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F I S C A L I M P A C T R E P O R T

SPONSOR Harrison

DATE TYPED 02/18/05 HB 629

SHORT TITLE FILM PROJECT INVESTMENT GUIDELINES

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

Indeterminate Indeterminate

Severance Tax

Permanent Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to House Bill 122

SOURCES OF INFORMATION

LFC Files

Responses Received From

State Investment Council (SIC)

Department of Labor (DOL)

Economic Development Department (EDD)

SUMMARY

Synopsis of Bill

House Bill 629 would allow the State Investment Council to invest in a film project that does not

meet certain investment criteria when the film project takes place in an economically depressed

New Mexico county. The bill would exempt these film projects from the following criteria:

•

have posted a completion bond that has been approved by the New Mexico film division;

•

have obtained a guarantee of repayment of the invested amount:

(a) from an entity that has a credit rating of not less than Baa or BBB by a na-

tional rating agency;

(b) from a substantial subsidiary of an entity that has a credit rating of not less

than Baa or BBB by a national rating agency;

(c) by providing a full, unconditional and irrevocable letter of credit from a

United States incorporated bank with a credit rating of not less than A by a na-

House Bill 629 -- Page 2

tional rating agency; or

(d) from a substantial and solvent entity as determined by the state investment

council in accordance with its standards and practices; or

•

if not guaranteed pursuant to the previous paragraph, have obtained no less than one-third

of the estimated total production costs from other sources.

The bill defines an economically depressed county as one that has an unemployment rate that is

25 percent higher than the rate for the state as whole and has at least 25 percent of its population

below the federal poverty level. Based on data from the Department of Labor and the 2002 U.S.

Census, only two New Mexico counties currently qualify as economically depressed, those are

Luna and McKinley counties. Note, according to the Department of Labor, the current state un-

employment rate is 5.2 percent.

Significant Issues

The SIC cautions that without requiring the investment requirements above, the SIC is likely to

have a high number of unrecoverable defaults on the loans to such film projects.

PERFORMANCE IMPLICATIONS

SIC notes that this bill could impact the performance of the Severance Tax Permanent Fund

(STPF) due to an increase in the number of unrecoverable defaults in the film program. Addi-

tionally, SIC believes that without the completion bond, the SIC may be obligated to invest more

in the program to complete the film or risk a complete loss of their initial investment.

FISCAL IMPLICATIONS

The fiscal impact of this bill is indeterminate. The fiscal impact, if any, would be to the STPF

investment return. It is unknown what types of film project investments would be made given

the reduced requirements and how those film projects might perform. It is likely that the reduced

investment criteria would lead to riskier investments and, thus, a higher rate of loan defaults,

which would lower the returns to the STPF.

ADMINISTRATIVE IMPLICATIONS

None reported.

OPJ/yr