Protecting tax proceeds paid by Los Alamos lab
New Mexico lawmakers’ inaction puts GRT revenue stream from LANL at risk
State lawmakers and Gov. Susana Martinez were given ample opportunities to change the state law governing the payment of gross receipts tax by nonprofits in the state, and they failed. Now the clock is ticking on whether that inaction will cost millions of dollars to the state general fund as well local governments adjacent to Los Alamos National Laboratory.
The issue is whether the new contractor at Los Alamos National Laboratory will continue to pay taxes when it purchases materials, supplies and services. Under state law, nonprofit entities are exempt from paying the tax, which substitutes as a sales tax. The portion that goes into the state general fund is 5.1 percent, but another share goes to pay for city and county operations — which brings the total tax to 7.3 percent in Los Alamos County and more than 8 percent in most of Santa Fe County outside the pueblos.
The money pays for public education as well as police, fire, public transit and housing programs. The challenges ahead for Los Alamos County are especially severe as its officials face a shortage of housing at a time when LANL is expected to add 1,000 new employees.
Today, the prime contractor for LANL is Los Alamos National Security LLC, a consortium led by Bechtel National. It paid $77 million in gross receipts taxes to state and local governments in 2015. But there were years when the amount was more than $100 million, according to an analysis by the Legislature.
One analysis showed that in 2009, when there was more spending on construction and other operations, LANL generated $128 million in total gross receipts taxes. About $46 million was retained by Los Alamos County. But as those dollars got circulated through the economy, another $7 million went to Santa Fe County and $2.5 million to Rio Arriba County.
Experts agree that whoever takes over the management in late 2018 will see an increased budget for both cleanup and new construction. The National Nuclear Security Administration, the agency that oversees the nuclear and defense labs for the government, has released its final request for proposals for LANL. Bids are due in mid-December, and an award will be made in early 2018. The new contractor, or the existing partnership, would take over Oct. 1
The decision comes as NNSA has already chosen a new manager for Sandia National Laboratories in Albuquerque, Honeywell International in partnership with Northrop Grumman. As private firms, the new subsidiary, National Technology and Engineering Solutions of Sandia, will continue paying taxes to the state, estimated at about $100 million a year.
But a real contender for the new LANL contract — perhaps even the front-runner — might be the University of Texas system. The organization is well-oiled and ready to take on management and issued a statement last week when the government made its formal request for proposal.
“UT institutions have responsibly advanced knowledge and discovery for more than 130 years, while creating value and opportunity for students, faculty, researchers and the local communities in which they are situated,” UT Deputy Chancellor David E. Daniel said in a written statement. “We believe management of Los Alamos National Lab must be laser-focused on safely and securely providing world-class technical capabilities and ongoing research advances that assure the success of the national security enterprise.”
UT is doing other things to make its case and sent a delegation to visit the lab and meet with local community leaders.
It’s also important to note that Texas has a lot more clout in Washington, D.C., than it did a year ago when proposals were requested for Sandia.
The Department of Energy Secretary is Rick Perry, former governor of Texas. The No. 2 Republican in the U.S. Senate is Majority Whip John Cornyn, a Houston native who has served in the Senate since 2002. On the House side, Rep. Joe Barton, R-Texas, is vice chairman of the House Energy and Commerce Committee.
Both Barton and Perry are graduates of Texas A&M, which also is considering a bid for the LANL contract.
If one of the Texas institutions gets the award, New Mexico may be facing another budget shortfall.
A whole range of community leaders from Northern New Mexico led by the Regional Coalition of LANL Communities approached lawmakers about the issue both during the regular 2017 session and again before the special session in October.
But the issue got lost amid the larger dispute about overall gross receipts tax reform and whether the exception for large nonprofits like LANL and Sandia should also include nonprofit hospitals and other organizations. One omnibus tax bill passed without the nonprofit exemption but was vetoed by Gov. Martinez, who was backing more comprehensive reforms.
The misstep was a case of too much lawmaking and not enough common sense. With a 30-day legislative session set to start in January, both the governor and lawmakers need to get together on a simple stand-alone bill that will protect the GRT revenue stream from LANL or again leave the state’s fiscal future in the hands of Washington, D.C.