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

SPONSOR Barela

ORIGINAL DATE

LAST UPDATED

1/29/08

HB 451

SHORT TITLE Greenfield Tax Increment Districts

SB

ANALYST Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

100.0 Nonrecurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

NFI

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to HB276, SB398

Conflicts with SB434

SOURCES OF INFORMATION

LFC Files

Response Received From

Department of Finance and Administration (DFA)

Economic Development Department (EDD)

SUMMARY

Synopsis of Bill

House Bill 451 would make several changes to the Tax Increment for Development Act (5-15

NMSA 1978).

1.

Defines “greenfield tax increment for development district" as a tax increment for

development district (TIDD) that has not been previously developed and is not currently

House Bill 451 – Page

2

served by municipal or county public infrastructure and whose plan primarily relies on new

residential and commercial structures rather than the renovation of existing structures.

2.

Require a city or county to notify the Department of Finance and Administration, the

Taxation and Revenue Department, and the Legislative Finance Committee about TIDD

related actions including adoption of a TIDD ordinance or resolution and public notice of

hearing.

3.

Change the election statute for TIDD boards to require one of the TIDD board members to be

the Secretary of DFA or designee.

4.

Changes the maximum state increment percentage to 50 percent for non-greenfield TIDDs

and 20 percent for greenfield TIDDs with the opportunity to increase the increment if certain

conditions are met.

o

Land, infrastructure and capital for public school facilities

o

Transit-oriented development

o

20 percent affordable/workforce housing

5.

Adds a restriction on the Board of Finance (BOF) approval of the increment to ensure that

the value of projected revenues meets or exceeds costs of providing services to the TIDD.

6.

Allow Board of Finance to ask applicants to fund an independent review of their fiscal and

economic study.

7.

Revert excess revenue not required for debt service on long term bonds to taxing entity.

8.

Requires legislative authorization of TIDD bonds to include the maximum value authorized.

9.

Creates new reporting requirements of the TIDD

o

Accounting for all revenues and expenditures

o

Identify and report on all incentives and capital outlay appropriations the TIDD

receives

10.

Creates a Tax Increment Financing task force made up of DFA, TRD, NMFA, New Mexico

Association of Counties, New Mexico Municipal League, AFSCME, NM chapter of

American Planning Association, LFC, affected neighborhoods, and members of the public at

large. The task force shall evaluate the implementation and effect of the Tax Increment for

Development Act and the consequences of approving additional greenfield TIDDs. The

focus will be on long term impacts on the general fund, local government finances, other

states’ experience, and other issues.

House bill 451 appropriates $100 thousand from the general fund to legislative council service

for costs associated to the TIDD task force.

There is an emergency clause so the bill takes effect upon signature of the Governor.

FISCAL IMPLICATIONS

The appropriation of $100,000 contained in this bill is a nonrecurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of FY09 shall revert to the

general fund.

HB451 would not affect either of the two TIDDs currently in existence: Mesa del Sol and

Westland DevCo (a.k.a. SunCal). Since the limitation on greenfield development applies to

future applicants, there is no way to calculate a fiscal impact.

House Bill 451 – Page

3

SIGNIFICANT ISSUES

HB451 is a response to the experience of the last two years since the Tax Increment for

Development Act has been in place and how it has been used and interpreted by the many

players working on the Mesa del Sol process and the Westland DevCo process. Along the way

there were many features of the legislation where there was no clear guidance and it became

apparent to many participants and observers that the legislation could be improved. Particularly

from the state’s point of view there are very few oversight and accountability mechanisms to

safeguard the state’s investment in these developments. In unincorporated areas of a county, this

means that the state is financing upwards of 90 percent of local government infrastructure with

very little input into the process and approvals.

Task force. The Tax Increment for Development Act was passed in the 2006 session and had not

been considered by any interim committees before its passage. The statute was based on other

laws such as the public improvement district act and the metropolitan redevelopment act but

there was little in the way of public input into the design of the law. Now, there have been three

TIDDs approved under the law (Mesa del Sol, Westland DevCo, downtown Las Cruces) and

many in the state feel that there is reason to revisit it and see if there are ways to improve it.

State economists feel that the task force would help in creating and implementing a common

framework to evaluate TIDDs and the fiscal and economic analyses TIDD applicants provide.

DFA is concerned that the language appropriating $100,000 needs to include the ability to hire

outside consultants or pay for econometric software so that economists under the auspices of the

task force can develop models for TIDD analysis.

