County Binging on Handing Out Business Tax Breaks
When developers of the One Central project in Downtown Albuquerque came before the Bernalillo County Commission late last year seeking 30 years worth of property tax breaks, Commissioner Debbie O’Malley had had enough.
O’Malley asked why the county was using industrial revenue bonds – an economic development incentive designed to lure manufacturers – to give long-term tax breaks to a project that includes a bowling alley, brewery, restaurant and apartments.
O’Malley managed to cut the term of the IRB to 15 years. Now, she and fellow commissioner Maggie Hart Stebbins, both Democrats, argue that the county has no standards for IRBs or the tax breaks that come with them.
The county is giving them away to pretty much any company that walks through the door, they argue.
That practice, O’Malley and Stebbins said, is causing taxes to be unfairly shifted to other businesses and residential property owners. Any time a company is given a tax break, other property owners and businesses have to make up the difference in higher taxes.
Bottom line: When the county issues IRBs, they’re raising taxes on the rest of us.
Moreover, the IRB giveaways are giving unfair advantages over local competitors who haven’t gotten the same tax relief.
“They’re called industrial revenue bonds for a reason,” O’Malley said. “And that is primarily industrial projects that produce income for an area. But it has gotten distorted. It’s not supposed to be used for restaurants and stores. I’m not sure how it all got distorted, but I think we have done a disservice to the county by agreeing to it, and we have lost income.
“We might have to raise taxes because we don’t have enough money because we gave it all away,” she said.
Stebbins said she is angered not only by the seemingly wholesale granting of IRBs but also by the lack of information commissioners get about them.
“We are reducing the tax base, which means the burden is shifted to other taxpayers in the county,” Stebbins said.
O’Malley’s complaints got the attention of County Manager Julie Morgas Baca, and now county officials are conducting a “thorough and exhaustive review of all economic development policies and procedures,” Baca said.
“This will be a team effort that includes our legal department, our ethics office, our budget and finance teams, and, of course, the Economic Development Department,” Baca said. “Economic incentives help companies grow and expand in Bernalillo County. However, we must also protect our tax base, which pays for basic services like public safety and community centers.”
Since 2012, Bernalillo County has approved 41 bond deals. By contrast, during that time, the City of Albuquerque has done just one. Sandoval County, known for its multi-billion-dollar IRBs for Intel Corp., hasn’t done any.
Those 41 Bernalillo County IRBs have led to $636.5 million in private investment, the creation of 3,041 jobs, and annual abatement – or forgiveness – of $876,000 in property taxes for the firms that got the deals, according to county records.
Traditionally, IRBs were meant for economic base companies that generate most of their revenue from sales outside the metro area or outside the state. Those types of firms bring new money into an economy – the only way an economy can grow. Subsidizing a new bowling alley patronized by locals simply recycles local dollars through the local economy and does little to nothing to stimulate growth.
And it goes beyond bowling alleys. Bernalillo County has approved IRBs for workforce housing, office and retail space, senior housing, and, in the case of One Central, a so-called entertainment district. All are projects that critics argue shouldn’t be eligible for IRBs.
“IRBs were intended to be used to grow the economic base, and they have been discretionary,” said Mark Lautman, an economic development expert. It appears that the county has expanded the use of IRBs for any project that they like, regardless of whether it improves the economic base or not.”
“They should be used to make the deal happen. In other words, if it weren’t for the tax savings from the IRB, the deal wouldn’t happen,” Lautman said. “It should be the difference between the project being located in the county. Either it goes someplace else or it stays here.”
Noreen Scott, who until two years ago headed Rio Rancho’s economic development efforts, was surprised by the number of IRBs issued by her neighbor to the south.
“In Sandoval County the threshold is 60 percent new dollars,” she said. “In Sandoval County, we did not do hotels and we did not do restaurants.
“I can’t understand how you can do it for restaurants and hotels, because, in general, the business for those would be industry [and customers] that is already here,” Scott said. “IRBs should be used for economic base growth, specifically, job creation where dollars are coming in from outside the market.”
The upside of IRBs
County commissioners Wayne Johnson and Lonnie Talbert, both Republicans, defend the county’s heavy use of IRBs, including their use for projects that don’t bring new money into the community.
“The trade off [reduced taxes and income for the county] is pretty small for the amount of returns, which is over a half a billion dollars in private investment,” Johnson said.
However, Johnson said the county’s current IRB policy “does put us in the position of picking winners and losers, and that’s one reason I don’t like them.”
Talbert said the county has approved IRBs for restaurants and office buildings because there aren’t enough manufacturers in the area looking to expand, and the county needs every job it can get.
“New Mexico is not a mecca for manufacturing, and we are looking for projects that are going to help move the economy forward,” Talbert said. “Sometimes we have to go back and revisit things. The intention was originally manufacturing, but if manufacturing isn’t occurring at the rate we would like, let’s adjust and find things that we can invest in.”
Mayling Armijo, director of the county’s Economic Development department, said companies have been coming to the county for IRBs because the county isn’t as restrictive as the city, and its approval process is much shorter.
Armijo said her department vets IRB applications to ensure that the companies are financially sound and can pay off their bonds, and that the deal will bring more jobs and gross receipts taxes.
“If you look at the private investment to what we are abating in taxes, it is 10 to one,” Armijo said. “So for every $10 in private investment there is a $1 tax abatement.”
Low-balling Cost of Lost Taxes?
The value of the abated taxes of the county’s 41 IRBs worth $876,211 a year works out to $17.5 million over a 20-year period.
However, O’Malley and Stebbins said the amount of the forgiven taxes actually is much higher because the county calculates them using the value of the property before the project is built – and not the value of the property when the project is up and running, when the value of the property, and the taxes on that property would be higher.
As a result, taxpayers aren’t being told the full extent of the tax breaks the county is giving away, O’Malley and Stebbins said.
“What they are calculating is based on property that has not been developed, and that is not a fair calculation,” O’Malley said.
The sheer number of IRBs being approved may be the result of an inherent conflict of interest within the county bureaucracy, O’Malley said.
For example, companies that get property tax breaks through an IRB are required to pay the county a payment in lieu of taxes, or PILT fee. Commissioners learned in December that 46 percent, or $653,000 of the $1.4 million that the county collects annually in PILT money from IRBs goes into the Economic Development Department’s budget. According to Armijo, that money is used to fund trips by commissioners to business summits and trade missions, and for other department business.
“The more deals they get the more money goes into their department,” O’Malley said. “All these things are set up to move the [IRB] applications forward; they don’t induce scrutiny.”
O’Malley said she won’t vote to approve another IRB until the county has completely rewritten its policies and criteria for them.
“I’m done. I’m not going to do this anymore,” O’Malley said.