FISCAL AND ECONOMIC IMPACT STUDY FACEBOOK DATA CENTER (PROJECT ANTELOPE) LOS LUNAS, NEW MEXICO

Transcription

1 DAVID TAUSSIG & Associates, Inc. FISCAL AND ECONOMIC IMPACT STUDY FACEBOOK DATA CENTER (PROJECT ANTELOPE) LOS LUNAS, NEW MEXICO DECEMBER 2016 Public Finance Urban Economics Public Private Partnerships Newport Beach, CA Valencia, CA San Francisco, CA San Jose, CA Houston, TX McKinney, TX

2 FISCAL AND ECONOMIC IMPACT STUDY FACEBOOK DATA PROJECT (PROJECT ANTELOPE) VILLAGE OF LOS LUNAS, NEW MEXICO Prepared By David Taussig & Associates, Inc Birch Street, Suite 6000 Newport Beach, California 92660

3 TABLE OF CONTENTS SECTION PAGE EXECUTIVE SUMMARY... 1 SECTION 1. INTRODUCTION... 9 SECTION 2. DESCRIPTION OF RECURRING FISCAL REVENUES AND COSTS...15 SECTION 3. FISCAL IMPACTS...20 SECTION 4. ECONOMIC IMPACTS...25 APPENDICES Appendix A: Appendix B: Fiscal Impact Model Economic Impact Model

4 EXECUTIVE SUMMARY I. PURPOSE OF THE STUDY The objective of this Fiscal and Economic Impact Study (the Study ) is to analyze the fiscal and economic impacts of the proposed development of the Facebook Data Center ( Project Antelope or the Project ) on the Village of Los Lunas ( Village ) and the County of Valencia ( County ). The Project is comprised of a 300-acre data center with up to six buildings anticipated to be constructed over a period of up to 10 years. Net developable land is approximately acres, with a total building space of roughly 3 million square feet for six buildings (i.e., 489,000 square feet per building). The Study analyzes the recurring fiscal impacts of the Project s development on the Village General Fund, and also identifies the general economic impacts on the Village in terms of employment, gross receipts, and earnings creation for Village residents and workers. II. TYPES OF FISCAL AND ECONOMIC IMPACTS TO VILLAGE OF LOS LUNAS EVALUATED IN THE STUDY A. FISCAL IMPACTS ON VILLAGE OF LOS LUNAS GENERAL FUND The purpose of the fiscal analysis component of this Study is to estimate the net fiscal impacts of the Project s proposed development and construction on the Village General Fund. The fiscal impacts identified in this Study include recurring municipal revenues and costs to the Village General Fund that result from the land use scenario analyzed. Village General Fund revenues are generated from a variety of revenue sources, including property taxes, gross receipts taxes (GRT), fees, and fines. Costs to the Village General Fund are associated with a variety of services, such as police protection, fire protection, public works maintenance, and general government services. The Village also expends revenues from a series of other special funds outside of the General Fund; for example, these revenues include various enterprise funds related to water and sewer services. As these revenues are generally equal to the cost of the services that they finance, they are essentially break-even and are not typically included in a fiscal analysis for a municipality. As a result, most fiscal analyses focus on the General Fund, where any shortfalls or surpluses can be easily identified, and such is the case for this Study. In conducting the fiscal analysis, the goal is to determine whether the Project is expected to generate enough revenues for the Village to fully offset expenditures for Local Economic Development Act (LEDA) assistance as well as services provided on its behalf by the Village. Note, however, that the Study does not address the cost of water rights or additional Village infrastructure needed to service the Project. The fiscal analysis focuses on the impacts of the Project on the General Fund if it were built during fiscal year , based on cost and revenue criteria and assumptions existing during that fiscal year. As is the case for most General Fund fiscal analyses, it would be speculative to project future cost and revenue factors because there is no certainty regarding what those factors will be. Assumptions made regarding the relative levels of cost and revenue increases for factors Facebook Data Center Village of Los Lunas Page 1

