The Senate Tax, Business, and Transportation Committee substitute for Senate Bill 383 (STBTCcs/SB 383) authorizes municipalities to issue flood recovery revenue bonds to fund the rebuilding, repairing, replacing, and hardening of municipal property that has been damaged by a flood. The bill also establishes a Municipal Flood Recovery Gross Receipts Tax, which allows municipalities to impose a temporary gross receipts tax to repay the flood recovery revenue bonds. The tax remains in effect until the bonds are fully discharged or otherwise provided for in full. The bill declares an emergency, ensuring that the provisions take effect immediately upon passage. 

 Senate Bill 383 (SB 383) enables municipalities to issue flood recovery revenue bonds to fund infrastructure repairs following flood damage. Municipalities imposing these bonds must pledge revenue from a new Municipal Flood Recovery Gross Receipts Tax, which can be set at up to 0.25% of gross receipts within the municipality. The tax will remain in effect until the bonds are fully repaid.

The bill also provides a governmental gross receipts tax deduction, allowing businesses to deduct receipts from selling services or tangible property to municipalities for flood recovery projects. This deduction expires on July 1, 2028.

The provisions of SB 383 apply only to municipalities meeting specific population and property valuation criteria, effectively limiting its applicability to larger cities in New Mexico. The bill declares an emergency, allowing it to take effect immediately upon passage and approval.

Implications

SB 383 provides municipalities with a financial mechanism to address flood damage, ensuring long-term funding for rebuilding and resilience projects. The ability to issue revenue bonds backed by a dedicated gross receipts tax allows local governments to finance infrastructure repairs without relying on state or federal disaster aid.

The Municipal Flood Recovery Gross Receipts Tax shifts the financial burden to local businesses and consumers, potentially raising concerns about increased costs for goods and services. The temporary governmental gross receipts tax deduction incentivizes businesses to participate in flood recovery efforts, reducing tax burdens on contractors and suppliers involved in municipal repair projects.

While the bill targets municipalities that meet specific population and property valuation thresholds, smaller communities affected by floods may not qualify, potentially limiting the measure’s overall effectiveness in addressing statewide flood recovery needs.
 

 Under current New Mexico law, municipalities have authority to issue various types of revenue bonds, including utility revenue bonds, project revenue bonds, and gross receipts tax revenue bonds. However, there is no specific statutory authority for issuing flood recovery revenue bonds, nor is there a dedicated municipal tax for flood recovery projects. Existing laws allow municipalities to finance infrastructure projects through general obligation bonds or capital outlay funds, but these mechanisms often require longer approval processes and may not provide immediate funding following a natural disaster. 

 Amended March 13, 2025 in SFC

SFCa/STBTCcs/SB 383: The Senate Finance Committee  amended STBTCcs/SB 383 by modifying the maximum allowable rate of the Municipal Flood Recovery Gross Receipts Tax. The original bill set the maximum rate at one-fourth percent (0.25%), but the amendment increases the cap to three-eighths percent (0.375%). This change appears in two locations within the bill: on page 8, line 14, and page 8, line 18, where “one-fourth” is replaced with “three-eighths.” No other substantive changes were made to the bill’s provisions. 

The primary effect of the amendment is to increase the potential revenue municipalities can generate through the Municipal Flood Recovery Gross Receipts Tax. By raising the maximum allowable rate from 0.25% to 0.375%, the amendment provides municipalities with a larger funding source for repaying flood recovery bonds. This change may be particularly beneficial for smaller municipalities or those with lower gross receipts tax collections, as it allows them to generate additional revenue without extending the duration of the tax.

However, the increase in the tax rate cap could also raise concerns among businesses and consumers within affected municipalities. While the tax is temporary and dedicated solely to flood recovery efforts, an increase in the gross receipts tax rate could contribute to higher costs for goods and services in communities already dealing with the economic impact of flooding. Additionally, municipalities must carefully balance the tax rate to ensure sufficient revenue for bond repayment while avoiding unnecessary financial burdens on residents and businesses.

The amendment does not alter the structure or purpose of the bill but provides municipalities with greater financial flexibility in managing flood recovery projects. This change may help reduce the risk of funding shortfalls and ensure that bond obligations can be met more efficiently. However, since the tax rate increase remains optional and subject to municipal approval, each local government will need to evaluate the economic impact on its residents before implementing the higher rate.

Implications

The increase in the maximum allowable Municipal Flood Recovery Gross Receipts Tax rate has several fiscal and economic implications. From a municipal finance perspective, this amendment provides stronger revenue-generating capacity, reducing the risk of municipalities struggling to meet debt obligations related to flood recovery. The ability to collect a higher percentage of gross receipts tax revenue ensures that municipalities can finance necessary infrastructure repairs more effectively without having to extend the tax period or rely on additional state or federal aid.