DFA:

A portion of the appropriation provided in the bill could be used, perhaps, to analyze the

economic consequences of the two existing projects -- SunCal and Mesa del Sol -- using

a computable general equilibrium model of the state and regional economies. The most

advanced model available to State analysts is the Policy Insight Model v. 9.5 provided by

REMI (Regional Economic Models, Incorporated) of Amherst, MA. The State

Department of Transportation owns a seven-region version of this model and at least two

economists on staff at LFC, DFA, TRD and DOT have some level of familiarity with this

sophisticated model. DFA economists can redo the analysis of the SunCal project as an

exemplar of a large-scale, greenfield TIDD project. This comprehensive analysis can be

used as the base case for risk analysis if some of the assumptions in the current analysis

or the redone analysis are allowed to vary.

Separating the Task Force's duties into a technical analysis and a policy analysis based on

the technical analysis seems appropriate. A collateral benefit is that a comprehensive

technical analysis will lead to recommendations on standardized methodology that can be

applied to all future TIDD applications.

DFA also recommends that one of the task force goals should be to define what the term “best

interests of the state" means as this is essentially the only criteria BOF has to approve a diversion

of state revenue.

House Bill 451 – Page

4

The task force is made up of a diverse group of interested parties though it does not seem to

include a member of the developer community which would make it more inclusive. The task

force is charged with evaluating:

•

The long term fiscal impact on the general fund

•

The long term fiscal impact on local government finances

•

The amount of state and local GRT committed to TIDDs

•

Other states’ experience, particularly with using state level tax revenue

•

Consequences of TIDDs not following the procurement code

•

Economic development incentives in TIDDs

•

Likely consequences if a TIDD fails

•

Treatment of changes to the TIDD boundaries and board

•

Other avenues for providing financing for public infrastructure for new developments.

Greenfields. HB451 would limit the amount of incremental state gross receipts tax (GRT) to 20

percent with additional amounts if the development satisfies certain conditions. A “greenfield"

is essentially raw land where there has been no development before. With the exception of

downtown Las Cruces, all of the TIDD applications seen so far have been in greenfields rather

than redevelopment areas. The concern is that it is much easier to develop greenfields,

particularly those adjacent to developed areas, than existing areas and therefore should not

require much in the way of subsidies. Infill areas, areas within service areas that may be blighted

or have fallen into disuse, are much more expensive and so are less attractive to developers. It is

for these areas that tax increment financing was first established in California in the 1950s.

By placing additional hurdles on greenfields, there is much more assurance that the development

will satisfy key state and local interests: affordable housing, transit oriented development, and

investments in school facilities.

State Notification. There is no uniform method of notification to appropriate state entities that a

county or municipality has passed an ordinance allowing TIDDs. At present, state agencies

(Board of Finance (BOF), New Mexico Finance Authority (NMFA), Taxation and Revenue

Department (TRD), and LFC) rely on word of mouth and the media to find out about

municipalities and counties who are considering or who have passed TIDD legislation. It is

important to have enough time to do a thorough analysis at the state level which means the

state agencies should receive notification as soon as legislation or an application is

approved. Dona Ana and Bernalillo Counties, the Cities of Las Cruces and Albuquerque, and

the Town of Bernalillo have passed ordinances or policies to allow TIDDs.

An example of why this is necessary: LFC staff heard about the City of Farmington passing a

TIDD ordinance and upon investigation on the City’s website, there has been discussion about an

ordinance and a particular project but it was pure chance that this information was uncovered.

State Representation. Currently, there is no state representative directly charged with

monitoring TIDDs and changes to the development plan of a TIDD after approval of the Board

of Finance (BOF) and the authorization of the legislature to issue bonds although the New

Mexico Finance Authority (NMFA) does review the indenture agreement for the bonds when

they are issued. As an example, the City of Albuquerque has approved changes to the Mesa del

Sol TIDD master development plan with no input from the state that include use of proceeds and

incremental revenues. It is unclear how it will affect the state’s increment and the allowable uses

House Bill 451 – Page

5

but it illustrates the point that the state which provides the bulk of the financing for tax increment

districts through the gross receipts has the least input into the process. It is necessary for

appropriate oversight of state funds to have a state official participate in the process.

The idea of state representation, however, on what is a local board raises issues about

jurisdiction. A useful example is the capital outlay process where funds are appropriated to local

governments for capital infrastructure. The local government division of the Department of

Finance and Administration is responsible for overseeing the projects and ensuring the money is

expended as intended by the legislature.