5 such as these in future years would typically create a bias in the fiscal analysis that could in itself invalidate the results of the Study. B. ECONOMIC IMPACTS ON VILLAGE OF LOS LUNAS AND COUNTY OF VALENCIA The Study also identifies the general economic impacts that would occur in the Village and in the County, and quantifies these impacts wherever possible. General economic impacts include additions to the Village s or County s employment (number of average annual full- & part-time jobs), economic output (e.g., gross receipts), and earnings (the sum of wages, salaries and benefits, other labor income, and employer and employee contributions to Social Security). The Study also distinguishes between one-time impacts and permanent impacts. One-time impacts include benefits to the Village or the County that occur on a non-recurring basis as a result of construction activity, while permanent impacts refer to benefits that occur on a continuing basis, year after year. III. DESCRIPTION OF FACEBOOK DATA CENTER (PROJECT ANTELOPE) The Project is located in the Village of Los Lunas, New Mexico, in the Huning Ranch Business Park on the north side of Main Street, west of Interstate 25, near New Mexico State Road 6. It is comprised of approximately 2.93 million building square feet of industrial land use. The specific land use is the construction and operation of data center buildings and related facilities. A 300-acre data center with up to six buildings is anticipated to be constructed over a period of up to 10 years. Buildings are expected to be constructed in sets of two, in an H formation, with an administrative section connecting the two buildings. According to Facebook, the estimated building space for each H structure is 978,000 square feet. For the purposes of this Study, we assume 489,000 square feet per building (i.e., 978,000/2 = 489,000). The Project will include up to three construction Phases, with two buildings per Phase. Net developable land is approximately acres, with a total building space of about 2.93 million square feet for all six buildings. The Project will require the construction of significant new infrastructure, financed through public and/or private funds, to be ultimately owned by the Village and maintained by the Village s General Fund. At this time, it is estimated that these infrastructure improvements will consist of public infrastructure (i.e., water, sewer, pond, and road improvements), as well as PNM electrical infrastructure improvements. Water improvements will include the construction of approximately 9,000 linear feet of 12-inch water main, 29 fire hydrant assemblies, 9 gate valves with restraints, and boxes and concrete collars. Sewer improvements will include the construction of 2,300 linear feet of 6-inch sewer main, and 10 manholes that are 4 feet in diameter. A pond is needed to buffer effluent flows into a smaller, maximum flow rate that the Village system can accept. This improvement will include a lined pond (2+ acres), a single outlet drain with overflow drain (4-inch), an unknown length of pipe to connect the pond outlet to the sanitary sewer main, and a discharge meter on the pond outlet. Finally, electrical improvements will include interconnection and build-out of the transmission infrastructure, tapping into the existing infrastructure and adding new capacity for the site. This approach will allow the project to be served at transmission voltage (100 kv or higher). Facebook Data Center Village of Los Lunas Page 2

6 IV. CONCLUSIONS OF ANALYSIS RELATED TO THE PROJECT Following are the major conclusions related to the fiscal and economic impacts of the Project: A. FISCAL IMPACTS Recurring Impacts: As reflected in Table A below, the positive Recurring Net Fiscal Impact is estimated to be $2,171,778 annually, based on $2,196,670 in fiscal revenues and $24,892 in fiscal costs. Cumulative totals over Years 1-10 of the Project are $21,966,703 in recurring fiscal revenues and $248,920 in recurring fiscal costs, for a cumulative recurring surplus of $21,717,783, or nearly $22 million. This large fiscal surplus results primarily from gross receipts tax (57.2% of total), electrical franchise fees (29.2%) and property tax revenues (12.2%), together constituting approximately 98.5% of total recurring revenues to the Village General Fund. Notably, the Village s costs are limited due to the fact that the Project will not create any new residents, i.e., it is a purely industrial development. TABLE A ESTIMATED RECURRING FISCAL IMPACTS TO GENERAL FUND FULL BUILD-OUT: 6 BUILDINGS, ALL ELECTRICITY USE SUBJECT TO GRT Fiscal Impact Category Average Annual Cumulative (Years 1-10) Total Annual Recurring Revenues $2,196,670 $21,966,703 Total Annual Recurring Costs ($24,892) ($248,920) Annual Recurring Surplus/(Deficit) $2,171,778 $21,717,783 One-Time Impacts: As shown in Table B below, Local Economic Development Act (LEDA) assistance is estimated to be $16,453,988. These expenditures are subtracted from the one-time (construction) GRT revenues of $44,446,705 (of which $42,065,782 is due to building construction and $2,380,923 is due to infrastructure improvements), to obtain a net one-time GRT revenue to the Village of $27,992,718, or nearly $28 million. TABLE B ESTIMATED ONE-TIME FISCAL IMPACTS TO GENERAL FUND AND LEDA ASSISTANCE FULL BUILD-OUT: 6 BUILDINGS, ALL ELECTRICITY USE SUBJECT TO GRT Fiscal Impact Category Cumulative (Years 1-10) Gross One-Time (Construction) GRT $44,446,705 Project Antelope Construction $42,065,782 Infrastructure (Public and PNM) $2,380,923 LEDA Assistance ($16,453,988) Net One-Time GRT to Village $27,992,718 Facebook Data Center Village of Los Lunas Page 3

