Dear Neighbor:

In 1995 Phillips Semiconductor applied for and received a $200 million Industrial Revenue Bond (IRB). The City's analysis then predicted that there would be no economic benefit in the year 2000; SWOP predicted that Phillips would be back in the year 2000 to request another bond. Both predictions were correct. Given the huge costs associated with that IRB and the present $400 million IRB proposal, Southwest Organizing Project (SWOP) member Eric Schmieder, assisted by volunteer Anna Wagner, has prepared some adjustments to the Fiscal Impact Analysis presented to the Albuquerque Economic Development Commission and the Finance Committee of the Council by its developer, Professor Brian MacDonald.

Attached are MacDonald's spreadsheets on the impact of the past and present IRBs on the City and on State and Local Governments. Even before any adjustments, the proposed IRB shows no gain to the city until 2008 and none to the state and other local governments until 2007. SWOP predicts the equipment will be outdated by this time and that Phillips will be again requesting additional IRBs and an extension on the Lease, due to expire in 2011.

For the City only, MacDonald's analysis shows a net gain of $2.45 million in 2011. SWOP has adjusted these figures to measure the impact of both the City and other local governments, which greatly affect the community of Albuquerque. These governments include the county, APS, TVI, the University Medical Hospital (UNMH) and Bernalillo County Medical Center (BCMC), Bernalillo Mental Health Clinic (BCMHC) and the Mental Rehabilitation (MRC) Center, and flood control (AFCD and AFC). Attachment SWOP-A shows the results.

Columns A, B, and C show the added revenues coming to Bernalillo County from the Gross Receipts tax on new purchases by the company and by its direct and indirect employees. These are summed in column D. Column E lists the foregone property taxes incurred by the other local governments listed above. The net change is summed in column F. The net change is converted to present value in column G. MacDonald's cumulative impacts on the city only are in column H. The final column shows a cumulative sum of the net change plus MacDonald's cumulative impact. This column represents the cumulative impacts on the City and on other Local Governments: our community. The results are both dramatic and dismal. The combined impacts show a loss of over $13 million.

Clearly if the decision on the bond were being made by a consensus of all affected local governments, this deal would be dead on arrival. SWOP believes that the Council does need to consider overall impacts on all of the community and of their partner governments. SWOP perceives the IRB process as flawed in the respect that serious decisions which impact revenues of many local and state government sectors are made by municipalities or counties focussed purely on their own fiscal streams. This results in tax abatement without representation for the other governments. Table SWOP-A dramatizes these perverse results.

The next SWOP Spreadsheet (SWOP-B) looks at the overall impacts on all governments-State, Local and the City. Brian MacDonald has concurred with our analysis that the compensating taxes-Column M-in the period 1995-2000 should properly be included as costs. Phillips has spent the proceeds from the 95 IRB with the 5% exemption from compensating taxes. The 1995-2000 Compensating Tax abatements total $9 million.

In addition, companies who purchase new equipment and add new workers collect investment Credits. Column N adds $1 million per year for five years of Investment Credits, beginning in 2000. The MacDonald analysis provides for 200 new jobs during these years. Since maximum credit that can be claimed totals $50,000 per new worker, the total claim could amount to $10 million. SWOP-B , however, only uses $5 million total. Column O sums these adjustments with Column O of the MacDonald analysis to show the cumulative impact for each year. Column P subtracts this from the gains. Column Q shows the cumulative impact on State and Local Governments over the term. Even if Phillips only claims half of their credits, a positive return is not realized until the last year of the analysis, when the jobs will be long gone. The final column combines the column Q with ABQ for total cumulative picture.

The final spreadsheet (SWOP-C) is identical except that we have now assumed that Phillips will collect the full $10 million in investment credits-column N 2000 to 2004. With this assumption, the governments never get out of the red.

The Investment Credits must be included in the analysis because of the assumption of the new jobs. Heinze Rebbman the Philips Plant manager and his financial officers are bound by their company to produce at the lowest cost. They may not defer the credits for any reason. Once the analysis assumes the new jobs, the credits must be included in the cost analysis. The analyst has no choice, if the argument is to be defensible.

SWOP understands that the full costs of the lost property taxes will not be borne by the governments because other taxpayers, including SWOP members, will make up some of the lost revenue. We also understand that the 1995 lease language probably made all property at the Phillips plant exempt for the term of the lease. But these dramatic numbers should certainly give all of us pause.

That rounds to $50 million total or $50,000 in subsidy per job (based on 1000 jobs) to retain jobs without the new IRB.

The new proposal adds another $20 million abated compensating taxes to the equation, which would then subsidize the jobs by close to $70,000 per job. SWOP believes the company must make the investment without the new IRB-the new expansion may in fact be in progress already. If the Council feels compelled to pass the IRB, SWOP urges all members to strongly negotiate for meaningful clawbacks and Payments in Lieu of Taxes (PILOTs) to offset some of the costs of the present proposal.

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