Ins and outs of IRBs

Industrial revenue bonds have been used in New Mexico as an economic development incentive for decades. They are a financial mechanism for providing tax breaks — typically property taxes, but in some cases also gross receipt or compensating tax — to companies without violating the state’s anti-donation clause. Here’s how they work:

First, a company’s property is deeded to a public entity, like the city or the county.

Next, the entity issues bonds, which are then purchased by the company. The entity leases the property back to the company.

The lease payments are used to pay off the bonds, and once they’re paid off, ownership transfers back to the company.

Essentially, a company borrows money from itself during an IRB; the city or county assumes no liability for the bonds.

The value of the IRB reflects not the tax abatement offered to the company, but rather the assessed value of the property, equipment or other items of value. In many deals, the company makes payments in lieu of standard taxes over the course of the term of the bonds. Also common in recent years: clawbacks, which allow the government entity to take back some of abated taxes if an organization violates promises made during the deal, such as the number of jobs brought a community. Many New Mexico IRBs have a clawback period of around a decade.