7 Sensitivity Analyses: In addition to analyzing the base case scenario (i.e., six buildings at build-out with electricity use subject to GRT), DTA conducted the following sensitivity analyses: Sensitivity Analysis 1: Full build-out but electricity use is not subject to GRT; Sensitivity Analysis 2: Phase 1 build-out only and electricity use is subject to GRT; and Sensitivity Analysis 3: Phase 1 build-out only but electricity use is not subject to GRT. Tables showing the results of the sensitivity analyses are provided below in Section 3.IV. B. ECONOMIC IMPACTS DTA used the Impact Analysis for Planning ( IMPLAN ) input/output modeling system, an industry standard, to assess the multiplier effect of the Project s expenditures. Our model utilizes multipliers generated by IMPLAN, which are in turn based primarily on data obtained from federal agencies such as the U.S. Census Bureau, the Bureau of Economic Analysis (BEA), and the Bureau of Labor Statistics (BLS). Using these multipliers, we calculated the larger economic effects within the Village and the County (our two study areas ) resulting from the data center s projected expenditures on construction and operations. In doing so, we looked at three types of impacts: Direct, Indirect, and Induced. Direct impacts refer to the initial expenditures made by the data center, within its own boundaries, as it gets up-and-running and then conducts its operations for example, by paying wages to construction workers and on-site employees. Indirect impacts relate to the effects of local inter-industry spending via the data center s supply chain. When the data center spends money on suppliers of janitorial services or security services, for example, these expenditures will stimulate further spending by the suppliers on their own vendors, equipment, etc., with ripple effects extending back through the supply chain (known as backward linkages in IMPLAN terminology). Lastly, Induced impacts pertain to the data center employees increased spending on consumption rent, cars, groceries, etc. resulting from the wages they earn by working at the data center. These three types of impacts can help us gauge how the Project would economically benefit not only the business itself, but also the Village and the County. We looked at the impacts on these two study areas in terms of jobs, wages, gross receipts revenues, and economic output. Note that economic output, or simply, output, refers to the value of production (similar to GDP): It consists of items such as labor income, corporate profits, interest income, business taxes, etc., ( value added ) resulting from the data center s activity, combined with the data center s spending on purchases of goods and services ( intermediate expenditures ) to generate its production. For a detailed overview of Direct, Indirect, and Induced impacts, please refer to Section 1.B. Facebook Data Center Village of Los Lunas Page 4

8 The Study also distinguishes between one-time economic impacts i.e., impacts related to onetime construction jobs ( One-time Construction Jobs ) and permanent economic impacts i.e., impacts related to the creation of permanent jobs ( Permanent Jobs ). One-time Construction Job impacts include benefits to the community that occur on a non-permanent basis as a result of construction and development activity, while Permanent Job impacts refer to benefits that occur on a continuing basis, year after year. For a detailed discussion of one-time vs. permanent impacts, refer to Section 1. The economic impacts of the Project that are analyzed within the Study are (1) Permanent Jobs direct-on-site and indirect/induced (which supplies or supports direct employment); (2) Permanent Job Output (Gross Receipts) total direct output plus output produced by suppliers and employee spending; (3) One-Time Construction Job impacts; and (4) GRT revenues. As reflected in Tables C through F below, the Village s/county s Permanent Jobs and Permanent Job impacts, as well as their One-Time Construction Jobs, One-time Construction Job impacts, wages, economic output, and GRT revenues, are all substantially higher following Project development. 1. ONE-TIME CONSTRUCTION JOBS, WAGES, AND ECONOMIC OUTPUT One-Time Impacts TABLE C (ALL NUMBERS SUBJECT TO ROUNDING) Direct (On-Site) Total (Incl. Indirect & Induced) Jobs Within Village 4,125 5,409 Countywide 4,125 5,478 Wages ($ Millions) Within Village $ $ Countywide $ $ Economic Output ($ Billions) Within Village $1.48 $1.81 Countywide $1.48 $1.85 Facebook Data Center Village of Los Lunas Page 5

