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Failed bill aimed to lure data centers to state

State Rep. Monica Youngblood, R-Albuquerque

Copyright © 2018 Albuquerque Journal

New Mexico’s courtship with data centers may have grown more serious under legislation that emerged but ultimately languished in the final days of the recently ended legislative session.

Under House Bill 324, data centers – facilities that contain the servers and networking equipment used by technology companies – would have received several tax breaks from the state, provided that the project represented an investment of at least $25 million. The bill, introduced late in the session, was backed by Gov. Susana Martinez, but legislators never voted on it.

Rep. Monica Youngblood, R-Albuquerque, the measure’s sponsor, said it was based on an Arizona law. Her bill would have created gross receipts tax and compensating tax deductions for data centers, as well as a 30-year property tax abatement that would have begun at 100 percent and been reduced over time.

“I want these data center developers to know we are, in fact, trying to make New Mexico more friendly (to them),” Youngblood told the Journal. “I think it’s important for diversifying our economy.”

The state was the subject of national attention in 2016 when social media giant Facebook chose Los Lunas as the site of its seventh data center. The project represents a $1 billion investment for the company and is expected to bring about 300 permanent jobs at the data center in addition to hundreds of temporary construction jobs.

To persuade Facebook to choose New Mexico over the other finalist, Utah, local and state officials in New Mexico gave the company $30 billion in industrial revenue bonds that provide a 30-year property tax break, $10 million in Local Economic Development Act funding, up to $1.6 million in gross receipts tax reimbursement annually, and access to Job Training Incentive Program money.

Youngblood said the new tax breaks would not have applied to Facebook.

During a House Taxation and Revenue Committee hearing the day before the session ended, both Youngblood and an expert who spoke on the measure, attorney Jim Grice of Bryan Cave LLP’s Kansas City, Mo., office, said the primary target was co-located data centers. In those facilities, multiple companies share space within a single campus.

At the hearing, Grice described the bill as “very flexible” and said it was intended to provide an alternative to the industrial revenue bond process as an avenue to give tax breaks to both the owners of co-located data centers and some of their tenants. He said he was present on behalf of a private equity firm that is “doing a lot of due diligence on the state of New Mexico and may be deploying capital here.”

Grice did not respond to a request for comment. He is one of the architects of a 2013 Arizona law that gave sales and use tax breaks to data center operators and tenants, according to media outlets there. Campaign filings show that his law firm gave Martinez a $4,500 campaign contribution for her 2014 re-election bid.

House Speaker Brian Egolf, D-Santa Fe, said Facebook officials contacted him shortly after Youngblood’s bill was introduced to assure him that the company had no role in its creation. Egolf said the bill came “totally out of the blue” and said he was wary of its premise.

House Speaker Brian Egolf, D-Santa Fe

“I don’t think it’s a good idea to give a blanket tax break like that,” he said.

Facebook officials declined to comment on the record.

Meanwhile, a fiscal analysis of the bill found several potential problems with the legislation, including questions about the constitutionality of granting a stand-alone property tax abatement. The analysis also said certain “proprietary business information” submitted to the state as part of the abatement process would be shielded from public disclosure.

But the report also drew a parallel between the bill and deductions enacted in the 1970s and 1990s that gave rise to New Mexico’s call center industry.

“When they work, the economic benefits return more revenue to state and local governments than the direct revenue forgone,” the report says. “It could be that this data center deduction could create an entire industry in the state, but that is impossible to determine with available data.”

The bill was brought forward Feb. 12 – just three days before the session’s end – via a “dummy bill” process that essentially allows legislation to be filed after the bill introduction deadline. The governor added it to the session’s agenda a day later.

The bill was then tabled by the House Taxation and Revenue Committee the next day, Feb. 14.

Youngblood said she knew her measure faced long odds after being introduced so late in the session, but she said she hopes to reintroduce the bill in 2019.