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Self-sufficiency fund has more wins than losses

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County > Income generated by the program has bolstered coffers

By Arin McKenna

When the topic of the Self-Sufficiency Fund (now renamed as the Economic Vitality Fund) comes up, a common perception seems to be that the fund’s investments have been money down the drain. However a closer look at the fund’s successes and failures would appear to contradict that assessment.
The Self-Sufficiency Fund was created when the United States Congress decided that the Department of Energy should stop making yearly assistance payments to the county to compensate for the loss of property taxes and gross receipts taxes the county would normally receive from an entity the size of Los Alamos National Laboratory.
Sen. Pete Domenici argued for a one-time payment large enough to help the county invest in projects that would create a revenue base in years to come. Congress approved a transfer of $22.6 million from the DOE to the county for that purpose in the early 1990s.
Some of the fund was transferred to the Airport, Fire and Water Funds to finance initial improvements associated with assuming operation of those systems from DOE.
Other expenditures built foundations for economic development, such as preparing the Trinity Site and other land transfer projects for development.
A large portion of the fund lay dormant and earning interest for several years as the county assessed how to use it most effectively.
The New Mexico legislature opened a path forward when it passed the Local Economic Development Act, which provided a path for counties and municipalities to fund private enterprises that could help build the “base economy” without violating the State Constitution’s anti-donation clause. The county council later passed its own LEDA ordinance with criteria for funding projects that could bring money in from outside the county.
A portion of the Self-Sufficiency Fund was set aside to provide grants or loans for promising enterprises.
The first project funded was the Los Alamos Research Park in 2010. The county awarded the Las Alamos Commerce and Development Corporation an $800,000 grant and $800,000 in loans to develop the property, which is on a long-term lease from LANL.
The Research Park has brought in $17 million in additional investment from outside the county, according to estimates. An analysis using economic modeling software also indicates that the Research Park supports 199 direct, indirect and induced jobs and wages of about $14.8 million annually. The property is estimated to have generated nearly $1.2 million in local property taxes, utility transfers and revenue sharing since inception.
The county’s largest investment until recently was $2,175,632 to Hytec/Imtec. In one sense, this investment could be viewed as a failure, since 3M bought the company and decided to move it out of the county. However–contrary to popular belief–the county did not lose money on the venture. 3M paid back the loan with interest ($2,189,899), and made some other contributions as well.
“I don’t think it’s correct to call Hytec a failure in that the loan was repaid and new infrastructure was built,” said Deputy County Administrator/Chief Financial Officer Steve Lynne. “On the other hand, it didn’t meet the targets that were outlined in the original agreement. So we don’t have those new jobs at the moment or the economic activity at the moment. But the potential is there now that the facility is there.”
LACDC Executive Director Kevin Holsapple said the Hytec and other failed ventures brought other benefits as well, in the form of outside investments and additional people employed and spending money in the community during the duration of the venture.
Council canceled participation agreements with Avanza, Advanced and FROLA due to noncompliance with the terms of their agreements. Avanza has an outstanding loan balance of $227,000 and Advanced owes $51,000, which the county does not expect to collect. FROLA is currently making payments to the county.
Two other small projects are active enterprises in the community: Veriscape, which received a $525,715 loan and Caldera Pharmaceuticals, which received $334,403.
The county’s most recent investment, $2 million toward the construction of the New Mexico Consortium’s new research facility is showing returns even before the facility is completed.
The grant helped recruit researcher Richard Sayre and additional staff to the Consortium. Sayre’s in turn pursued and won a $70 million award from the National Alliance for Advancement of Biofuels and Bioproducts and industry partners.
Economic Vitality Administrator Greg Fisher’s modeling software indicates that when the Consortium reaches full employment it will generate $5 million in yearly earnings from direct and indirect jobs, independent of GRT and property tax revenue.
The county has not, to date, done a thorough analysis of the economic impact of all the fund’s investments, but Fisher intends to do so with the market analysis software the county has purchased.
Holsapple stresses that though the county did a thorough analysis of every project and each project was reviewed by an independent board to minimize losses, there was never an expectation every venture would be a success.
“One of the things to realize, is that when the county council decided to go in and do those investments, they knew that the only reason the county was involved in the first place is they’re working with things that are risky, such that those people couldn’t go to the bank,” Holsapple said. “So what they were doing was using a pretty small amount of the self-sufficiency fund, much less than interest that they’ve earned on that fund over time, in order to put some funding out there and take a chance on some small companies.”
Fisher is using the $7 million or so remaining in the fund to strategically increase economic vitality, according to a plan approved by council last year.
“As we direct the fund as carefully as possible, we expect to leverage at least three to four times what we invest, Fisher said. “And some of this is year-after-year, too. It’s really like building a jigsaw puzzle, and you have to do it carefully so everything fits together and sustains itself. You don’t want fly-by-night operations.”