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

SPONSOR Martinez

ORIGINAL DATE

LAST UPDATED

2/20/2007

HB

SHORT TITLE Northern New Mexico Economic Development Fund SB 767

ANALYST Schuss

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($20,000.0)

($20,000.0) Recurring

General Fund

$20,000.0

$20,000.0 Recurring

Northern New Mexico

Economic Development

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

* The earmark sunsets June 30, 2014. Because of this extended period, both the General Fund

loss from July 2007 through June 2014 and the General Fund gain from July 2014 forward would

be classed as recurring.

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07 FY08 FY09 3 Year Total Recurring

or Non-Rec

Fund

Affected

Personnel

$367.6 $367.6

$735.2

Recurring

General Fund

Other Costs

(Including Start-Up Costs)

$42.0

$42.0

Recurring

General Fund

Total

$409.6 $367.6

$777.2

Relates to SB 1115; Duplicates HB 914

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Economic Development Department (EDD)

Senate Bill 767 – Page

2

SUMMARY

Synopsis of Bill

Senate Bill 767 creates the Northern New Mexico economic development fund and annually

appropriates $20,000,000 from the general fund to the Northern New Mexico economic

development fund in FY08 through FY14. This fund shall consist of future distributions,

appropriations, gifts, grants and donations. Income from investment of the fund shall be credited

to the fund. Money in the fund shall not revert or be transferred to another fund. . The annual

appropriation provided in SB 767 would be funded via a monthly disbursement from the tax

administration suspense fund of $1,666,667.

The fund would be used to provide grants to communities in the North Central New Mexico

Economic Development District, which we understand to be a regional governmental entity

created pursuant to the Joint Powers Agreement Act. According to its website, the district

currently encompasses the following counties: Colfax, Los Alamos, Mora, Sandoval, Rio Arriba,

San Miguel, Santa Fe, and Taos. (The North Central New Mexico Economic Development

District website can be found at http://www.ncnmedd.com/index.htm.)

The fund would be administered and grants from the fund made by the Local Government

Division of the Department of Finance and Administration (LGD). SB 767 requires LGD to

develop grant award criteria in cooperation with the North Central New Mexico Economic

Development District.

Grants could be made for (i) water and wastewater projects; (ii) airport construction or

expansion; (iii) solid waste facilities; (iv) public transportation equipment and vehicles;

(v) telecommunications systems; and (vi) other economic development projects

FISCAL IMPLICATIONS

The distribution of $20,000,000 contained in this bill is a recurring expense to the general fund.

Any unexpended or unencumbered balance shall not revert to the general fund. The funds are to

be distributed to the Northern New Mexico economic development fund in monthly increments

of $1,666,667.

This bill creates a new fund and provides for continuing appropriations. The LFC has concerns

with including continuing appropriation language in the statutory provisions for newly created

funds, as earmarking reduces the ability of the legislature to establish spending priorities.

The funds distributed to the Northern New Mexico economic development fund are funds that

are currently remaining in the tax administration suspense fund at months end. These funds

would otherwise be distributed to the general fund.

This $20,000,000 earmark represents approximately 34% of the gross receipts tax we anticipate

the State will receive in FY08 as a result of management of the Los Alamos National Laboratory

changing from the University of California, which qualified for a gross receipts tax deduction

because it was a 501(c) (3) organization, to Los Alamos National Security, Inc., a private

company. This earmark expires in FY14.

Senate Bill 767 – Page

3

The LGD will administer the Fund and all distributions from it. SB 767, however, provides no

appropriation to the LGD to cover its costs of administration. The LGD suggested that SB 767 be

amended to allow it to recover its actual administrative costs from the fund, up to a maximum of

3% of the appropriations to the fund in a given fiscal year or, in years when there are no

appropriations to the fund, 3% of the fund balance at the beginning of the fiscal year.

The LGD estimates that it would need the following additional staff to discharge its new duties

under HB 914: four Management Analysts-Advanced and two Financial Coordinators-Advanced.

The personnel cost figures in the “Estimated Additional Operating Budget Impact" subsection of

Section II are based upon the current median salary at the Local Government Division for these

positions; i.e.,

$42,448 per year for a Management Analyst-Advanced and $56,669 for a

Financial Coordinator-Advanced. Benefit costs were calculated at 30% of annual salary. Other

costs could include start-up costs, such as computers, furnishings, and the like, for these new

positions as well as on-going operational costs, such as telephone charges, postage, duplication,

rule-making costs, etc. Start-up costs are estimated at $7.0 per position, for a total of $42.0 in

FY08. Other costs cannot be reasonably anticipated at this time, but would not exceed the annual

cap proposed.

SIGNIFICANT ISSUES

DFA notes that SB 767 proposes that the State share its “windfall gain" from the new taxability

of the Los Alamos National Laboratory. This gross receipts taxability derives from the

management by Los Alamos National Security – a private company – instead of the University

of California, which qualified for a gross receipts tax deduction because it was a 501(c) (3)

organization. SB 767 would earmark approximately 34% of this anticipated revenue for

infrastructure projects in eight counties. If SB 767 is enacted, it can be anticipated that individual

local governments or consortiums of local governments will seek to have other State revenue

(e.g., oil and gas taxes) be earmarked for their regions because of their proximity to the taxable

transactions.

