Regional Local Government Reps Unhappy With LANL Fiscal Impacts, Procurement Leakage GRT Distribution Noted In UNM Study





Slides from the University of New Mexico Bureau of Business and Economic Research presentation on the economic and fiscal impact of Los Alamos National Laboratory on surrounding counties. Courtesy UNM


Regional Coalition of LANL Communities board members laid it all on the virtual table Friday while discussing a study on the economic and fiscal impact of the Los Alamos National Laboratory on the counties of Los Alamos, Rio Arriba, Taos, Santa Fe, Mora, San Miguel and Sandoval. Only Los Alamos, Rio Arriba, Taos and Santa Fe are members of the RCLC.

The study was compiled by Dr. Jeff Mitchell of the University of New Mexico Bureau of Business and Economic Research and is based primarily on data provided by LANL for the federal fiscal years 2016, 2017 and 2018, with the date for the three years averaged and adjusted for inflation to 2017. To review the complete report click here: BBER Report

Mitchell said the date provided by LANL was “truly extraordinary”.

“I’ve been doing this for 18 years and I have never seen such a comprehensive, complete source of data,” he told the board.

LANL provided UNM with payroll records of all direct LANL employees, unionized or craft employees and contract employees. The data included actual wages paid by position and by zip code of residence. A comprehensive list of 625,000 expenditure records over the three-year period was also provided. The fiscal impacts for the study was obtained from the New Mexico Tax & Revenue Department and the Department of Finance Administration.

The study shows that LANL supports the employment of more than 24,000 workers in New Mexico, pays some $1.8 billion in wages and salaries, and creates more than $3.1 billion in total output. About 79% of jobs, 86% of labor income and 78% of output supported by LANL in New Mexico are in the seven-county region. The study indicates that LANL’s impacts are mainly in direct employment – the wages and salaries it pays to its employees and direct contractors (49% of statewide impacts, and 57% of regional impacts). Indirect impacts, which are jobs and economic activity that is supported by LANL employee (32% statewide and 30% in the region), were also noted.

Half of LANL’s $752.5 million annual procurement or purchase of goods and services left New Mexico and the other half mostly went to Los Alamos, Bernalillo and Santa Fe Counties.

Mitchell said the study, all the LANL procurement and construction data was run through a standard regional output model which estimates how much of that money stays in the region and recycles in the region or how much leaves the region. The data provided on the procurement revenue to counties is not estimated but is simply the data presented by LANL which included zip codes.

Under revenues and expenses, Mitchell noted that personal income tax payments are extremely significant but that 100 percent of that goes to the state. He also discussed gross receipts tax (GRT) noting that a good portion of products in New Mexico are not taxable such as groceries. He explained property taxes were calculated by looking at the share of total personal income in a county.

“So for example, when we know with a fairly degree of accuracy how much income is being generated in County X, we can get the total personal income in that county from the census bureau. We take the ratio – how much total personal income in that county is linked to LANL and we apply that to the tax base. For example 25 percent of the income in that county is supported by LANL and they account for 25 percent of the payment of property taxes. The same logic applies to non-residential property taxes,” Mitchell said.

He noted that Bernalillo County receives a great deal of the LANL procurements but represents a small portion of the residents who are LANL employees.  The study says that LANL’s direct spending in New Mexico is highly concentrated – 96% of LANL’s procurements are in Los Alamos (42%), Bernalillo (37%) and Santa Fe (17%) counties. 2.6% are in other counties and that GRT distributions follow roughly in proportion.

Residential distribution of LANL employees is much wider – 44% in Los Alamos, 22% in Santa Fe, 18% in Rio Arriba, 7% in the remaining counties, the study indicates.

Following the presentation, RCLC vice chair Taos Councilor Darien Fernandez said the study gives the Coalition some really good information to sit down with the Lab to encourage more procurement for the seven counties.

