Santa Fe city councilors are having an appropriate discussion about the use of city-issued industrial revenue bonds, with a proposal on the table for city government to issue $80 million in IRBs to finance an expansion of the upscale El Castillo retirement facility.
El Castillo wants the financing to expand on its present facilities by building 68 units at the former Ghost Ranch site at Paseo de Peralta and Old Taos Highway downtown.
Documents provided to the City Council say the project would generate about 600 construction jobs. But the project is expected to produce surprisingly few new full-time jobs at El Castillo, just between 17 and 22, with average wages of $38,192.
By contrast, the $17 million in IRBs the Council recently approved to support New Mexico Fresh Foods’ plans for a high-pressure food processing plant in mid-town Santa Fe is expected to create 162 jobs paying $43,000 a year.
The state Economic Development Department estimated the 10-year economic impact of the El Castillo expansion at $45.8 million. The estimate for the Fresh Foods plant over the same period is $485 million.
The city isn’t on the hook for paying off IRBs – that falls to the recipient private entity, like El Castillo or New Mexico Fresh Foods.
The rub is that recipients of IRB funding aren’t required to pay property taxes for the life of the bond issue. There are gross receipts tax exemptions for purchase of equipment, including furniture, under IRB financing.
If you’re really keeping score, the investors who buy the bonds also don’t have to pay income taxes on their interest earnings. And tax-exempt bonds typically carry a lower rate of interest than commercial corporate bonds, another subsidy to the recipient businesses.
IRBs in the best case scenario are a balance between public and private interests. An entity like the Santa Fe municipal government issues them to help generate jobs, economic activity and, over time, more tax revenue; the recipient businesses and investors get tax breaks and lower-interest financing.
Typically, there isn’t much debate over IRBs. But, for the El Castillo project, issues are being raised about the tax breaks and whether El Castillo needs public help.
According to city documents, El Castillo is supposed to make “payments in lieu of taxes,” or PILOTs, to the Santa Fe Public Schools – one of the biggest recipients of local property taxes – and to Santa Fe Community College “equal to the amount of property taxes owed to them by El Castillo over the life of the IRB,” or 30 years. Santa Fe school district and the community college would get about $310,000 in property taxes this year from an $80 million property, according a calculation by Santa Fe County government.
But the El Castillo plan notably doesn’t provide any PILOT money to the other big recipient of local property taxes, which happens to be the county government.
County Manager Katherine Miller said in a letter to city officials that the tax break for the El Castillo expansion would cost the county more than $210,000 a year annually. The city doesn’t have nearly as much to lose – it would be forgoing only $59,000 a year to start with, according to the county’s calculations.
Miller also raised a couple of other issues – whether the financial breaks provided by IRBs would give El Castillo an unfair advantage in the Santa Fe senior housing market and whether El Castillo really needs any financing help. El Castillo “appears to be a well-capitalized entity” and apparently could proceed with the expansion “without any government subsidy in the form of ongoing property tax abatement,” Miller wrote.
The issue before the council seems to be, more or less, whether using IRB to help out a business that can meet certain financial standards is always a good idea – absent some obvious negatives, such as pollution or bad practices – on grounds that any successful or expanded enterprise adds to the city’s economic base. Or should the city be more selective about which businesses merit the tax breaks and interest subsidy that IRBs offer, try to get more bang for the tax-break bucks or target business proposals that most need help?
Miller, while obviously promoting the county’s financial interests, makes some interesting arguments. The mayor and city councilors should give serious consideration to the issues involved, and consider the impacts and the potential precedent as they vote on the latest IRB proposal.