Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Garcia, MH

ORIGINAL DATE

LAST UPDATED

1/25/07

HB 145

SHORT TITLE Public School Construction Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(13,008.6)

Recurring General Fund

(8,672.4)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public School Facilities Authority (PSFA)

Public Education Department (PED)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 145 creates a new gross receipts tax deduction for receipts from providing

construction services to a school district or the public school facilities authority to construct a

public school facility.

The effective date of these provisions will be July 1, 2007.

FISCAL IMPLICATIONS

Based on information provided by PSFA, state spending on public school construction averages

about $120 million per year. This amount is matched by local spending, bringing average state

and local public school construction spending to about $240 million per year. In addition to this

$240 million from the state and local matching, local districts also pay about $125 million more

per year for projects separate from the Public School Capital Outlay Council for a grand total of

$365 million per year.

House Bill 145 – Page

2

PFSA estimates that about 10 percent of this $365 million ($36.5 million) is spent on design and

other services not eligible for the new deduction. Assuming a statewide effective tax rate of 6.6

percent on the remaining $337.5 million, this deduction will reduce gross receipts tax revenue by

about $21.7 million. About 60 percent of this revenue loss will accrue to the general fund, while

about 40 percent will accrue to local governments.

An important caveat is that while this estimated fiscal impact may hold on average, state

spending on public school capital outlay fluctuates dramatically from year to year. Years with

greater capital outlay expenditures for public education will result in a higher fiscal impact from

this bill.

SIGNIFICANT ISSUES

LFC notes that while individual deductions from the gross receipts tax may have small fiscal

impacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue. Construction currently represents about 13 percent of the state’s gross

receipts tax base.

This bill reduces the cost of public school construction, but does so at the expense of having less

general fund revenue available to fund school operations.

The bill will reduce local government gross receipts tax collections. Many of New Mexico’s

local governments are highly dependent on gross receipts tax revenue.

ADMINISTRATIVE IMPLICATIONS

The administrative impact on TRD will be minimal.

TECHNICAL ISSUES

TRD notes that the bill is unclear about whether maintenance and repair of facilities will be

eligible for the new deduction. A definition of the term “construction services" would clarify the

bill.

The sale of construction services to government entities at the federal, state and local level are all

generally subject to the gross receipts tax. House Bill 145 would provide a deduction for certain

spending by local and state governments, and thus could lead to a federal challenge that New

Mexico’s taxation of construction is discriminatory. Given the large presence of federal facilities

in the state, this could pose a serious threat to the state gross receipts tax base.

SS/csd