“It also gives us information to take back to our communities to see how we can better promote some of our local businesses that can potentially contract with the Lab. As the Lab’s workforce is ramping up and we’ve seen an almost overnight shift to almost all remote work for most people because of the pandemic, this gives us an opportunity in some of the bedroom communities to really make ourselves more available and hopefully with the Lab’s assistance to recruit some of the new talent in the region so that the entire region benefits and clearly not one community,” Fernandez said.

RCLC treasurer Los Alamos County Councilor David Izraelevitz said he felt the RCLC needs to dig more deeply. He said it’s obvious that Los Alamos County is heavily dependent on the Lab. He felt 69 percent for the number of households supported by LANL is an underestimate and that Los Alamos is even more dependent on the Lab.

“There’s no question that Los Alamos benefits from the Laboratory. Los Alamos wouldn’t be here without the Laboratory. That goes almost without saying. But I’m surprised that you allocated the fiscal costs of LANL employees versus a total population of a county proportional to the population. A lot of county services have a pretty large fixed cost. Roads, detention centers, – detention center cost is not really proportional to the number of detainees you have in it. It’s a fixed cost,” Izraelevitz said.

He asked Mitchell to what extent he could look at the budgetary items for counties and see which ones were really proportional to the population and which of those are a sunk cost that has to be accounted for whether the population is 10,000 people or 12,000. Mitchell said the study presumes the amount of infrastructure is directly proportional to the size of the population. He said utilization could also be discussed. Izraelevitz said a lot of county costs are labor intensive that are related to social services, senior services, detention center and public safety.

“I guess I would like your opinion on whether the usual demographic of LANL employees – as you mention they’re highly paid, stable employment, drug testing as a condition of employment – whether that proportionality applies specifically in this situation or how you might account for that disparity of that need for services because of the demographics of the LANL employees,” Izraelevitz said.

Mitchell said a lot of the costs Izraelevitz described are actually borne by the state – the social public health costs that occur in counties and communities, so those are not part of those general fund numbers.

“While it may be true that a disproportionate amount of for example public safety dollars are going to non-LANL employees in some of those other counties, the fact remains on a per household level, in every category the expenditures in those other counties are significantly lower,” Mitchell said.

Izraelevitz pointed out that complexities on the expenditures side would need to be incorporated in a further analysis to give more accurate numbers. He said it isn’t the income that affects revenue, it’s the expenditures and that it’s not where people live, it’s where they spend their money. He asked Mitchell if the study models dollars spend by Los Alamos residents outside Los Alamos County and Mitchell responded that it models spending within their home community only, so money spent by Los Alamos residents in Santa Fe County would not be represented in either county.  under the study. Izraelevitz noted that the leakage number for most communities is 30 percent but for Los Alamos, it’s 70 percent.

Izraelevitz asked what is the difference between LANL being there and LANL not being there. He said he finds it hard to believe for example that Rio Arriba County would gain the $2.6 million the study shows it loses due to LANL. He asked what the alternative income would be. Mitchell responded that the assumption is that if LANL did not exist, the people who are employed by LANL would not exist for those areas and their cost would be gone.

“I understand that but I think that one of the wonderful things that the Laboratory provides – not to me personally because I don’t have that resource – it allows someone that wants to have a rural environment within a half hour’s drive that can have high-tech employment that otherwise  would not. A lot of people in Rio Arriba County have been there for generations. I don’t think they would leave necessarily if the Laboratory was not there. That’s my point. One of the attractions of the Laboratory is the ability to have the benefit of that historical and cultural attachment while during the day you work somewhere. I question that assumption that those people would disappear is correct,” Izraelevitz said. “I would hazard that you wouldn’t see 100 percent or 90 percent of the LANL employees move out of northern New Mexico if the Lab was not there.”

RCLC secretary Espanola Mayor Javier Sanchez responded to Izraelevitz’s comment about having 70-percent leakage, saying, “you have a 70 percent leakage and are still making out like gangbusters”.