9 2. PERMANENT JOBS, WAGES, AND ECONOMIC OUTPUT Recurring Impacts TABLE D (ALL NUMBERS SUBJECT TO ROUNDING) Direct (On-Site) Total (Incl. Indirect & Induced) Jobs Within Village Countywide Wages ($ Millions) Within Village $9.66 $12.92 Countywide $9.66 $13.12 Economic Output ($ Millions) Within Village $22.44 $28.69 Countywide $22.44 $ TOTAL JOBS, WAGES, AND ECONOMIC OUTPUT (ONE-TIME + RECURRING) Total Impacts TABLE E (ALL NUMBERS SUBJECT TO ROUNDING) Direct (On-Site) Total (Incl. Indirect & Induced) Jobs Within Village 4,229 5,587 Countywide 4,229 5,660 Wages ($ Millions) Within Village $ $ Countywide $ $ Economic Output ($ Billions) Within Village $1.50 $1.84 Countywide $1.50 $1.88 Facebook Data Center Village of Los Lunas Page 6

10 4. GROSS RECEIPTS TAX (GRT) REVENUES TABLE F (ALL NUMBERS SUBJECT TO ROUNDING) GRT One-Time Recurring Total ($ Millions) Village $44.86 $12.56 $57.42 County $20.31 $5.68 $25.99 TOTAL $65.17 $18.24 $83.41 Note that Direct impacts are identical for both the Village and the County (see Tables C, D, and E above). The reason is that the Project site (i.e., the data center campus) is assumed to be contained completely within the Village and not spill over into other parts of the County. (Direct impacts do not go beyond the Project site itself, whereas Indirect and Induced impacts spill over into other industries and other parts of the geographic study area.) One-Time (Construction) Job Impacts: The construction of the building and infrastructure improvements for the data center produce one-time job impacts, which are as follows: 4,125 Direct jobs; 5,409 and 5,478 total jobs (Direct, Indirect, and Induced) for the Village and the County, respectively. We calculated the projected number of infrastructure construction employees based on spending estimates and the IMPLAN multipliers (refer to Appendix B). We based the number of building construction employees on information provided by Facebook: The Project expects to have direct employment of 1,100 people for the construction of each set of two buildings, for a total of 3,300 for three phases (i.e., six buildings at buildout). Recurring (Operations) Job Impacts: In our analysis, we consider third-party contractors working on-site at the data center to be direct employees along with Facebook s own direct hires. According to Facebook, roughly 60 contractors and 40 company employees are expected to work on-site in data center operations during Phase 1 (i.e., two buildings in operation), with slight upticks in later phases. We make the assumption of 104 direct employees (62 contractors plus 42 company employees) in both our fiscal and economic impact analyses. Using the IMPLAN multipliers, we arrive at a total of 177 and 182 total employees (Direct, Indirect, and Induced) for the Village and the County, respectively. These figures represent permanent/long-term jobs created by the data center s activities. Total (One-Time + Recurring) Job Impacts: Total Direct jobs, from construction and operations combined, equal 4,229. The overall total number of jobs created, i.e., Direct, Indirect, and Induced from construction and operations combined, is 5,587 and 5,660 for the Village and the County, respectively. Wages: While the Project creates a modest number of permanent jobs in the community, these jobs are technical in nature and are therefore expected to be high-paying. To obtain wage impacts, we multiply job impacts by mean annual wages sourced from the BLS Occupational Employment Statistics (OES) data for the Albuquerque Metropolitan Statistical Area (MSA), which includes Valencia County. Data center operations jobs are associated with higher mean annual wages than the construction jobs (i.e., $93k as Facebook Data Center Village of Los Lunas Page 7

