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Copyright © 2018 Albuquerque Journal
Both Bernalillo County and the city of Albuquerque have the authority to issue industrial revenue bonds, a complex tax break mechanism that proponents say spurs economic development. Over the past five years, the county has approved 26 such proposals, primarily from Albuquerque-based businesses or organizations looking to expand there. The city has approved none.
Those numbers, supplied by city and county staff, depict a major shift in the way IRBs have been administered within the state. As of 2011, Albuquerque was the largest issuer of such bonds in New Mexico, according to a city presentation made that year to state legislators.
So why have businesses turned to the county in recent years?
Alan Hall, an attorney with Rodey Law Firm who has represented various entities in the IRB process, said part of the answer is a simple calculation: The county typically takes eight to 10 weeks to approve a proposal, while the city’s process has historically required an additional month and often much longer. After the county began issuing IRBs in the early 2000s, a growing number of businesses began working with the county to avoid procedures Hall called “mechanical” at the city.
“For a business, time is money,” he said. “It would be almost malpractice for me to suggest to my clients that they go to the city council.”
Synthia Jaramillo, who was recently named Albuquerque’s director of economic development, pointed out that the city’s IRB review includes more opportunities for public input than that of the county. Still, she said Albuquerque is exploring ways to streamline the process, particularly for small businesses already located here.
County Commissioner Maggie Hart Stebbins, who has advocated for greater stringency in the process, described the county’s rules as “more permissive” than that of the city.
“I would even say we have lower standards,” said Stebbins. “There’s no prohibition against retail, for example, which is generally not bringing economic base jobs to the community.”
Economic base jobs are positions that introduce new money to the state through exported goods or services. Bernalillo County is legally permitted to offer IRBs for retail or mixed-used projects; Albuquerque is not.
The 26 IRBs approved over the past five years by the county represent multiple industries, including retail.
In total, the packages reflect $441 million in privately-funded bonds from companies promising 2,022 jobs, according to county data. The county does not maintain a total of the tax abatements represented by those bonds, though the information is disclosed for each individual bond per year in an annual financial report.
Typically, the abatements are a fraction of the value represented by the entire bond package. In the case of the $20 million IRB for Verizon Wireless approved in 2006, the total tax abatement was $9.7 million over a 30-year period, according to economic incentive tracker Good Jobs First.
Verizon recently announced that it will close its brick-and-mortar call center operation in October 2019. The county said it is reviewing its agreement with the company to “have a clear understanding of what commitments are remaining.”
Debra Inman of the private, not-for-profit Albuquerque Economic Development Inc. called IRBs a “critical tool” for encouraging employers to relocate and expand in New Mexico, and said she encourages clients to go to both the city and county to “understand their options.”
Others, like the SouthWest Organizing Project, argue that IRBs are often inappropriately administered regardless of the entity overseeing the process.
Executive Director George Luján said the group has held multiple “Irby” awards ceremonies beginning in the late 1990s, awarding satirical prizes to companies that benefited from lucrative IRBs. The logo for the event was an octopus, tentacles clutching dollar bills.
“If you look at the original intention of these things, they’re supposed to be a way to expand whole industries and create exponential economic growth,” said Luján “Instead, they’re often given to big companies offering low-paying, low-level jobs.”
Hall argues that the public and governing bodies must take a measured approach in their analysis of IRBs.
If a company wants to develop an empty lot, he said, a property tax abatement must be viewed in light of the tax generated from an empty lot versus a building. He also said government entities tend to place too high a priority on the gross receipts tax generated by a project, instead of other measures like the quality of the position being offered by the employer.
The result, according to Hall, is a “procedure that often comes up with the wrong answer.”
In August, Bernalillo County approved a bill adding new requirements to their IRB review process, including one that requires commissioners to analyze the impact of the project on existing businesses in the community.
Deanna Archuleta, the interim director of economic development for the county, said she does not foresee the new guidelines significantly impacting how quickly the county reviews what she called “an incredibly important economic tool.”
“I don’t see it slowing down at all,” she said.
Industrial revenue bonds have been used in New Mexico as an economic development incentive for decades. They are a financial mechanism for providing tax breaks – typically property taxes, but in some cases also gross receipt or compensating tax – to companies without violating the state’s anti-donation clause. Here’s how they work:
• First, a company’s property is deeded to a public entity, like the city or the county.
• Next, the entity issues bonds, which are then purchased by the company. The entity leases the property back to the company.
• The lease payments are used to pay off the bonds, and once they’re paid off, ownership transfers back to the company.
Essentially, a company borrows money from itself during an IRB; the city or county assumes no liability for the bonds.
• The value of the IRB reflects not the tax abatement offered to the company, but rather the assessed value of the property, equipment or other items of value. In many deals, the company makes payments in lieu of standard taxes over the course of the term of the bonds. Also common in recent years: clawbacks, which allow the government entity to take back some of abated taxes if an organization violates promises made during the deal, such as the number of jobs brought a community. Many New Mexico IRBs have a clawback period of around a decade.