I’m not sure why New Mexico’s congressional delegation — seemingly led by Sen. Heinrich — had the pleasure of announcing that Facebook will be building a new data center in Los Lunas, but that’s the big news today. And, considering that one of New Mexico’s leading economic development consultants said yesterday that the State was facing “an economic death spiral,” we’ll take all the good news we can get.
We at the Rio Grande Foundation have raised concerns about the subsidies and tax breaks as well as the impact the facility will have on the electrical grid, but at this point all we can do is hope that Facebook’s presence in the Land of Enchantment has a positive impact on the broader economy.
We know that New Mexico is in dire need of new private sector jobs and that Facebook will provide a few hundred short-term construction jobs and about 50 “permanent” jobs, but long-term the emphasis must be on implementing broad-based free market policies like “right to work,” repeal of our “prevailing wage” law, and tax reform (to name just a few) that make our State more attractive to small businesses and entrepreneurs. Doling out massive subsidies and tax breaks on a “one-off” basis is not a good approach.
Will New Mexico “Like” this Facebook deal years from now? We’ll see. but given the problems we currently face, some optimism is in order.
I have seen reported several times that Los Lunas passed an Industrial Revenue Bond of up to $30 billion – yes, that is Billion, not Million – as one of the incentives to attract Facebook. I found this description of an IRB at
https://www.nmlegis.gov/lcs/handouts/IRB%20Summary%20for%20Tax%20Committee%207-11.pdf
“An IRB is a loan from the bond purchaser to a company where the loan proceeds and repayment flow through a governmental issuer (via a trustee). Instead of purchasing a facility directly, companies can enter into a lease, and, at the end of the lease, purchase the facility from the issuer for a nominal amount.”
Where does the village of Los Lunas get the wherewithal to purchase a loan up to such a huge amount? Or is it really a loan from the state of New Mexico where all NM taxpayers will be on the hook for this loan? If the latter, how was Los Lunas able to pass such a thing without any input from other taxpayers in the state? And what are the details of what a “nominal amount” would be for Facebook to purchase the facility, and what would be the length of the lease? And what are the clawback provisions if Facebook should back out in the first few years?
Very good questions. I don’t pretend to understand all aspects of IRB’s. To me it has always seemed like an accounting mechanism to give these companies the ability to pay no property tax. I don’t know how the different sizes of these IRB’s impact the ability of the various entities to pay them off. I will investigate.
Thanks, Paul!