11 opposed to $39k). The number of construction jobs, however, far exceeds the number of operations jobs created (i.e., 4,000-5,000 as compared to ). Total wages (Direct, Indirect, and Induced) created by the Project are calculated to be roughly $230 million, with approximately $220 million coming from onetime/construction jobs. Direct wages from recurring impacts (on-site jobs) are about $10 million, with a total (Direct, Indirect, and Induced) of approximately $13 million for the Village/County. Based on our calculations, wage impacts are roughly the same for both the Village and the County. Economic Output: For construction/one-time impacts, output is in the billions; for recurring impacts, output is in the millions. More specifically, construction output is roughly $1.5 billion (Direct) and $1.8 billion total (Direct, Indirect, and Induced), and these figures are essentially the same for both the Village and the County. Recurring output resulting from data center operations is about $22 million (Direct) and about $28-$29 million total (Direct, Indirect, and Induced). As expected, given that the County is a larger area, output is slightly higher for the County than for the Village. Gross Receipts Tax: Estimated GRT revenues calculated in our economic analysis are provided above in Table F. Given the Project s commitment to sourcing locally whenever possible, our analysis assumes that 100% of the construction costs and infrastructure improvement expenditures will be spent within the County. Applicable GRT rates are % for the Village and % for the County. Total GRT revenue is approximately $57.42 million for the Village, $26.0 million for the County, and more than $83.4 million for both areas combined. One-time GRT is about $44.9 million for the Village and $20.3 million for the County, or $65.2 million combined. Thus, one-time GRT accounts for approximately 78% of the total GRT (65.2/83.4 ~ 78%). Recurring GRT is based on taxable receipts included in our fiscal impact analysis: i.e., approximately $320.8 million in spending on Utilities and approximately $92.5 million in spending on Vendors. These recurring expenditures yield GRT revenues of roughly $12.6 million for the Village and $5.7 million for the County, or more than $18.2 million combined. To summarize, although the Project is expected to require a considerable amount of public infrastructure, the Project is also expected to generate significant new revenues for the Village of Los Lunas. As Tables A through F illustrate, the Facebook data center in Los Lunas is expected to generate sizeable, substantial, and lasting employment, wage, output, and revenue impacts. In general, our analysis based on IMPLAN multipliers shows that the economic impacts from the Project will be positive and slightly higher for the County than for the Village. The majority of the benefits will be direct (on-site) and one-time (construction). Nevertheless, the Indirect and Induced impacts show that the data center is expected to produce additional, off-site economic benefits for the Village and the County. Facebook Data Center Village of Los Lunas Page 8

12 SECTION 1 INTRODUCTION David Taussig and Associates, Inc. ( DTA ) has been engaged by the Village of Los Lunas (the Village ) to prepare a Fiscal and Economic Impact Study (the Study ) that evaluates the likely fiscal and economic impacts of the proposed development and construction of the Facebook Data Center ( Project Antelope or the Project ) on the Village of Los Lunas (the Village ) and the County of Valencia (the County ). Specifically, in this Study we examine the Project s fiscal impacts on the Village and its economic impacts on both the Village and the County. The impact of the Project on the Village s General Fund was thoroughly analyzed, although Village enterprise and special funds were not explicitly considered within the Study. I. SCOPE AND METHODOLOGY A. RECURRING FISCAL IMPACTS Fiscal impacts arising from a land development plan can be broadly categorized as one of two types: one-time impacts or recurring impacts. Each of these broad types may, in turn, be divided into a revenue component and a cost component. For purposes of this Study, it has been assumed that one-time revenues would directly offset one-time costs; thus, the fiscal impacts considered in this Study focus on ongoing, or recurring, fiscal impacts of the Project on the Village General Fund. To the extent that revenues are generated outside of the Village s General Fund (e.g., special district revenues) or costs are incurred by the Village outside of the General Fund (e.g., costs financed through a special district), they are not included within this fiscal analysis. As previously mentioned, the fiscal impacts projected for the Study are based generally on the Multiplier Methodology. The primary Multiplier Methodology used to project the fiscal impacts in this Study was the Per Capita-Employee ( Persons Served ) Methodology. The Persons Served Methodology considers the fact that the exact relationship of service demands and revenue-generating potential between residents and employees is difficult to measure. Thus, utilizing a service population, or Persons Served population, comprised of all residents and 50% of employees is common fiscal practice, and suggests that a resident generally has twice the fiscal impact of an employee. This methodology involves calculating the average Village-wide revenues/costs per Persons Served, utilizing the fiscal year Village budget, and applying these revenue/cost factors to the specific number of Persons Served projected for the Project. DTA also used a Per Employee Methodology in the Study to project recurring fiscal factors based on employment only, such as business license tax revenues. Similar to the Persons Served Methodology discussed above, the Per Employee Methodology involves calculating the average Village-wide revenues/costs per employee, utilizing the fiscal year Village budget, and applying these factors to the specific number of employees projected under the given scenario. While most recurring revenues analyzed in the Study are projected using the Multiplier Methodology, some major revenue sources, including property taxes and gross receipts taxes, are Facebook Data Center Village of Los Lunas Page 9

