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

SPONSOR Silva

ORIGINAL DATE

LAST UPDATED

1/28/06

2/15/06 HB 275/aHBIC/aSFC

SHORT TITLE NMFA Economic Development Fund Projects

SB

ANALYST Kehoe/Lewis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

NFI

NFI

(See Narrative) Economic Develop-

ment Revolving Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to Senate Bill 357.

SOURCES OF INFORMATION

LFC Files

New Mexico Finance Authority (NMFA)

SUMMARY

Synopsis of SFC Amendment

The Senate Finance Committee amendment strikes all HBIC amendments (apparently to correct

a clerical/drafting error by which one project was repeated and another left out). All of the pro-

jects from the HBIC amendment are included in the SFC amendment, and another eight projects

are added. As amended by SFC, HB 275 authorizes financing for a total of 44 projects.

Synopsis of HBIC Amendment

The House Business and Industry Committee amendment authorizes the New Mexico Finance

Authority to provide financial assistance to an additional 16 entities for 25 private projects from

the economic development revolving fund.

Synopsis of Original Bill

House Bill 275, introduced for the New Mexico Finance Authority Oversight Committee, grants

legislative authority to the New Mexico Finance Authority to provide financial assistance for 12

private projects from the economic development revolving fund for 10 counties (Bernalillo,

Chaves, Dona Ana, Eddy, Luna, Rio Arriba, San Miguel, Sandoval, Santa Fe and Valencia).

House Bill 275/aHBIC/aSFC – Page

2

SIGNIFICANT ISSUES

Laws 2003, Chapter 349, enacted the Statewide Economic Development Finance Act authorizing

creation of a Statewide Economic Development Finance Program, creation of the economic de-

velopment revolving fund, and authorizing NMFA to issue certain Economic Development

Bonds and make loan participation and loan guarantees on behalf of entities engaged in qualify-

ing economic development projects. However, the fund was not initially capitalized.

FISCAL IMPLICATIONS

Laws of 2005, Chapter 347, appropriated $10 million for the “Smart Money” loan participation

program to capitalize the economic development revolving fund. The 12 projects authorized

within House Bill 275 would require $15 million in loans from the fund. The NMFA indicates

the funds will attract an estimated $31 million from private lenders and an estimated $30 million

in private equity. According to NMFA, these investments are projected to generate over 1,800

direct and indirect jobs and $656 million in new wage income over the next ten years. The

NMFA will estimate the overall economic impact of each project by analyzing the long-term

economic diversification, the increase in revenue to the state, job creation, and geographical lo-

cation to determine priority of funded projects.

The NMFA will leverage the capital by partnering with private banks and institutions so that

loans from the fund finance no more than 49 percent of a total project. The program is designed

to match the risk-need with appropriate financing arrangements. In a rural area, for example,

local lenders may be constrained by legal lending limits and out-of-area lenders may be uncom-

fortable with the location. Regardless of the reason, the program will bridge the gap and give

businesses in all areas of the state access to affordable capital. Some projects may only need

introductions to lenders while others may need direct guarantees.

In accordance with the Act, NMFA has adopted rules, regulations and policies for administration

of the program. In administering the loan participation program, NMFA will generally rely on

the bank’s underwriting process and assign a risk premium comparable to that assigned by the

private lender (e.g., bank lends at Prime plus 200 basis points, NMFA will likely lend at treasury

plus 200 basis points.). NMFA will review the bank’s interest rate and risk analysis, perform its

own quantitative analysis to assure conformance with banking industry standards and NMFA

policies. To ensure the integrity of loans and protect the State’s money, a claw back provision

will be required in the loan participation agreement that will include an interest rate escalator that

can be enacted if the business is not meeting stated economic impact. Periodic reporting to

NMFA by the originator is required.

OTHER SUBSTANTIVE ISSUES

NMFA indicates “New Mexico has more PhD scientists and engineers per capita than any other

state in the nation. New Mexico is third in the amount of private research and development, sec-

ond in the amount of federal research and development and seventh in university research and

development expenditures per capita. This is an incredibly strong knowledge base with which to

build an economy of the twenty first century. New Mexico has often been short on the invest-

ment capital to nurture ideas and use its valuable knowledge base to develop a sustainable econ-

omy. New Mexico’s investment of its financial wealth today in Smart money and other eco-

nomic development finance programs can diversify the state’s economy, both across industries

House Bill 275/aHBIC/aSFC – Page

3

and geographic regions, paying dividends for centuries. The current wealth in oil and gas tax

revenue gives New Mexico an unsurpassed opportunity to invest in economic development fi-

nance initiatives crucial to diversifying our economy so that it can create adequate and sustain-

able wealth for our future. New Mexico must look to its strengths and make substantial invest-

ments to create new engines of long-term economic growth.”

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 357 amends the Economic Development Finance Act to authorize NMFA to form,

operate or own a community development entity and participate in the Federal New Markets Tax

Credit Program.

LMK/ML/mt:yr