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

SPONSOR Cote

ORIGINAL DATE

LAST UPDATED

1/25/08

HB 387

SHORT TITLE Locomotive Fuel Tax Exemption Effective Dates

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

$4,986.0 Non-Recurring General Fund

$623.0 Non-Recurring Small Cities

Assistance Fund

$623.0 Non-Recurring Small Counties

Assistance Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

No Response Received From

Economic Development Department (EDD)

SUMMARY

Synopsis of Bill

House Bill 387 amends Laws 2007, Chapter 172, Section 29, which stated the effective date for

the locomotive fuel gross receipts and compensating tax exemptions that were enacted in 2007 as

part of House Bill 839, the omnibus economic development tax bill.

Under current law, those tax exemptions would become effective on July 1, 2009 if construction

of a railroad locomotive refueling facility project in Dona Ana county has commenced, including

by January 1, 2009. House Bill 387 provides that if that condition is not met, the tax exemptions

will become effective one year later on July 1, 2010 if construction of the project has

commenced by January 1, 2010.

House Bill 387 – Page

2

FISCAL IMPLICATIONS

Based on information from the U.S. Department of Transportation, TRD estimates that

approximately 59 billion ton-miles of freight are carried on New Mexico’s railroad lines each

year. Based on an estimate of 710 ton-miles traveled per gallon of fuel, TRD estimates that about

83.1 million gallons of railroad fuel are consumed in New Mexico each year.

Of the 83.1 million gallons of railroad fuel consumed in New Mexico each year, it is estimated

that about 41.6 million are purchased in California, where sales tax is paid, making those 41.6

million gallons eligible for a compensating tax credit that existed prior to the exemption enacted

in 2007. The remaining 41.6 million gallons will qualify for the exemptions enacted in 2007.

Assuming an average fuel price of $3 per gallon, the tax base eligible for the compensating

exemption enacted in 2007 is about $124.7 million (41.6 million gallons X $3). Since the

compensating tax rate is 5 percent, tax collections eligible for the exemption total $6.2 million.

Absent the exemption, 80 percent of this revenue would accrue to the general fund ($4,986

thousand) and 20 percent would accrue to the small cities and small counties assistance funds

($623 thousand).

Summary of FY10 Nonrecurring Impacts (in thousands)

General Fund: $4,986.0

Small Cities Assistance Fund: $623.3

Small Counties Assistance Fund: $623.3

Construction of the Santa Teresa facility is expected to begin in time to make the compensating

tax exemption effective in FY11 instead of FY10. Since the December 2007 consensus revenue

estimate for compensating tax did not increase in anticipation that the Santa Teresa facility

would not commence construction in time to earn the compensating tax exemption in FY10, this

bill will result in a nonrecurring revenue increase in FY10.

SIGNIFICANT ISSUES

In October 2006, Union Pacific railroad announced plans to build a new terminal facility four

miles west of Santa Teresa, New Mexico, which is near El Paso, Texas and the Mexican border.

Union Pacific’s agreement to build the facility in New Mexico was contingent on removal of

New Mexico’s gross receipts and compensating tax liabilities for locomotive fuel by 2009.

The Santa Teresa facility will employ 260 Union Pacific employees who currently work in El

Paso as well as 285 new employees. The 285 new jobs will be mainly engineers and mechanical

workers. The Santa Teresa facility will be constructed on about 1 thousand acres of Bureau of

Land Management (BLM) and State of New Mexico land.

In 2007, House Bill 839, the omnibus economic development tax bill, created a gross receipts tax

exemption for receipts from the sale of fuel to a common carrier for use in a locomotive engine,

as well as a compensating tax exemption for the value of fuel used by a common carrier in a

locomotive engine. Those exemptions were to become effective on July 1, 2009 contingent on

commencement of construction of the United Pacific terminal facility by January 1, 2009.

House Bill 387 – Page

3

Construction of the Santa Teresa facility has been delayed because acquisition of land owned by

BLM is taking more time than anticipated. The land will be acquired through a land exchange

between BLM and the State Land Office, with subsequent sale to Union Pacific.

By 2015, Union Pacific plans to construct an intermodal ramp at the Santa Teresa facility that is

expected to process about 100 thousand container units each year. This type of facility is used to

transfer shipping containers from one train to another or from train to truck.

In 2005, federal Safe, Accountable, Flexible, and Efficient Transportation Equity Act provided

$14 million to relocate Union Pacific’s facility from El Paso to Santa Teresa. About $5 million

of that federal funding will be used to construct a road connecting Pete Domenici Highway in

Santa Teresa to the new Union Pacific facility.

ADMINISTRATIVE IMPLICATIONS

Administrative impacts on TRD will be minimal.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The plan to relocate Union Pacific’s facility from El Paso to Santa Teresa may fall through.

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