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Deep Flaws In Law That Would Have Allowed Enormous Las Cruces Developer Incentive

Dr. Chris Erickson

Commentary: The recent tabling of the controversial Royal Crossing Tax Increment Development District (TIDD) by the Las Cruces City council once again made clear the problems with the New Mexico TIDD law. The Royal Crossing TIDD was to help finance development of the old Las Cruces Country Club Golf Course, for example. The tabling followed opposition from local activists who questioned the benefit to the city of a large transfer of tax revenues to private developers.

TIDDs are a common development tool currently used by every state except for Arizona. The idea is that new, or incremental, taxes generated from new businesses within the district be used to finance the infrastructure needs of the district. This can substantially reduce the cost of development to private investors while creating jobs for local citizens and generating taxes revenue for local government.

The problem is that the New Mexico TIDDs enabling legislation creates the potential for a taxpayer give away with little benefit. Specifically, New Mexico TIDDs have much more autonomy than in other states. TIDDs are governed by five-member board that is initially appointed by the local governing body—the Las Cruces City Council in the case of Royal Crossing.

As the terms of the initial board expire, the new board members are elected by the local landowners, who are also the typically developers, who vote in proportion to the land acreage they own. This means that the developers will be who is deciding how tax revenues are to be spent.

Although required to follow the TIDD plan as approved by the local government, the TIDD board has considerable discretion in how to spend. This gives developers an incentive to include in the TIDD plan as many projects as possible, even though many will never be completed. If you look at the Royal Crossing plan, for example, you find a smorgasbord of projects, including many projects, like parking lots, that normally would be considered a private expenditure, not eligible for tax funding. Then of course, there are those lovely “overhead” fees that likely would be direct revenue to the developers.

There is no mechanism to ensure that the TIDD board, controlled by developers, will take account of the public interest. Other states require community representation on TIDD boards. Other states require TIDD plans to include specific community goals associated with the district and demonstrate how the projects the district may finance will further these goals. And other sates include standards for evaluating which costs are appropriate for the district based on community objectives. None of these are required in New Mexico.

Establishing a TIDD involves a large commitment of tax revenue to support a specific development project. The weak oversight under New Mexico law makes designing a TIDD that serve interest of the community a difficult task. One is tempted to suggest that TIDDs not be used at all, at least until the New Mexico law is corrected.

The problem is that in the current environment, the cost of admission to large out-of-state investment may be a TIDD. For example, the Royal Crossing development very unlikely to move forward without a TIDD.

Christopher A. Erickson, Ph.D., is the Carruthers Chair in Economic Development at NMSU. Chris teaches in the Doctor of Economic Development program at NMSU. The opinions expressed may not be shared by the regents and administration of NMSU. Chris can be reached at chrerick@nmsu.edu.