DFA supports this item and even suggests that the majority of the board be state representatives

since it is the state that is providing the bulk of the financing.

Allow BOF to ask applicant to pay for study. Currently, the governing entity to whom a

developer is applying can ask that the developer finance an independent study to validate the

application. BOF does not have this power and would need to finance a study on its own. DFA

and LFC economists have been the principal reviewers of the study which requires an enormous

resource commitment. An independent review commissioned by the city of Albuquerque for

Mesa del Sol was crucial to that body making its decision.

Revert excess revenues. This language clarifies what is to happen to excess revenues not needed

for debt service. Under current law, there is no precise guidance as to what happens if the TIDD

collects more revenues than needed. At the beginning of the TIDD, this will not be an issue

since all of the revenue will be used for debt service on short term notes (“sponge" bonds) but as

the build-out is completed and the long term bonds are in place, the TIDD may generate

revenues above what is needed to service the debt. This is another important reason to have state

representation on the TIDD board because if there is additional money available there may be an

incentive to modify the master development agreement to allow for additional infrastructure not

included in the original plan.

Detailed annual reporting. HB451 makes the reporting requirements of TIDD boards much

stronger. Under current law, a TIDD board only has to separately account for all revenues and

indebtedness based on gross receipts tax and property tax increments. HB451 would require the

TIDD board to account for all expenditures and the total value of state and local tax incentives in

the district. The TIDD board would be required to submit a report to the LFC, DFA and the

county and municipality in which the TIDD is located.

ADMINISTRATIVE IMPLICATIONS

Depending on the number of TIDDs formed, the requirement that one board member is the

Secretary of DFA or designee may place a significant burden on the department. There should

be consideration to providing an FTE to DFA for the sole purpose of overseeing TIDDs to ensure

that the state is appropriately informed and represented in the development plans and use of the

bond proceeds.

Requiring notification of ordinances and hearings should not place a significant burden on local

governments.

House Bill 451 – Page

6

ALTERNATIVES

Below are other issues that merit consideration but are not part of this proposal.

Board governance. The governing body can designate itself as the board of directors or can

appoint a board of directors. If the board is appointed, three of the board members serve six year

terms and two serve four years initially. At the end of the terms, board members are re-elected

by property owners and qualified electors as defined in the statute.

To date there have been two proposals put forward: Mesa del Sol and Westland DevCo. In all of

the cases, the build out for the development is much longer than six years meaning that the

developers will be the majority property owners at a time when the board members are up for

election. This situation would allow the developer to elect a board of their choosing to manage

the TIDD financing. In the case of Mesa del Sol, the city has preempted this by designating the

council as the TIDD board. Board governance was a controversial issue with the Verde Group,

which withdrew its application, in Dona Ana County. This is particularly an issue for TIDD’s

created in unincorporated areas since the state increment will proved 80 to 90 percent of the

financing.

Reporting. Requiring detailed annual reporting that includes infrastructure completion status

and employment and wage data would be another option to consider to keep the legislature and

the executive informed about the progress and success of TIDDs.

Bond Financing. The language regarding the use of the tax increment should be strengthened.

Since the language allows for any type of debt service, short term or “sponge" notes can be used.

This allows the entire increment to be used rather than that needed to service long term bond.

The long term bonds are part of the development plan and it is unclear whether the legislative

intent was to allow short term notes. All of the applications received so far including the

successful Mesa del Sol involve the use of cash or short term financing for the bond proceeds not

needed to retire debt.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB276 and SB398 authorize the Westland DevCo bonds to be issued. The total amount of

bonds authorized is $629 million.

SB434 places a moratorium on TIDD approvals for greenfield developments to give a task force

time to study the issue and make recommendation.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Currently it is onerous to follow all of the local government actions to determine when and

where the next TIDD will be considered. The likelihood of a TIDD application not getting a

thorough review increases if it is unexpected.

Without formal state oversight of the TIDD operations, the TIDD board may make changes to

the development plan that are not in the best interests of the state. It is critical that the state be

able to add its input when uses of bond proceeds are being approved by the TIDD board.

House Bill 451 – Page

7

POSSIBLE QUESTIONS

Who is responsible for monitoring Tax Increment for Development Districts now.

What kinds of financing structures are being used or proposed currently.

How does LFC and DFA staff find out about applications and ordinances.

NF /mt