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

SPONSOR Park, A.

ORIGINAL DATE

LAST UPDATED

2/08/06

2/13/06 HB 842/aHTRC

SHORT TITLE Municipal Sports Authority Gross Receipts

SB

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

None

(Parenthesis ( ) Indicate Expenditure Decreases)

House Bill 842 duplicates Senate Bill 739.

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(Indeterminate)* (Indeterminate)* Recurring General Fund

Indeterminate

Indeterminate Recurring Local Govern-

ments

(Parenthesis ( ) Indicate Expenditure Decreases)

* The revenue impact will depend on how many districts are formed. The maximum revenue

that could be raised if all local governments in the state were to impose one-sixteenth percent

local option tax would be about $27 million. There would be $2 million decrease to the general

fund due to the hold harmless distribution for food and medical deductions if all local govern-

ments imposed one-sixteenth percent. These impacts could increase four-fold if all areas enact

the local regional sports authority gross receipts tax up to the maximum of one-fourth of one per-

cent.

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY06

FY07

FY08 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

($0.1)

($0.1)

($0.1) Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

House Bill 842/aHTRC– Page

2

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Energy, Minerals, and Natural Resources Department (EMNRD)

New Mexico Finance Authority (NMFA)

SUMMARY

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amendment makes the income or other revenue of

a sports authority subject to state taxation.

The HTRC amendment further makes technical or clarification corrections. In particular, the

amendment specifies the role of the New Mexico Finance Authority in the Sports Authority’s

issuance of bonds. In Section 9 (B) the amendment removes the requirement that bonds meet

specific terms of execution and payment.

Synopsis of Original Bill

House Bill 842 creates the Regional Sports Authority Act, establishes the municipal and county

regional sports authority gross receipts tax, and authorizes the creation of and provides powers to

regional sports authorities.

The purpose of regional sports authorities, comprised of two or more governmental units, would

be to plan for and create athletic and recreational services for the citizens of the authority; to

plan, construct, operate and maintain athletic and recreational facilities; and enter into agree-

ments with other political subdivisions, public schools and universities to allow residents of other

political entities to use the facilities of the authority.

Each county or municipality that is a member of a regional sports authority is to enact a munici-

pal regional sports authority gross receipts tax or county regional sports authority gross receipts

tax. The local option would be imposed in increments of one-sixteenth percent but not to exceed

one-fourth percent and is to be used for the management, construction or operation of a regional

sports authority or for specific public athletic or recreational projects or services of the authority.

The tax must be approved by a majority of the voters.

The local regional sports authority gross receipts tax would be eligible for the hold harmless dis-

tribution placed on food and medical deductions. The Taxation and Revenue Department will

also receive an administrative fee from the local regional sports authority gross receipts tax.

Public hearings and display of public notices would be made before the regional sports authority

would be created. The Governor would also have to approve the regional sports authority. The

bill also outlines the powers and duties of the Board for each authority. An authority would be

able to sue and be sued, enter into contracts and agreements, set fees for the authority’s facilities,

pledge revenues to the payment of bonds, acquire personal property and rights of way, accept

House Bill 842/aHTRC– Page

3

property and gifts, and provide services outside the boundaries of the authority. It allows the au-

thority to issue revenue bonds, with the proceeds used to finance the purchase, construction,

renovation, equipping or furnishing of a sports authority project.

The bill specifically provides that the property and income of the sports authorities and income

from their bonds would not be subject to state taxes.

FISCAL IMPLICATIONS

The revenue impact to the state is indeterminate. According to TRD, the actual fiscal impact of

the proposal bill is uncertain because it depends on which jurisdictions elect to participate in a

regional sports authority. The revenue potential associated with each jurisdiction is presented in

the attached table.

There would be a reduction in general fund revenue associated with any new local option ap-

proved for the regional sports authorities because of the hold harmless distributions to local gov-

ernments for any food and medical deduction reported in their jurisdiction.

SIGNIFICANT ISSUES

According to EMNRD, by exempting the revenues of regional sports authorities from state taxa-

tion (Section 12) state revenue growth will be reduced. This, in turn, will hamper the ability of

the New Mexico Finance Authority, the Department of Cultural Affairs, and the Energy, Miner-

als and Natural Resources Department (EMNRD) to complete needed capital projects. EMNRD

agencies that specifically benefit from government gross receipts taxes (GGRT) are the State

Parks Division (SPD) and the Youth Conservation Corps (YCC). With reduced future growth of

GGRT revenue, the New Mexico Finance Authority will do fewer projects. Similarly, SPD

would have less funding for its capital program, which already faces a current backlog of $45

million in unfunded capital needs at existing state parks. YCC activities would be similarly

hampered.

NMFA also notes that Section 12 will have an effect on the GGRT collection. The language ex-

empts the sports authority from paying GGRT by creating an alternative venue for Municipalities

or Counties by having the sports authority hold all sporting events. By law, the NMFA receives

75% of the State’s GGRT. Section 7-1-6.38, the statute that directs the distribution of GGRT,

states clearly that the State will not take action to diminish the GGRT while bonds are out-

standing. Specifically, “The state pledges to and agrees….that the state will not limit, reduce or

alter the distribution of the net receipts attributable to the governmental gross receipts tax to the

NMFA… until the bonds or notes together with the interest thereon are fully met and dis-

charged. The NMFA (is) authorized to include this pledge and agreement of the state in any

agreement with the holders of the bonds or notes.” The bond holders have been pledged, through

the Public Project Revolving Fund (PPRF) program’s General Indenture, 75% of the GGRT col-

lections. The NMFA has included the permitted non-impairment pledge on all PPRF bonds is-

sued under the Indenture.

Further, the Non-Impairment Clause of the New Mexico Constitution, Article II, Section 19, ex-

pressly prevents the legislature from taking any action that impairs existing contractual relation-

ships. The NMFA has been able to effectively market its bonds in the municipal bond markets

because it represented to the bond purchasers that the State would take no action to impair the

House Bill 842/aHTRC– Page

4

contractual relationship. Holders of outstanding bonds issued over the past twelve years by the

NMFA may file suit to prevent any reallocation of GGRT from the PPRF, in order to protect

their contractual rights. A violation of that pledge not only impacts the NMFA’s current bonds

but also adversely impacts the ability of the NMFA, as well as the State and its political subdivi-

sions, from effectively participating in the municipal bond market.

ADMINISTRATIVE IMPLICATIONS

TRD reports that the legislation will have a major administrative impact. It should be noted,

however, that TRD finds only a moderate administrative impact from similar legislation creating

Regional Spaceport Districts, obfuscating the actual administrative work imposed by the creation

of such districts and local option taxes.

According to TRD, a new local option tax will have to be implemented in the system. Taxpayers

will now have to know the codes for their municipality, county and local regional authority. Dis-

tributions will have to be changed if the Department sends the distributions received from the

local regional sports authority gross receipts tax directly to the authority. Additional compliance

and systems resources would be required to ensure all taxpayers are in compliance with the tax.

Additional systems resources will be needed to administer the food and medical reporting issue

within the district.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 842 duplicates Senate Bill 739.

TECHNICAL ISSUES

TRD indicates that the bill does not provide the department with authorization to distribute the

revenue collected pursuant to the new local option gross receipts taxes. For this purpose, the pro-

posal should contain amendments to the relevant section of Section 7-1-6 NMSA.

BE/nt