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

SPONSOR McSorley

ORIGINAL DATE

LAST UPDATED

1/29/08

HB

SHORT TITLE Tax Increment Development District Moratorium

SB 434

ANALYST Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

100.0 Nonrecurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates parts of HB451

Relates to HB276, SB398

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Economic Development Department (EDD)

NM Municipal League

SUMMARY

Synopsis of Bill

Senate Bill 434 would impose a moratorium on Tax Increment for Development Districts

(TIDD) in “greenfield" areas until March 31, 2010, and create a task force that would study the

issue. Greenfield is defined as a TIDD “consisting of land or property the majority of which has

not been developed and is not currently served by municipal or county public infrastructure and

for which the tax increment development plan primarily relies on the development of new

residential or commercial structures rather than the redevelopment of existing residential or

commercial structures."

There is a$100 thousand appropriation for the task force which would be 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

Senate Bill 434 – Page

2

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

experience, and other issues. The task force must deliver a report by June 1, 2009.

There is an emergency clause so the effective date is upon the Governor’s signature.

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.

SB434 would not affect either of the two TIDDs currently in existence: Mesa del Sol and

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

future applicants, there is no way to calculate a fiscal impact. This would affect any reapplication

for a TIDD by the Verde Group in Dona Ana County. This application was withdrawn in the fall

of 2007 and it is unknown whether the group plans on reapplying.

SIGNIFICANT ISSUES

The moratorium would be imposed on all local government approvals of TIDDs for the two

years that it is in place. This gives a task force time to collect information and input about TIDDs

and prepare a report and leave enough time for interim committees in 2009 to digest the report

and bring any legislation or recommendation to the 2010 legislature.

The New Mexico Municipal League reports that the moratorium may result in an impediment to

development in New Mexico municipalities and counties. With growth in certain areas of the

state at very high levels and demand for new housing being great passage of the bill may result in

a housing shortage in some municipalities. The moratorium may result in the loss of jobs in the

construction industry.

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

Senate Bill 434 – Page

3

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.

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.

ADMINISTRATIVE IMPLICATIONS

The task force would be staffed by legislative council service, LFC, DFA and Taxation and

Revenue Department and so there will be administrative implications for each of these agencies

depending on the time commitment required.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB276 and SB398 authorize the bonds for the Westland DevCo TIDD in Bernalillo County.

HB451 creates an identical task force but makes several changes to the Tax Increment For

Development Act to provide more state oversight on TIDDs and lowers the maximum gross

receipts tax increment to 50 percent and 20 percent for greenfield TIDDs.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

It has become clear that there is considerable latitude in the interpretation of the Tax Increment

for Development Act and a “time-out" to assess what has been authorized and how the process

works would be beneficial to the state. As it stands, state economists lack the tools to

comprehensively analyze TIDD applications and the two that have come before the state to date

Senate Bill 434 – Page

4

have used very different assumptions and methodology. Without a moratorium and task force,

the state economists will likely be faced with a new application and yet another methodology and

set of assumptions to consider and evaluate.

NF/mt