“Shouldn’t the citizens and the elected officials in Mora, Rio Arriba, Sandoval, San Miguel Santa Fe and Taos say, ‘let’s close her down’? Because that’s what these numbers are reporting and I don’t necessarily agree with that on a lot of different levels because we do get into other questions like what would happen to the 10,000 employees, the 24,000 after the multiplier? They have to go somewhere or stay here and that leads to other questions like utilization rates – what is your required minimum that requires services for a certain number of people. Is there redundancy in the Rio Arriba/Espanola budget?” Sanchez said and went on to ask if some of the expenses had been double counted.

Mitchell responded that he didn’t think the revenues were being double counted.

Sanchez asked Mitchell if he thought there could be revenue leakage that is not being seen or picked up and where he thought that would have gone.

“People who are making good money in Espanola wind up going to Santa Fe to spend it. Is there a leakage amount somewhere that would warrant a second study?”, Sanchez asked.

Mitchell said an analysis could be completed using survey-based data on where people are traveling to and where they are spending their income.

“You would be able to get down into the details of this on how much of the dollars are being transferred from income in Los Alamos to each of the other individual counties and vice versa,” Mitchell said, adding that it would be an extremely complicated process.

“Many of the questions that are being asked are really good and interesting questions. What I would suggest is that when you’re doing this kind of research, there are more complexities that you start introducing into it and you try to get down to that highly granular level, what you’re also doing is introducing a whole lot of error. The key is to find the sweet spot. Where are you getting as much detail as possible without introducing all of these other things. The data we had, we knew we could count on that,” Mitchell said.

Sanchez noted that the multiplier drops at the seven-county level.

“Is it all in that procurement from Sandoval and Bernalillo Counties? How do we get more bang for our buck. What would you do to improve how we allow the ripples of employment to grow higher in indirect ways towards that larger output?” he asked. He also asked about finding out what the big impact industries are and nurturing them in the communities.

Sanchez and Mitchell noted that the second element is developing more businesses  that provide more services and goods that are consumed by local residents.

“It’s simply a fact that Bernalillo County has a very big pull factor sucking the money in. That’s the nature of things to the extent that you mitigate that by identifying the things that people are spending out of region on and provide those services locally. You’re plugging the leak and that would have very significant impact,” Sanchez said.

Rio Arriba County Manager and board alternate Leo Marquez also discussed Bernalillo County.

“Let me tread lightly. While this report is painful, it has a lot of truth to it. Revenue, expenditures and balances – but something that’s being left out is there’s a county that’s being left out that’s not in the seven county area, and there is a lot of leakage, and there is a lot of procurement and there is a lot of dollars going down there, and that’s Bernalillo County,” he said. “This is evident when you have Lab officials and other officials asking to look at new routes to go to Rio Rancho and Bernalillo and to Albuquerque so they can transport their employees up to Los Alamos.”

He said there is no talk of any development in Rio Arriba County or the City of Espanola “for affordable housing or for any help as far as us trying to make this place attractive to employees”.

“There’s none of that going on. The highway that they’re proposing, where is that going, it’s going to Rio Rancho. If you look at these numbers, there’s a lot of leakage to Bernalillo County. While Los Alamos is flourishing at $13 million, I see six other counties that are in the negative, and they say it’s because of detention centers or this or that. Yes we do have a detention center. We have a detention center where we’re holding more of other people’s prisoners than our own. The state owes us hundreds of thousands of dollars that they have not paid us because we have a detention center that’s readily available,” Marquez said.

“I look at these and I look at state government and they have a balance. I look at seven counties and they have a balance of $6 million. I look at Los Alamos with a balance of $13 million and I look at the other six counties and they’re all in the red and in the negative and it adds up probably to about $6-7 million. My question is, with those balances, why aren’t the other six counties just made whole. Even if they zero out, why is it that they just can’t be made whole so that they’re not suffering and losing,” he said.

Marquez said Triad’s new philosophy for which he is grateful is that they’re sending computer systems and working stations to people at home and they’re keeping employees at home.

