Imagine if all parents who gave their children an allowance then asked for a percentage of that money back to pay for rent. That’s what some people say is happening when it comes to building affordable housing in New Mexico, and they want to change that this legislative session.
Senate Bill 92 would exempt affordable housing developments from paying gross receipts tax, or GRT, on construction materials and labor. Executive Director of the Center for Housing Economics, Roger Valdez, said every year state and local governments invest millions of dollars in affordable housing.
“And then state and local government taxes that investment at anywhere from 5 to 10%,” Valdez said. “It's a little bit like making change in the offering plate in church. You put in a 10, and you go in there and take out a one. This bill fixes that.”
Chris Baca, president and CEO of YES Housing, said his company just finished a project with 61 units of affordable housing along with retail and live/work spaces that totaled about $30 million for materials and labor costs alone, which meant a hefty tax bill.
“That's over $2 million that just went out the door, and that has an impact,” Baca said. “You can't build more units, you can't put in more amenities, you can't do some of the stuff that we would like to do, because you just had to pay that back out.”
But not everyone has been immediately supportive of the bill. Representatives of small local governments and government associations, like Deputy Director of the New Mexico Municipal League, Allison Nichols, are concerned over a reduction in the amount of GRT local governments could receive.
She told lawmakers “cities rely on gross receipts tax for roughly 2/3 of general fund revenues,” and that any reduction could be detrimental to services like police and fire rescue, and critical infrastructure like water facilities.
“The fiscal impact on local governments is uncertain and could grow over time, creating challenges for long term budgeting and service delivery,” Nichols said, “particularly risky at a moment when federal funding is uncertain.”
Moreover, she points out the Legislative Finance Committee’s fiscal impact report on the bill mentions the value of the GRT deduction may be relatively small when compared with other subsidies already layered into affordable housing developments.
“Affordable housing projects already received significant incentives, including land contributions below market loans, industrial revenue bond backing and property tax abatement.”
Therefore, she argues, the bill might not be as effective as intended in one scenario, or it will be overly burdensome on local governments.
But Valdez sees that as a flaw in Nichols’ argument.
“You can't say, on the one hand, this bill will not create any more affordable housing because it's too complicated and it won't really help. But then, on the other hand, say the sky's falling because we're going to lose all this GRT.”
The fiscal impact report does make an estimate at how much revenue could be lost, arriving at just over $10 million in total GRT forgone. Of that, 40% or $4 million would be spread between local municipalities.
“And compare that to a $13 billion state budget. And you know what? The foregone GRT based on the FIR is less than one-tenth of 1% of the overall GRT. So this is like a no-brainer.”
Moreover, he says, this isn’t money any government would have to pay. The bill would not reduce the amount of taxes coming in, but rather would forgo further income from future projects in the affordable housing realm.
Baca says Senate Bill 92 is efficient. Local governments would have another way to support these projects without adding any costs, or a single moment of time moving money around, or voting on any approvals.
Moreover, they point to the recent Bernalillo County Commission meeting in which Chief of Governmental Affairs, Kathy Korte, said the bill could be a way to incentivize projects to come into the county.
“To be candid with you,” Korte told the commissioners, “having that with an amend for an opt in so counties could opt in would be, I think, a big advantage,
Crucially, however, she says the bill would need an amendment allowing local governments to opt in or opt out, allowing them to pick and choose which projects would qualify for the tax free construction, rather than allowing a broad application to any and all affordable housing developments.
“For example, you might have a housing development you really want to encourage,”she said. “If they automatically get a tax exemption,my concern is that that it's not then an incentive. It's just sort of a basic way of doing business. So we had a concern about that.”
Last week, the Senate Tax, Business and Transportation Committee determined the bill to be germane for a 30 day session, and it is currently being held for possible further consideration and updates. The senate is preparing a tax package which will include some of the various proposed tax bills.
Valdez says senators are working behind the scenes weighing options to determine if SB92 will be one of those bills that makes it into the final tax package.
Support for this coverage comes from the W.K. Kellogg Foundation.
