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County mulls budget options as Triad takes reins

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By Bennett Horne

Los Alamos County officials are hoping for the best but have already started preparing for the worst where the tax status of new Los Alamos National Laboratory management group Triad National Security, LLC, is concerned.

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Triad, after a four-month transition period, will take over full management and operational responsibility of LANL on Nov. 1.

In the meantime, the county is still awaiting word on whether or not Triad will manage as a for-profit or not-for-profit entity, which will have a direct impact on the Los Alamos County budget following the transition period.

Wednesday night, the county council met in special session to begin discussions on what, if any, items could be cut out of the budget in the event of a not-for-profit filing. The discussion contained a lot of speculation since the county has not yet received a solid indication of the tax status.

“We initially thought we would have more information by this date because it was after the notice to proceed was to be issued,” said County Manager Harry Burgess. “We’d been told we would received that information once the notice had been issued and that’s what we were banking on when we scheduled this meeting.”

In anticipation of a not-for-profit filing, the council earlier this year passed a flat budget that contained no raises while postponing certain capitol projects.

Wednesday’s session turned into a precursory discussion since the necessary decision has yet to be made.

“Having scheduled the special session, and it’s a bit of a chore getting these seven people together on the same night, it made sense to do what we’d originally intended to do, which is lay out the information and let them as the council consider all these various options,” said Burgess. “We gave concrete, numerical-associated types of issues so they could start thinking about it. Our schedule for revising the budget they felt was aggressive, and I don’t disagree to an extent.

It takes us time to do a lot of the development. So I think it enables us to be at that point all that much quicker by having the conversation tonight even with that decision having not been made.”

Most of the discussion at the outset of the meeting centered around exactly how much potential loss the county would suffer in gross receipts taxes if the decision was not for profit.

Deputy County Manager Steve Lynn, who led the councilors through an eight-page printout of revenue loss estimates and how those losses would impact the budget, said he used two data points to come up with possible estimates.

“The first data point came from this last legislative session when the state estimated that their revenue loss would be between $25-30 million,” he said. “So I took the average of that, prorated it based upon what the state share is and what our share is. A state share of $27.5 million translates into a county share of $22 million.”

The second data point related to what he called “anecdotal information” the county had received from various sources.

“We’ve heard it from a couple different places where they’re projecting that the decrease would be about $30 million,” he said. “So twice now we’ve heard this figure of a total of $50 million versus the total of what they currently pay which is about $80 million. So in that case the change would be about $30 million versus the state’s estimate of a total of about $50 million.”

He added, “For purposes of this discussion and illustration I simply averaged the two. It’s not a great bit of detailed analysis at this point. There’s still quite a bit out there.”

Burgess said, “On the day the contract was awarded we were told by officials from D.C. that our anticipated reduction in federal taxes, which the state had estimated would be as high as $40-50 million, that the true reduction would be more like $20 million. The problem is I’m not certain how they came to that assessment. So there are some potential positive indicators, we just don’t have anything to base that on. The only thing that’s been said is that would be based on a change in structure of how they subcontract for their various services.”

Burgess was also quick to point out that a negative change wouldn’t necessarily mean a disastrous hit to the economy of Los Alamos County, citing growth at LANL, an upswing in housing sales, a number of new businesses cropping up and a positive reaction by LANL employees over the change of leadership.

Besides Triad’s tax status, another question mark is the tax status of its subcontractors.

“There’s a process called pyramiding,” Lynne said, “where some exemptions pass down through subcontractors and where some don’t. That’s something else we don’t know right now.”

While all the councilors were in favor of holding these discussions now in light of the fact no decision has been made, at least one of them was hoping Los Alamos County wasn’t the only audience listening in to the conversation.

“I think this is an important conversation to have, not only amongst ourselves, but for people who might be watching from D.C., in the DOE complex and that our new lab management could also be looking in and seeing how this conversation goes,” said Antonio Maggiore. “Hopefully this could perhaps influence the decision they will be making, because if you are the one horse in a one horse town, and you control or influence 97 percent of the spending, and when GRT is a recoverable cost at the federal level, I don’t see why anyone would willingly start a management contract by shooting themselves and the community they’re going to be working in the foot. That being said, if they do choose to do that we have to be prepared.”

Rick Reiss noted that while the county council’s overall plan has “traditionally included the goal of supporting the laboratory,” he said the council also needed to look “carefully at services” to make sure “we are providing (services) to the community as a whole and not just to the laboratory.”

He added, “Maybe we need to look at how much weight we put on our community to service the laboratory.”

Among the options mentioned in the meeting was that of increasing the county’s gross revenue tax.

“I do think that, depending on public feedback and the priorities we hear, the council should very seriously consider increasing GRT,” said Susan O’Leary. “I think we should not consider increasing property taxes for two reasons. One is because this situation is a ramification of the laboratory’s contract and not the homeowners, and so I don’t think they need to bear the brunt of this. And I also think there’s just not that much money to get out of the property tax.”

Council Chair David Izraelevitz, however, said he was “concerned” over discussions about increasing the gross revenue tax.

“We’ve had opportunities before to do that and we’re really trying to retain our retail environment,” he said. “Sure, proportionately the lab would still pay more of the gross receipts taxes, but Metzger’s and CB Fox and Fleur de Lys and all the little ones are also going to get severely impacted proportionately in any increases we have.

“I think we’re going to have to be very careful about increasing that,” he said.

While most of the discussion centered on what to do in the face of anticipated revenue loss, one suggestion Burgess made was to ask Triad to help fund some of the county’s services.

“I think that idea comes out of a number of different factors,” he said. “One is their community commitment plan. In the request for permit process it talks about them interacting and supporting community interests, so I think it’s aligned with that idea. What I don’t want to do is delete any options before we try them.”

O’Leary said, “I love the idea of working with the new entity to try to find ways for them to consider sponsoring some of our programs, like our bus program or an annual allotment to support quality of life programs that benefit their employees.”

Izraelevitz said it’s possible, based on earlier language used by the Department of Energy in contract discussions, that cost may not be a prohibitive factor.

“They were looking for the best technical solution, the best management of the laboratory,” he said. “Cost was only considered in a tie-breaker situation. So what I would like to hear from D.C. is that the GRT is not something that’s determinate to them because that would indicate to me that cost is a substantial factor. That will be part of the discussion.”

The county will continue considering its options ahead of its August meeting until it receives definitive word on the status decision.

“There’s general anticipation we’ll hear it within the next couple of weeks,” said Burgess. “That’s kind of what’s been said to us. But we have a regular schedule and so we were penciling in this discussion for one of our regularly scheduled meetings. If it doesn’t come by then or we can’t have that discussion that night we can always push it forward.”