD will be considered. The likelihood of a TIDD application not getting a
thorough review increases if it is unexpected.
Without formal state oversight of the TIDD operations, the TIDD board may make changes to
the development plan that are not in the best interests of the state. It is critical that the state be
able to add its input when uses of bond proceeds are being approved by the TIDD board.
House Bill 451 – Page
Who is responsible for monitoring Tax Increment for Development Districts now.
What kinds of financing structures are being used or proposed currently.
How does LFC and DFA staff find out about applications and ordinances.
NF /mt