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

SPONSOR Silva

DATE TYPED 3/11/05

HB 738/aHBIC

SHORT TITLE Affordable Housing Tax Credit Act

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($2,300.0)

($2,600.0) Recurring

General Fund

($365.0)

($400.0) Recurring Local Government

Funds

$2,655.0

$2,889.0 Recurring

MFA Investment

Vouchers

Duplicates SB 602

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department

SUMMARY

Synopsis of HBIC Amendments

The HBIC makes the following changes to the bill:

1.

adds exclusion for governmental gross receipts taxes from the definition of modified

combined tax liability;

2.

changes the language regarding the New Mexico Finance Authority’s issuance of invest-

ment vouchers. The language change (from shall to may) makes the issuance optional

rather than required;

3.

changes the provision regarding the selling or transfer of investment vouchers. The re-

quirement that the sale or transfer be for the “full value” is struck;

4.

would no longer allow the tax credit to be applied against governmental gross receipts li-

ability.

Synopsis of Original Bill

House Bill 738 enacts the affordable housing tax credit act. The tax credit can be applied against

House Bill 738/HBIC -- Page 2

modified tax liability (gross receipts, compensating tax, withholding tax), governmental gross

receipts tax liability, personal income tax liability or corporate income tax liability; but it cannot

be applied against a gross receipts tax imposed by a city or county). Credit balances may be car-

ried forward for up to five years. To claim the credit, a taxpayer would have to submit an “in-

vestment voucher” to the Taxation and Revenue Department, and certify project or service com-

pletion.

The bill also authorizes the Mortgage Finance Authority (MFA) to issue investment vouchers for

persons investing in affordable housing projects. The value of the vouchers is 60 percent of the

investment. Vouchers can be sold or transferred. The MFA is required to adopt rules for the ap-

proval, issuance and administration of the vouchers. The value of the vouchers is established for

the first two years as follows: in 2006--$2.665 million; in 2007--$2.889 million. The value of the

vouchers would increase in subsequent years at rate equal to inflation plus population growth.

FISCAL IMPLICATIONS

Fiscal Implications of HBIC Amendments.

The HBIC amendments do not alter the estimated fiscal impacts initially reported. The provi-

sions regarding governmental gross receipts is significant, but impacts for these were not in-

cluded in the initial estimate.

Fiscal Implications of Original Bill.

The estimated fiscal impacts are equal to the value of the vouchers: $2.665 million in FY06 and

$2.9 million in FY07. These are shown in the table as losses to the general fund and gains to af-

fordable housing vouchers.

Although, MFA is not authorized to issue or approve investment vouchers until January, 1, 2006,

it is assumed that preparations could be developed in advance, and that vouchers for the full

amount could be authorized. In addition, the provision authorizing the sale or transfer of vouch-

ers should make it relatively easy to use the entire value of the voucher in this time period.

The estimated revenue loss is shared between the state and local governments. The relatively

small impact to local governments is in spite of the provision excluding locally authorized gross

receipts taxes, and results from the impact on the part of the state gross receipts tax that is shared

with municipalities and the share of compensating tax that is dedicated to small cities and coun-

ties.

General Fund revenues are offset by money provided for the vouchers.

ADMINISTRATIVE IMPLICATIONS

TRD reported that this bill would have an administrative impact on the department requiring ad-

ditional resources. Specifically, they reported the following:

1/2 to 1 TRD FTE will be needed to manually review, track, and monitor the carry for-

ward of the credit. A new application and claim form will have to be developed. Changes

will also have to be made to existing instructions and publications. An approval process

House Bill 738/HBIC -- Page 3

and audit and compliance procedures will need to be developed.

TECHNICAL ISSUES

TRD’s analysis raised the following technical issues:

Section 3 of the bill contains redundant language concerning how the value of the vouch-

ers is determined.

The bill does not contain a mechanism for dividing up the capped amount of vouchers.

The bill does not contain a definition of “affordable housing.”

The vouchers -- and therefore the credits -- would be available for investments in afford-

able housing projects even if these were otherwise reimbursed.

BT/lg