New Mexico Private Activity Bond Program Overview
The Federal Tax Code allows privately-owned public purpose projects to take advantage of tax-exempt financing through Private Activity Bonds (PAB’s). The types of PAB issuances authorized by the Tax Code include mortgage revenue bonds, qualified residential rental projects (multifamily housing), small issue industrial development bonds, and a variety of “exempt facilities” including sewage facilities and solid waste and hazardous waste disposal facilities.
The Tax Code imposes a volume ceiling on the aggregate principal amount of tax-exempt PAB’s that may be issued within each state during any calendar year. In calendar year 2016, New Mexico qualifies for the minimum PAB volume cap of $302,825,000.
The Internal Revenue Code provides for each state to devise an allocation formula or process for allocating the state’s ceiling. This provision has given each state the ability to allocate this limited resource in a manner consistent with the needs of the state.
The Laws of New Mexico mandates the PAB allocation process for the State of New Mexico (Sections 6-20-1 through 6-20-11 NMSA 1978). The State Board of Finance (SBOF) has been charged with the administration of the program and is responsible for allocating the volume cap, monitoring requests, and recording the use of PAB cap each year.
In an effort to address the high demand for and the limited amount of Private Activity Bond cap, New Mexico law specifies certain allocation procedures. From January 1 to July 1 of each year, no more than 40 percent of the state ceiling may go to state agencies, of which no more than 50 percent may go to any particular one state agency. State agencies include the New Mexico Mortgage Finance Authority. In addition, no more than 60 percent of the state ceiling may go to non-state agencies, of which no more than 20 percent may go to any one particular entity. Non-state agencies include municipalities, county and regional housing authorities. After July 1, the SBOF does not have to follow these guidelines and can allocate to any issuing authority. To support these laws, the SBOF has developed and implemented regulations for the management of the PAB program. These regulations are included within this website.
PAB allocation percentages by purpose, for each calendar year, are determined by the State Board of Finance at the December meeting preceding the calendar year. PAB allocation percentages for each purpose are proposed by the PAB committee and then recommended to the full Board. The Board then votes on the proposed allocation percentages for approval. Calendar year allocation percentages are based on past use and current demand. In New Mexico, PAB cap is generally allocated by two main purposes:
Economic development projects, primarily small manufacturing, are included in the small issue category. The maximum amount of PAB volume cap that can be requested for a small issue project is $10 million.