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

SPONSOR Moore

ORIGINAL DATE

LAST UPDATED

2/11/06

HB 825

SHORT TITLE Certain Projects Without Legislative Approval

SB

ANALYST Lewis

APPROPRIATION (dollars in thousands)

Appropriation

FY06

FY07

Recurring

or Non-Rec

Fund

Affected

1,000.0

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to

HB 290/SB 360 (NMFA Public Project Revolving Fund Changes)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

1,000.0

Recurring

Economic

Development

Revolving

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

Economic Development Department (EDD)

SUMMARY

Synopsis of Bill

House Bill 825 amends the Statewide Economic Development Finance Act to allow the New

Mexico Finance Authority to

provide financing assistance in an aggregate amount not to exceed

$1,000,000 per year for standard projects without prior legislative authorization.

HB 825 appropriates $1,000,000 from the general fund to the economic development revolving

House Bill 825 – Page

2

fund for expenditure in fiscal year 2007 and subsequent fiscal years, without reversion, for the

purpose of carrying out the provisions of the Statewide Economic Development Finance Act.

FISCAL IMPLICATIONS

The appropriation of $1,000,000 contained in this bill is a recurring expense to the general fund.

Any unexpended or unencumbered balance remaining at the end of a fiscal year shall not revert

to the general fund.

The New Mexico Finance Authority (NMFA) estimates that each $1 million loan from the eco-

nomic development revolving fund leverages $2 million in private financing and $3 million in

contributed equity while creating 37 direct and 14 indirect jobs for New Mexicans. The wages

earned over a ten year period for these 51 jobs are estimated to total approximately $21 million.

SIGNIFICANT ISSUES

According to the New Mexico Finance Authority (NMFA), the initial focus of the NMFA, with

regard to the economic development revolving fund, has been on implementation of the “Smart

Money Loan Participation Program,” which leverages New Mexico’s capital by bringing in pri-

vate banks and lending institutions as partners, so that loans from the fund finance no more than

49 percent of the total project. Within the loan participation program, the NMFA generally relies

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

private lender. For example, if the bank lends at the prime rate plus 200 basis points, NMFA will

likely lend at treasury plus 200 basis points.

NMFA staff review the bank’s interest rate and risk analysis, and perform their 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 the authority by the origi-

nator is required. The NMFA also estimates the overall economic impact of each project. Long

term economic diversification, an increase in revenue to the state, job creation, and geographical

location will determine priority of funded projects.

The NMFA notes that this amendment will allow the NMFA to provide smaller businesses with

more business-friendly timelines. Smaller businesses are less able to withstand the longer time-

frame otherwise required by the Statewide Economic Development Finance Act. House Bill 825

provides these smaller businesses with greater access to the program.

ADMINISTRATIVE IMPLICATIONS

The Economic Development Department (EDD) notes that the

increased funding may require the

addition of another FTE to administer the program.

TECHNICAL ISSUES

The

Statewide Economic Development Finance Act defines “standard project” as land, buildings,

improvements, machinery and equipment, operating capital and other personal property for

which financing assistance is provided for adequate consideration, taking into account the antici-

House Bill 825 – Page

3

pated quantifiable benefits of the standard project, for use by an eligible entity as:

1)

industrial or manufacturing facilities;

2)

commercial facilities, including facilities for wholesale sales and services;

3)

health care facilities, including hospitals, clinics, laboratory and related office facilities;

4)

educational facilities, including schools;

5)

arts, entertainment or cultural facilities, including museums, theaters, arenas or assembly

halls; and

6)

recreational and tourism facilities, including parks, pools, trails, open space and equestrian

facilities.

ML/nt