The LGD would award grants from the Fund, based upon criteria it develops in cooperation with

the North Central New Mexico Economic Development District. This vests discretion to award

over $20,000,000 annually in a single division of an executive agency. The LGD suggests that,

instead, SB 767 be amended to create a council comparable to the New Mexico Community

Development Council to make awards from the Fund. The New Mexico Community

Development Council is created in the New Mexico Community Assistance Act, and given

power to determine the recipients and amounts of community development block grant awards.

Appropriately constituted, such a council would help ensure that grant awards are made based

upon a broad range of interests and perspectives.

Alternatively, functions envisioned for the LGD could instead be vested in the New Mexico

Finance Authority, whose membership already allows for a diverse range of interests and

perspectives.

The creation of the Fund has the potential to impact communities in a positive manner in

conformance with the mission statement of the Economic Development Department.

Senate Bill 767 – Page

4

RELATIONSHIP

Relates to SB 1115, which requests that the same distribution be made to the Southwest and

South Central economic development fund. SB 1115 creates this fund.

Duplicates HB 914

TECHNICAL ISSUES

DFA notes the following technical issues:

SB 767 does not define the “communities" that would be eligible to receive grants. In addition,

the membership in the North Central New Mexico Economic Development District is not set by

statute. Consequently, the underlying Joint Powers Agreement creating the district should be

consulted to determine whether existing members could be excluded against their will and

under

what circumstances (if any) other counties (e.g., Harding County or Bernalillo County) could

join the district. This is important because, if membership in this Joint Powers Agreement entity

is determined by existing and would-be members, local governments themselves – rather than

the Legislature – would determine who is eligible for grants from the fund.

Section 2 of SB 767 enacts a new section of the Tax Administration Act, Section 7-1-6.55

NMSA 1978, which requires a monthly distribution from the tax administration suspense fund of

$1,666,667, pursuant to Section 7-1-6.1 NMSA 1978. Unlike other regular distributions from the

tax administration suspense fund required by Sections 7-1-6.2 through 7-1-6.54, this new

distribution is not tied to the underlying revenue stream, in this case the State gross receipts tax

generated by virtue of the Los Alamos National Security, Inc. managing the Los Alamos

National Laboratory. Among other things, this means that, should anticipated laboratory gross

receipts tax revenue fall short, distributions to the Northern New Mexico Economic

Development Fund will come from other General Fund revenue that potentially bears no

connection to the region being benefited.

Section 2 of SB 767 authorizes a disbursement to the Northern New Mexico Economic

Development Fund but does not expressly appropriate money to the fund. Moreover, Section

1(B) of SB 767 provides that “all other money in the fund is appropriated to the division to make

grants for infrastructure projects in communities in the North Central New Mexico economic

development district." The “other" before “money" could be read as limiting the appropriation

for grants to money other than the distribution pursuant to Section 7-1-6.55 NMSA 1978.

AMENDMENTS

DFA suggested the following amendments:

Lack of Definitive Definition of Eligible Communities and Geographic Boundaries.

Assuming the

Legislature wanted to target the existing members of the North Central New Mexico Economic

Development District, SB 767 could be amended to provide that all political subdivisions within

the following counties are eligible to receive grants from the fund: Colfax, Los Alamos, Mora,

Sandoval, Rio Arriba, San Miguel, Santa Fe, and Taos.

Senate Bill 767 – Page

5

Local Government Division Administrative Costs.

SB 767 vests responsibility for a $20,000,000

program in the LGD without appropriating to it any money with which to meet the new

responsibility. SB 767 should be amended so as to appropriate to the LGD from the Fund an

amount sufficient to cover its actual administrative costs from the fund, with such expenses being

capped at 3% of the appropriation to the fund in a given fiscal year or, in years when there are no

appropriations to the fund, 3% of the fund balance at the beginning of the fiscal year. This money

should be appropriated to the Division. Any unreserved unallocated balance for administrative

costs remaining at the end of the fiscal year should revert to the Fund or to the General Fund.

Distribution Limited to Los Alamos National Laboratory Gross Receipts Tax Revenue.

Section 2

of SB 767 ought to be amended to (i) require that the proposed monthly distribution be paid

exclusively from State gross receipts tax generated by virtue of the Los Alamos National Security,

Inc. managing the Los Alamos National Laboratory; (ii) that, in the event there is insufficient

revenue to make a full distribution, the amount of the distribution shall be reduced to the amount of

available revenue; and (iii) monthly shortfalls can be made up in subsequent months, revenue

allowing.

Clarifying “Other Economic Development Projects".

Clarification should be considered that would

outline allowable expenditures under “other economic development projects". In addition, to the

extent it is envisioned that such projects will be pursuant to the Economic Development Act, “other

economic development projects" should be amended to read “other economic development

projects, such projects to be in accordance with the Economic Development Act, to the extent

applicable."

Creating Council to Award Projects/New Mexico Finance Authority.

A council, analogous to the

New Mexico Community Development Council, should be created to award grants. Alternatively,

the functions envisioned for the Local Government Division could instead be vested in the New

Mexico Finance Authority.

Appropriation Language.

Section 2 of SB 767 could be amended by adding the following language

after the existing text: “This amount is appropriated to the northern New Mexico economic

development fund for expenditure in accordance with all applicable laws and regulations."

Similarly, language giving the authority for the LGD to spend up to 3% of the balance of the fund

for administration should be adopted (see above). Section 1(B) of SB 767 could be amended by

striking “other" on page 2, line 3, so that the pertinent text would read “all money in the fund is

appropriated to the division to make grants for infrastructure projects in communities in the North

Central New Mexico economic development district."

BS/csd