NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of SFl#1 Amendment

This Senate Floor amendment strikes language under the definition of a "two tier area" and adds language defining a two tier area to be "any municipality within the rural area if the municipality's population according to the most recent federal decennial census is more than fifteen thousand; and".

This amendment broadens eligibility slightly by including additional small unincorporated communities under Tier 1 eligibility. This amendment does not significantly affect the fiscal impact.

Synopsis of SWMC Amendment

This amendment strikes language under the definition of a "two tier area" and adds language defining a two tier area to be "any municipality within the rural area if the municipality's population according to the most recent federal decennial census is fifteen thousand or less;".

Synopsis of Bill

This bill would provide for a credit against income taxes and gross receipt taxes payable for a job created by an eligible employer in a rural area. The credit will be up to 6.25% of the first four jobs that pay at least $16,000 annually. These jobs must be located in a municipality with less than 15,000 persons. The bill also provides for a credit against two jobs up to 6.25% that pay $16,000 annually for jobs located in any other rural area.

FISCAL IMPLICATIONS

The first year impact of the bill depends critically on how many jobs would be affected by the credit. The credit is tied to the in plant training program which is currently limited to manufacturing jobs. The UNM Bureau of Business and Economic Research has estimated that manufacturing employment in rural areas of the state is growing by a little over 200 jobs per year, Which would imply a relatively modest fiscal impact, However, newspaper accounts have reported that a large uranium processing plant may locate in New Mexico, creating 1,200 jobs. If that plant did locate in New Mexico and the rest of New Mexico's manufacturing job base grew by 200 jobs, there would be 1,400 jobs eligible for credit. Assuming that all jobs paid at least $16 thousand per year would imply a potential general fund loss of $1.4 million. The $1.6 million loss shown in the following year assumes that the first year impact carries over and that there are an additional two hundred jobs created in rural New Mexico.

To the extent that the credit is the factor tipping a decision to locate in the state, the revenue loss would be partially offset by other revenue increases. If the Uranium plant does not choose to locate in New Mexico, the impact of this bill will be minimal.

ADMINISTRATIVE IMPLICATIONS

As the credits are transferable to multiple taxes and can be carried forward, the transaction costs to the taxpayer and the Taxation and Revenue Department (TRD) will be substantial. The TRD reports that the administrative costs may increase by $200,000 (recurring) for the anticipated need for five (5) additional FTE.

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