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(Parenthesis ( ) Indicate Expenditure Decreases)

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Office of the Attorney General (AG)

No comments were received from the General Services Department.

SUMMARY

Synopsis of Bill

The bill begins with a statement of purpose to the effect that the state can save money by purchasing office buildings rather than leasing office space in Santa Fe and Bernalillo counties and that money saved from annual lease payments would suffice to make payments to lease-purchase office buildings.

The bill would create an "office complex acquisition fund" and deposit $2 million per month from the net receipts attributable to the gross receipts tax in the fund. The fund would consist of revenues from this stream, as well as any money appropriated to the fund. Earnings in the fund would be credited to the fund. Money in the fund is appropriated to the Property Control Division (PCD) of the General Services Department (GSD) to acquire by lease-purchase an office complex in Santa Fe county containing not less than 800,000 square feet of office space and an office complex in Bernalillo county containing not less than 550,000 square feet of office space. The PCD director would, pursuant to the Procurement Code, enter into a lease-purchase contract for a design and build project delivery system for each office complex. Each contract would contain terms and conditions which the PCD director determines are in the best interest of the state, but would provide that no payments would be made until the project is finished and ready for occupancy by the state.

Balances in the fund would revert to the general fund only under the following two circumstances:

1. On the last day of each month, the PCD director would estimate the amount needed during the next three months to make payments for the lease-purchase agreements described above. The PCD director would transfer any balance in the fund above the estimated amount to the general fund.

2. The balance of the fund would be transferred to the general fund upon certification by the PCD director either that the PCD director and the lessor-sellers have agreed that PCD has acquired the office complexes described above and that no additional obligations of the fund exist or that a court of jurisdiction has ruled that the PCD has acquired the office complexes and that no additional obligations of the fund exist.

Under the bill, any contractual obligations incurred would be payable solely from the office complex acquisition fund and do not create an obligation, debt or liability of the state. The state pledges that the office complex acquisition fund shall be used only for acquiring the office complexes described above.

Significant Issues

The general purpose of this bill is to reduce the state's cost for office space by replacing leases with lease-purchase agreements under which ownership in buildings would ultimately vest with the state. According to the statistics from the PCD, the State of New Mexico currently spends about $7.3 million per year to lease 553,470 square feet of office space in Bernalillo County and about $11.3 million to lease 814,707 square feet of office space in Santa Fe County.

According to the Office of the Attorney General, the language in the current version of the bill might violate the debt clause of the state constitution.

The Legislative Finance Committee has contacted the GSD several times for written comments on this bill. At this time, no written comments are available from GSD; however, that the PCD director has indicated verbally that the lease-purchase approach proposed in this bill may not be the least expensive means of accomplishing this objective. The GSD is also concerned that developers may not be willing to bear the full cost of building these office complexes prior to receiving any payment from the state.

FISCAL IMPLICATIONS

The bill would divert an annual revenue stream of $24 million from gross receipts taxes to pay for lease-purchase of the two office complexes. No payment would be made until the complexes were finished and ready for occupancy and any portion of these funds which is not required to pay for the lease-purchase would revert to the general fund. An offsetting annual savings of over $18 million would be anticipated from avoided lease payments in Santa Fe and Bernalillo County.

ADMINISTRATIVE IMPLICATIONS

The GSD has indicated that this project would be consistent with the regular responsibilities of the PCD.

TECHNICAL ISSUES

The AG recommended that, to avoid the problem described below, the bill be amended to insert the phrase "other than revenues derived from property taxes or general fund revenues" between the words "fund" and "and" in line 20 on page 2.

OTHER SUBSTANTIVE ISSUES

According to the AG, the debt clause of the state constitution, as interpreted by the state supreme court in Montano v. Gabaldon, 108 N.M. 94 (1989), bars the state or any local political subdivision from incurring a debt which extends beyond the current fiscal year, including lease-purchase agreements unless they are structured in a manner that allows termination at the end of any fiscal year and prevents the accumulation of an equity interest in the property over time. The exception to this rule is when the debt can be paid using special funds (non-general tax revenues) such as gross receipts taxes. Bolton v. Board of County Commissioners of Valencia County, 119 N.M. 355 (Ct. App. 1994). (Unless such a special fund is pledged, the terms required by Montano significantly reduce the benefits afforded in such an agreement. The apparent intent of this bill is to limit payment under the lease-purchase agreement authorized in the bill to special fund monies (primarily gross receipts tax revenues), and thus allow the gradual build-up of an equity interest over time, which will result in the state nearly if not completely owning the building at the end of the lease. In order to ensure that the special fund being created in Section 3 of the bill qualifies as a special fund under Montano, inclusion of limiting language set out above in Section 9 may be necessary.

POSSIBLE QUESTIONS

How does this bill affect the planning process of the Capital Buildings Planning Commission?

DH/gm

Attachment