For businesses and consumers, the increased tax cap could raise short-term costs, particularly in communities with limited commercial activity, where even small tax increases can impact consumer spending and business operations. While the tax is intended to be temporary, municipalities must ensure that residents understand its purpose and necessity to gain public support.

Additionally, the amendment provides municipalities with more flexibility in determining the tax rate they impose, meaning that not all municipalities will necessarily implement the maximum 0.375% rate. Cities and towns will need to carefully assess their revenue needs and economic conditions before setting a final tax rate.

The emergency provision remains unchanged, meaning that if enacted, the increased tax authority would take effect immediately, allowing municipalities to move forward quickly with flood recovery efforts. 

 Committee Substitute March 7, 2025 in STBTC:

STBTCcs/SB 383: The Senate Tax, Business and Transportation Committee Substitute for Senate Bill 383 (STBTCcs/SB 383) amends Section 3-31-1 NMSA 1978, which governs municipal revenue bonds, to allow for the issuance of flood recovery revenue bonds. Municipalities may issue these bonds to repair and rebuild flood-damaged municipal property, including infrastructure, public buildings, and essential services. To fund the repayment of these bonds, municipalities are granted the authority to impose a Municipal Flood Recovery Gross Receipts Tax, which may be set at a maximum rate of one-fourth percent of taxable gross receipts within the municipality. The tax must be dedicated solely to repaying the bonds and remains in effect until the bond obligations are met.

The bill includes provisions to ensure financial oversight, stating that any revenues exceeding the annual principal and interest payments on the flood recovery revenue bonds may be accumulated in a debt service reserve account. Additionally, municipalities may appoint a commercial bank trust department to act as a trustee, managing the collection and distribution of bond repayment funds.

To ensure rapid implementation, STBTCcs/SB 383 declares an emergency, making the law effective immediately upon enactment. This provision enables municipalities affected by severe flooding to immediately begin financing reconstruction projects without waiting for future legislative sessions.

Comparison of Original SB 383 and STBTCcs/SB 383

STBTC made two primary changes to the original bill, narrowing its scope and simplifying the financing mechanism.

The first major change is the removal of the governmental gross receipts tax deduction that was included in the original bill. The original SB 383 allowed municipalities to deduct gross receipts taxes from payments made for services and materials used in flood recovery projects. This provision was meant to reduce project costs by eliminating tax burdens on recovery spending. However, the committee removed this tax deduction, meaning that municipalities will still be responsible for paying gross receipts tax on flood recovery expenditures. The removal of this deduction likely reflects concerns about potential revenue losses to the state, ensuring that the tax base remains intact despite the increased municipal spending on recovery efforts.

The second major change is the simplification of the tax funding structure. The original SB 383 allowed for the issuance of flood recovery revenue bonds but did not specify a dedicated revenue source for repayment. The committee substitute clarifies the funding mechanism by establishing the Municipal Flood Recovery Gross Receipts Tax, ensuring that bond repayment is directly tied to a predictable and stable tax revenue stream. This change makes bond issuance more financially viable, as municipalities now have a clear means of covering repayment obligations, reducing uncertainty for both local governments and potential bond investors.

Additionally, the committee made technical changes to ensure that the language of the bill aligns with existing statutes governing municipal revenue bonds. These adjustments ensure that the new bond category and associated tax comply with current state financial regulations.

Implications

STBTCcs/SB 383 provides municipalities with a critical financial tool to address flood-related damages, allowing them to issue bonds quickly and secure a dedicated revenue source for repayment. The ability to implement a temporary gross receipts tax to repay these bonds ensures financial sustainability while allowing communities to recover without relying solely on state or federal aid. The emergency provision further reinforces the urgency of flood recovery efforts, ensuring that municipalities can immediately take action following severe flooding events.

However, the removal of the governmental gross receipts tax deduction could increase the overall cost of flood recovery projects, as municipalities will still need to pay gross receipts tax on contracted services and materials. This may lead to higher bond issuance amounts and increased long-term costs for local governments. Municipalities may need to adjust project budgets accordingly to account for these additional tax burdens.

The establishment of a dedicated gross receipts tax for flood recovery bonds improves fiscal accountability and revenue predictability, making it easier for municipalities to manage debt obligations. However, it also means that local businesses and consumers will bear the tax burden, potentially raising concerns about economic impacts in flood-affected areas. Municipalities will need to carefully balance tax rates with economic recovery efforts to ensure that businesses and residents are not overburdened during the rebuilding process.

Additionally, while the bill provides a mechanism for debt repayment, it does not address how municipalities should prioritize projects or allocate funds among competing recovery needs. Local governments will need to develop clear spending priorities and ensure transparent project selection to maximize the effectiveness of the bond-funded recovery efforts.