SANTA FE – It started as a way to “fix a glitch” in a years-old tax deduction for the massive nuclear-fuel enrichment plant in southeastern New Mexico by sightly expanding the exemption.
But some Senate Democrats are using the bill to attach a possible end date to the current tax break, which opponents say would be reneging on the original agreement and cost the state future business.
The dispute highlights a rift in the state’s practice of corporate tax incentives over how far the state should go to attract and keep specific businesses, and for how long.
Urenco USA in 2003 established a $3.2 billion nuclear fuel refinement plant near Eunice based in part on a state tax incentive that exempts “enriched uranium” – a $20 million annual savings for Urenco when the site reaches its 2015 capacity, according to state estimates.
The company approached the Legislature this session hoping to fix what it called a glitch in the 1999 “enriched uranium” exemption that fails to include an intended tax protection for any unprocessed uranium Urenco customers buy and sell from one another.
But some Senate Democrats say the company’s requested revision brings to light another error in the 1999 uranium exemption: The lack of a sunset clause that requires the benefit to be reviewed by the Legislature in the future or be allowed to expire if it isn’t serving its intended purpose.
“It doesn’t mean that we would end the exemption,” Sen. Gerald Ortiz y Pino, D-Albuquerque, said of the proposed end date. “It just means we take a look at it, and I think as a general policy that’s one we’ve always done. Why did we let it through when this was done? I guess we made some mistakes.”
A financial impact report of the bill updated by the Legislative Finance Committee this week says the law as now written “may violate” LFC tax policies without adding a sunset. The report also says expanding the tax exemption to include pre-enriched uranium would not cost the state anything extra because the pre-enriched uranium transactions currently take place in other states where they’re tax-exempt.
Urenco says broadening the current tax exemption would make it easier for it to do business in the state, and that wording revision has faced little opposition from lawmakers.
An effort to tack on a 2016 end date to the current exemption when the bill was heard in the Senate Finance Committee this week failed on a 7-3 vote as opponents – both Republicans and Democrats – said any threat to reconsider the uranium enrichment tax exemptions is a “bait-and-switch” on Urenco tax incentives in place at the time.
Instead, end dates should be considered only for new tax incentives, some senators said.
But Sen. Stephen Fischmann, D-Mesilla Park, plans a second attempt to add an end date when the bill is debated on the Senate floor as early as today. A version of the bill that leaves out the end date passed the House on Thursday 62-6.
Urenco Community Affairs Director Brenda Brooks said the company – which reported $502 million in profits in 2010 – would reconsider future expansion of its New Mexico facility if a sunset date is imposed on the enriched uranium tax incentive. Brooks said the move would threaten a third phase of expansion that could begin within the next 10 years, although details of the future project have not been completed.
Adding an end date means “going into the substance of the bill the investment was made on, and from a fairness standpoint, I disagree with that,” said Senate Finance Committee Chair John Arthur Smith, D-Deming. “I agree with the fact that all these bills should have sunsets, but once the horse is out of the barn … then it’s very difficult to change that.”
Meanwhile, the governor is concerned that setting arbitrary dates that tax breaks could potentially expire if the Legislature doesn’t act creates too much uncertainty for business, Martinez spokesman Scott Darnell said Thursday.
“The governor’s chief concern would be with regard to how they could undermine predictability that many businesses need in order to invest in expanding and hiring new workers,” Darnell wrote in an e-mail.
Fischmann said the rift over sunsets underscores the need to review New Mexico’s practice of open-ended tax incentives.
“We have to start instituting a consistent policy that when we put in place a tax break to get people here – that’s great – but there’s a point when it ends,” Fischmann said. “One of the arguments that we keep hearing is we need consistency and predictability (for businesses), but if we’re consistent and predictable about how we impose a sunset, we’ve got consistency and predictability. We don’t have to sacrifice fair tax revenues to do that.”
No Sunset in Tres Amigas Tax Break
While many lawmakers insist possible “end dates” should be standard practice for all state tax incentives, one high-profile exemption is making its way through the Legislature.
A new electricity conversion tax exemption introduced this year to help lure Tres Amigas, LLC, to establish its $1.5 billion electrical grid superstation in New Mexico has no sunset.
That bill, sponsored by House Speaker Ben Luján, passed the House unanimously on Thursday.
The Tres Amigas project would build a hub near Clovis to connect the nation’s three major electrical grids. The project could also include an administrative center in the Albuquerque area. The project is expected to bring in hundreds of new jobs.
The Legislature took up the proposed tax incentive for Tres Amigas after company CEO Phillip Harris said the state’s current tax laws are a potential “deal killer” for the project to come to New Mexico. Without the tax break – or if the tax break is given a sunset date – Tres Amigas will consider relocating to another state, Tres Amigas Chief Operating Officer David Stidham told the Journal.
The open-ended tax break proposed for Tres Amigas is all about creating jobs, House representatives said.
“You look at the positive side of this and what this might create in the future, and how we might be able to get corporate people here in the state of New Mexico to grow jobs here,” said Rep. Larry Larrañaga, R-Albuquerque.
While an LFC analyst reviewing the Urenco incentive bill said the lack of a sunset violates the committee’s tax policies, another LFC analyst that calculated Tres Amigas’ proposed incentive did not report a problem with the lack of an end date, according to the financial impact statements.
Gov. Susana Martinez has expressed opposition to the state’s practice of creating tax breaks to lure individual companies to the state, saying the state’s tax policies need to be streamlined to allow businesses to better compete.
“Everytime they (new corporations) come in, they’re wanting to have some sort of (tax) forgiveness, but then you’re focusing on one particular business instead of an industry … and so we’re picking the winner and the loser,” Martinez said last week in an interview with the Journal.
However, Martinez’s office said she would support the Tres Amigas tax break if approved by the Legislature because of the project’s potential to create so many new jobs.
— This article appeared on page A4 of the Albuquerque Journal