“The new norm will be that there will be people in other states working for LANL. They’re not going to be going up on the hill anymore. Sixty percent of that workforce comes from the Espanola Valley and the Santa Fe Valley. It swells to 20,000 or 30,000 during the day and drops down in the evening. I will tell you, the majority of those people from Espanola, they stop when they get out of work at 3 p.m. or 3:30 p.m. at the Smiths (in Los Alamos), spend their $100 or $200 and they bring their groceries down here,” Marquez said. “We’re all neighbors here and I look at this and I see one county, and it’s not an attack on that county, but I see them flourishing at $13 million and six other counties suffering. How hard is it to make those counties whole and zero them out,” he said.

RCLC board member Santa Fe City Councilor Michael Garcia said he thinks it’s critical to be fair to do an analysis of all entities that are benefiting from LANL.

“It’s clearly evident that LANL has a huge impact on New Mexico and a lot of the time, it boils down to Northern New Mexico but as the data just showed, if you look at that procurement number, to me that was astounding. I don’t know how that number grew so large and it’s kind of similar to cold water being thrown on you and you get that initial shock and maybe we need to start to work within our respective communities to make our local businesses aware that there is this opportunity and maybe it doesn’t all have to go down to Bernalillo County. Maybe it could be spread within those six counties that are currently seeing somewhat of a negative impact, Garcia said.

He said he would like to look at the numbers a little deeper to see why Los Alamos County has such a positive impact and what the contributing factors are.

“If we want to see positive change we really need to determine how we can make that happen. I would suggest a thorough study that could lead to positive outcomes for not only the counties that are participating in the Regional Coalition but New Mexico as a whole. We want to make sure that there’s equitable treatment amongst all communities,” Garcia said.

RCLC Chair Santa Fe County Commissioner Henry Roybal said he would concur.

“I know there’s a lot of different information that we are seeing and we have to also think about that there’s a lot of people who spend money on Amazon and online. The LANL employees do use the services that the counties and the cities provide from fire to police to senior services. I would concur with a lot of the thoughts of Garcia, Sanchez, and also Rio Arriba and Taos county comments,” he said.

Izraelevitz said the board could ask LANL for more insight into their procurement.

“Maybe that’s a way we can identify with other economic development entities in Northern New Mexico how to provide opportunities for local businesses to attract those procurements,” he said.

Fernandez suggested that the board consider what House Memorial 63 that was proposed by Rep. Joseph Sanchez early in 2019 would actually mean for the communities if the GRT generated by the Lab was distributed more equitably. The memorial requested that any taxation task force convened that year by the governor the Legislature “research and develop legislative recommendations and alternatives that can promote more equitable regional tax distributions from Los Alamos National Laboratory or other federal research facilities in the state”.

“In the absence of that, we sit down with the Lab, identify what services can be procured from within the region and then calling on the Lab. We want the Lab to be a good neighbor. We all want to be good neighbors. We In Taos especially appreciate when people from Los Alamos come and spend money in our restaurants and our areas, but as this methodology has shown, it isn’t enough to get us out of that deficit,” Fernandez said. “My recommendation to the board is as we begin this additional study, let’s also look at the shared GRT memorial as a means and also continue to push the Lab to work more with local agencies to develop more of the local industry and talent that are needed to support the Lab’s missions.”

Sanchez noted that LANL has announced a request for proposals for office and warehouse space.

“This is our opportunity to get LANL to recognize the importance of bringing that along with procurement and the need to have that economic development particularly in Rio Arriba County and Espanola,” Sanchez said. “That is what is going to lift us out of that negative deficit. Not just money transfers here or there, but an actual revitalization. So if we came together to get LANL to recognize the importance of bringing that RFP to Espanola and Rio Arriba, the importance of bringing RFI and office space to other places like Mora and Santa Fe, I think that we have a unified voice in that.”

Sanchez noted that the City of Espanola passed over $10 million.

This $2.6 million deficit is 25 percent of our budget. That’s why it means so much to me. That’s what we can lock hands and lock arms around and try to solve,” he said.

Meanwhile, the RCLC has asked LANL to make the data submitted to UNM for the study available for further analysis.