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State wants to preserve tax revenue from LANL

Copyright © 2017 Albuquerque Journal

No one can say for sure who has bid to run Los Alamos National Laboratory starting next year. But in New Mexico, a lot of people want the new LANL contractor, whoever it may be, to pay taxes.

With the current lab operating contract set to expire next September, New Mexico and local governments stand to lose millions if a nonprofit – such as a major university – takes over from private consortium Los Alamos National Security LLC. LANS paid $77 million in gross receipts taxes in 2015.

Nonprofits don’t pay New Mexico gross receipts taxes – at least not now.

The University of California has submitted a bid for the new LANL operating contract. UC has run the lab on its own or in partnership with private corporations since the lab was established during World War II. (Courtesy of University of California)

And the only three known bidders for the new LANL contract are university systems: those of the University of California, Texas A&M and the University of Texas. The three schools have acknowledged publicly they have submitted proposals to run LANL to the federal National Nuclear Security Administration, the semi-autonomous Department of Energy agency that oversees the nation’s weapons labs.

All three of the schools have had meetings with community and government leaders in New Mexico. Andrea Romero, executive director of the Regional Coalition of LANL Communities, said the University of Texas committed to creating an LLC, a limited liability company that would have to pay taxes, an indication that UT is likely to partner with a private corporation.

The University of Texas has reportedly agreed to form a private LLC to operate Los Alamos National Laboratory if it gets the contract, making it subject to New Mexico gross receipts taxes. (Courtesy of University of Texas)

No such assurances were offered by officials of Texas A&M and UC. The California school has run LANL on its own or with the current LANS consortium – which also includes the Bechtel corporation and other companies – since the lab was created to develop an atomic bomb during World War II.

Last week, A&M officials met with local leaders at an Española restaurant to talk about their interest in the lab contract, and tout the school’s experience in nuclear research and programs.

But, Romero said, “they wouldn’t say how they are going to form” an entity to run the lab “and who they are going to form it with.”

The Austin American-Statesman has reported that A&M and UC are partners in a single bid. But UC, in response to Journal questions and when it conferred with the Regional Coalition, like A&M, refused to say if it has a partner or partners in the bidding process.

Texas A&M, whose main campus in College Station is shown here, is one of the bidders to take over management of LANL. (Courtesy of Texas A&M)

If one of or a partnership between A&M and UC gets the bid, or another nonprofit does, the tax issue “raises its ugly head,” as state Sen. Carlos Cisneros, D-Questa said this week.

Cisneros already has submitted a bill for consideration at the 2018 legislative session starting in January to create, in effect, an exemption to an exemption in state tax law. His measure says the GRT exemption for nonprofits doesn’t apply to the receipts “of a prime contractor that are derived from operating a facility in New Mexico designated as a national laboratory by an act of Congress.” A similar bill failed in this year’s session.

The same tax issues were at play when a new contract for operating Sandia National Laboratories in Albuquerque was awarded in 2016. But private corporation Honeywell won the competition, saving state officials from trying to figure out how to keep Sandia’s GRT payments – $77 million in 2015 – flowing in.

Said Cisneros: “If at the end of the day, a for-profit also gets the Los Alamos contract, then the (tax) issue is moot and we can relax.”

He acknowledges that his bill’s simple language may be problematic. Under the principle of equal protection under the law, can the state single out one class of nonprofits – those running national labs – for taxation?

The senator said there may be ways to craft language saying that only nonprofits with a certain number of employees – LANL has more than 11,000 – or a budget of a certain size – LANL’s is about $2.4 billion – are subject to GRT, so the bill “doesn’t necessarily target the lab.” He acknowledged that “the likelihood that any other nonprofit entity would qualify would be extraordinary.”

The Regional Coalition’s Romero calls New Mexico’s two big national labs “unicorns” because they’re like nothing else in the state.

One of her arguments in favor of taxing a nonprofit in charge of LANL is that it would continue the status quo that has existed since LANS took over the lab in 2006. The consortium is losing the contract, as of the end of the current fiscal year in September, after failing to get adequate performance reviews in recent years.

“We’re saying that the operations don’t change, so why should the tax status change?” she said. “We’re not looking at targeting the lab, we’re looking at maintaining the status quo.”

Asked about a legal challenge to New Mexico taxing just nonprofits operating national labs and not others, she suggested it’s possible that wouldn’t happen.

“It’s up to management and the operators to decide if they want to litigate,” she said. “They’ve all said their first intention is to do no harm and they want to be great partners with the community.”

And she said that GRT paid by the lab contractors is a “pass through,” a cost of doing business or overhead expenses that are part of the federally financed budget.

Although the three big universities are getting all the attention at this point because they’ve acknowledged they are bidders for the LANL contract – after their regents voted in public to prepare contract proposals – it’s entirely possible big private-sector entities are also in the hunt. NNSA made public a list of entities that expressed interest in the contract, but won’t disclose actual bidders. Romero notes that during the Sandia bidding process, Honeywell was not listed among the interested parties and was known to be a bidder only when it was announced the company had won the contract.

Community commitment

The Regional Coalition of LANL Communities – which consists of cities, towns and pueblos in northern New Mexico – is also raising another financial issue. It wants a commitment from the new contractor that it will provide $3 million annually for local economic and entrepreneurial development programs, and educational efforts, including scholarships and other community programs.

LANS was mandated to provide $3 million a year in the first seven years of its contract, Romero said, but that dipped to $2.5 million as an “ad hoc” contribution in recent years, Romero said. “Losing $500,000 for New Mexico is a big cut,” she said.

(It should be noted that LANL employees, in their annual giving campaign, raised $3 million to benefit mostly New Mexico nonprofit organizations, according to a Wednesday news release. LANS matches a portion of the employee donations.)

Romero said it’s promising that the bidding universities have engaged with the coalition. “We have really counted on the bidders to do that,” she said.

And if there other bidders out there – NNSA says the bids are confidential – the coalition wants to hear from them. “We want to meet with you,” Romero said. “It’s critical to have that conversation today.”

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