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

SPONSOR Lujan, B

DATE TYPED 3/08/05

HB 1053/aHFL#1

SHORT TITLE Repeal Business Development Corporation Act

SB

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$500.0

See Narrative

Non-Recurring

Business Devel-

opment Corpo-

ration Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$850.0

See Narrative

Non-Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates Appropriation in the General Appropriation Act

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Labor (DOL)

Economic Development Department (EDD)

SUMMARY

Synopsis of HFL#1 Amendment

House Floor amendment #1 strikes the $1 million appropriation to EDD and instead appropriates

a total of $500 thousand to EDD for the following purposes:

•

$100 thousand for hydrogen and fuel cell technologies development;

House Bill 1053/aHFL#1 -- Page 2

•

$200 thousand for the New Mexico mainstreet program; and

•

$200 thousand for the development of business and job opportunities with respect to land

grants, tribes and rural communities.

The bill continues to transfer the remaining balance of the business development corporation

fund to the general fund, which will be approximately $850 thousand.

There appears to be a typo in the amendment. The amendment should strike the words “One

million dollars ($1,000,000) is” on page 1, line 17. As currently written, the amendment results

in the phrase “The following amounts are is appropriated…”

Synopsis of Original Bill

House Bill 1053 repeals the Business Development Corporation Act and appropriates $1 million

from the business development corporation fund to the EDD for the purpose of enhancing small

business and rural economic development in New Mexico. The balance of the fund, after the

appropriation, shall be transferred to the general fund.

Significant Issues

Sections 53-7-1 through 53-7-46 NMSA 1978 establishes the business development corporation

as a for-profit corporation to promote and stimulate business in New Mexico. The business de-

velopment corporation fund was created as part of this Act.

The EDD is generally charged with developing business opportunities in New Mexico. In 2003,

the Economic Development Partnership (EDP) was created in concert with the passage of the

Economic Development Corporation Act as a non-profit organization to focus on recruiting new

business to the state and helping existing businesses to expand. Currently, EDP is funded en-

tirely through a contract with EDD; however, the statute requires EDP to solicit funding from

federal and private sources. Essentially, EDD out sources its business development functions to

EDP.

House Bill 1053 appropriates $1 million to EDD for the purpose of enhancing small business and

rural economic development in New Mexico. The bill provides little detail as to how EDD

should spend the funding. EDD could direct some or all of this funding to the EDP or could di-

rect it to its other existing programs.

Based on information received from the EDD Secretary Homans, EDD proposes to use the $1

million appropriation to fund Economic Project Implementation Grants and to double the number

of Main Street Communities.

EDD indicates that it would spend $500 thousand to provide technical assistance to take 10 exist-

ing economic development strategic plans in disadvantaged communities and begin to implement

them. Ten grants of $50 thousand each would be awarded for implementation of economic pro-

jects to 3 Indian tribes, 3 land grant communities and 4 rural communities. EDD indicates that

by January 2007, 10 projects would be under construction or opening their doors.

According to EDD, another $500 thousand would be used to double the number of Main Street

Communities, which EDD asserts is one of the state’s most successful economic development

House Bill 1053/aHFL#1 -- Page 3

programs. Currently, 19 communities participate in the Main Street program, which provides

technical and support services. To help smaller communities, EDD has created a “Satellite Main

Street Community” designation. EDD proposes to use $500 thousand to fund 8 additional Main

Street communities and 11 additional Satellite Main Street communities. According to EDD, the

following communities have committed resources and applied for Main Street designation:

Chama, Clayton, Espanola, Gallup, Las Vegas, Raton, Santa Rosa and Springer.

The Senate Finance Committee substitute for House Bill 2 appropriates $1 million to the EDD

for the EDP. The EDP has a staff of 6. By statute, EDP is required to establish relationships

with communities throughout New Mexico, work for those communities in recruiting the types

of businesses and jobs sought by the communities, solicit economic development funds from

federal and private sources, participate in economic development conferences and job fairs to

educate businesses throughout the country and the world on the economic benefits and other at-

tractions of New Mexico, and sponsor forums and conferences to improve business skills of New

Mexico businesses and citizens.

EDD has essentially contracted out its business development activities to EDP, raising questions

as to the logic of outsourcing core agency activities while maintaining full staffing to provide the

same functions. This duplication of function has clearly created integration challenges and ambi-

guity of purpose for EDD business development staff in-house.

The appropriation contained in this bill may exacerbate this concern, providing $1 million for

EDD programs that appear to duplicate the goals of the EDP, for which another $1 million is ap-

propriated in House Bill 2.

FISCAL IMPLICATIONS

The bill makes a non-recurring appropriation of $1 million from the business development cor-

poration fund to the EDD. Any unencumbered or unexpended balance remaining at the end of

FY 06 will revert to the general fund. The remainder of the current balance in the business de-

velopment corporation fund, approximately $350 thousand according to the Treasurer’s Office,

will be transferred to the general fund and the business development corporation fund will be

repealed.

The appropriation of $1 million to EDD appears to be substantially similar to an appropriation of

$1 million in the Senate Finance Committee substitute for House Bill 2. The latter appropriation

is contingent upon the EDP’s securing $300 thousand in private funding.

OTHER SUBSTANTIVE ISSUES

With the recent establishment of the EDP, the continued existence of the business development

corporation appears to be duplicative. It therefore seems reasonable to repeal the corporation.

EF/lg:rs