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SPONSOR: |
HTRC |
DATE TYPED: |
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HB |
CS/780/aHFl#1 |
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SHORT TITLE: |
Economic Development Fiscal Accountability |
SB |
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ANALYST: |
Padilla |
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APPROPRIATION
Appropriation
Contained |
Estimated
Additional Impact |
Recurring or
Non-Rec |
Fund Affected |
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FY03 |
FY04 |
FY03 |
FY04 |
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|
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NFI |
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See Narrative |
Recurring
|
General
Fund |
(Parenthesis
( ) Indicate Expenditure Decreases)
LFC Files
Responses
Received From
Economic
Development Department
State
Investment Council
Department
of Finance and Administration
Taxation
and Revenue Department (original bill only)
SUMMARY
Synopsis
of HFl Amendment #1
The House Floor amendment eliminates the provision
that administratively attached the task force to the Economic Development
Department. The other changes appear to
correct drafting errors.
The Secretary of Economic Development is still
the chair of the committee. Presumably
this means that EDD will take the lead, even if the task force is not
administratively attached to the department.
Synopsis
of Bill
The House Taxation and Revenue Committee
Substitute for House Bill 780 require comprehensive reporting and analysis of
state and local economic development incentives. It creates the “Economic Development Fiscal
Accountability Task Force”, which is administratively attached to the Economic
Development Department. The 11-member
task force, appointed by the governor, includes representatives from EDD, DFA,
TRD, and representatives of municipalities, counties and the economic
development community.
The bill requires the task force to submit a
report every year for the next three years.
The report shall include:
1. A list of every economic development
incentive available in
2. Total expenditures, foregone revenue or
approximate value of each incentive.
3. The number of recipients of each incentive, the recipients’ names and locations, and the amount of incentives accruing to each recipient.
4. Numbers of new jobs created as a result of the incentives, plus wage and gender information.
5. Recommendations to the legislature for amending or repealing existing economic development incentives.
The bill defines “economic development
incentive” as expenditures of public funds with a value of at least five
thousand dollars, including state or local bonds, grants, loans, loan
guarantees, guaranteed debt investment in projects, assistance related to the
Local Economic Development Act, etc.
Economic development incentives also include “tax expenditures” which
mean tax deductions, exemptions, rebates, credits, etc that apply to a narrow
class of taxpayers and are intended to stimulate economic development.
Section 5 of the bill allows the task force to
require recipients of incentives to file annual reports in order to fulfill the
requirements of the bill. It also requires recipients of incentives to “cooperate
with and provide information and access to records,” except where specifically
prohibited by statute.
Significant
Issues
1. Task Force Created: The principal difference between the substitute bill and the original bill is that responsibility for the report is shifted from the Economic Development Department to a 11-member task force. EDD would presumably still provide staff support to the task force, although the bill does not require this. The bill does not state how often the task force should meet, nor does it provide for per diem and mileage expenses of the members. EDD did not provide comments on this provision. The task force does not have any representation from the private sector.
2. Broad Scope of Report: Economic development incentives are offered
by many entities in
3. Definition of “economic development incentive” and “tax expenditure”: EDD, the State Investment Council and TRD have concerns about these definitions. EDD notes that the bill defines “economic development” as “activities” and “efforts.” Would the efforts of individual EDD employees devoted to recruiting one company, for example, be considered an economic development incentive? The SIC adds that it is unclear if the New Mexico Private Equity Program falls under the bill’s definition of an incentive. Capital outlay expenditures by the legislature would appear to fall under the definition of incentive. TRD believes that reaching a consensus on the many technical issues raised by “tax expenditure” analysis will be difficult.
4. Difficulty of Collecting Information: Much of the information this bill requests is
either proprietary business information or would be difficult to elicit from
businesses. It is unclear if the
provision in Section 5 of the bill will be effective in addressing this problem.
Currently, TRD does not require businesses to submit this information upon
application for tax incentives. It is
doubtful whether TRD or EDD would be successful in gathering such data after
tax incentives have been granted. A
survey tool might have to be used, with resulting data that would be incomplete
and possible unreliable.
The State Investment
Council notes that it currently compiles data to evaluate the results of the
New Mexico Private Equity Program. Its
experience shows that the
·
Number of jobs created in urban areas
·
Number of jobs created in rural areas
·
Total value of investment
·
Dollar value of exports
·
Average hourly wage for rural jobs
created
· Percent of jobs that pay more than 50% of the minimum wage
Another of the bill’s deliverables is already produced and maintained by EDD. Entitled “New Mexico Business Incentives” the report lists over 40 state and local economic development incentives. The table of contents is at Attachment 1.
FISCAL IMPLICATIONS
This bill has no direct fiscal impact and
contains no appropriation. However, EDD
and TRD believe they will need additional resources to effectively carry out
the tasks envisioned in this bill.
ADMINISTRATIVE IMPLICATIONS
EDD and DFA believe that this bill may require
additional staff at EDD to adequately meet the objectives of this bill. TRD also believes the administrative impacts
of this bill would be significant. TRD
staff would have substantial responsibility for analyzing and evaluating tax
expenditures. TRD believes that,
although the goals of the bill are laudable, the proposed requirements should
not be placed in statute and they should be accompanied by sufficient
appropriations needed to accomplish the tasks.
POSSIBLE QUESTIONS
1. Would
a narrower approach than this bill takes be more practical? For example, could the bill identify a
certain number of economic development incentives to investigate?
2. The
bill seems to ascribe responsibility for low wages and poor benefits to
employers who take advantage of economic development incentives. What if low wages and poor benefits are
offered by companies who do not use incentives?
3. If companies are unwilling to divulge
information needed to complete the report, should the legislature consider
amending existing tax incentives to require that businesses report to EDD or
TRD the outcomes of the incentives?
4. If capital outlay expenditures are considered economic development incentives, how would local governments report to the task force on outcomes?
LP/sb:yr:njw