13 calculated using a Case Study Methodology that involves calculating the marginal revenues to be specifically generated by a particular land use, instead of applying an average Village-wide revenue factor. For purposes of the Study, all recurring revenues and costs are stated in constant (un-inflated) 2016 dollars, based on the assumption that the relative impacts of inflation in future years will be the same for both of these fiscal impact categories. Notably, the Village also expends revenues from a series of other special funds outside of the General Fund. For example, these revenues include various enterprise funds related to water and sewer services. As these revenues are generally equal to the cost of the services that they finance, they are essentially break-even and are not typically included in a fiscal analysis for a municipality. As a result, most fiscal analyses focus on the General Fund, where any shortfalls or surpluses can be easily identified, and such is the case for this Study. The study primarily analyzes the recurring fiscal impacts of the Project s development on the General Fund of the Village. Because one-time revenues typically offset one-time impacts, the Study does not address one-time revenues (except for estimating gross receipts taxes (GRT) from construction activities) and focuses mainly on recurring revenues. Methodology specific to the Facebook Data Center Fiscal Impact Study: Our model is customized based on our understanding of the terms of proposed agreements between the Village and the Project. For example, development impact fees will not be paid by the Project, and therefore these fees are excluded from the fiscal model. Payment in lieu of taxes (PILOT) will replace property taxes, and special rates negotiated between PNM and the Project are used to estimate taxable utility billings. The model also incorporates local LEDA payments (the Village Contribution ) to the Project, defined as the lesser of 75% of municipal local option gross receipts tax revenues from the Project or 10% of General Fund expenditures (approximately $1.7 million). 1 In sum, the fiscal model reflects the estimated recurring annual deficit or surplus to the Village s general fund that will result from the development of the Project. To project several recurring fiscal factors, the Study employed the Per Capita-Employee ( Persons Served ) Methodology. For major revenue sources, such as GRT and franchise fees for electricity usage, the Study employed the Case Study Methodology. Caveat: Our study shows that the largest source of recurring revenues to the Village is GRT from the data center s power consumption, projected to be approximately $9.7 million over 10 years. Note, however, that this level of GRT revenues from electricity may not be realized if 1) the Project ceases development prior to full build-out of six buildings, or 2) the Project obtains an exemption from paying GRT on its electricity consumption. Construction Schedule and Assumptions: The model assumes full build-out of six buildings over a 10-year time frame, with a construction period of 24 months per building, square footage 1 Total General Fund Expenditures are approximately $17.37 million based on our analysis of the Village of Los Lunas FY budget. Total General Fund Expenditures less the projected costs associated with the Village s new fire station were calculated to be $16.82 million. Refer to the GF Expenditure Summary in Appendix A for detailed information. Facebook Data Center Village of Los Lunas Page 10

14 of 489,000 per building, and taxable construction costs of $250 million per building. In addition to the creation of an estimated 1,100 construction jobs per phase, the model assumes that 50 direct employees per building for operations (or a total of 100 direct employees) will be created during Phase 1 and that no significant increases in direct employment will occur in later phases. (We assume a total of 104 direct employees in data center operations in later phases.) Table 1A below sets out the proposed construction schedule that underpins our analysis. TABLE 1A PROJECTED FACEBOOK DATA CENTER CONSTRUCTION SCHEDULE (ALL NUMBERS SUBJECT TO ROUNDING) Phase/Building Phase 1 Total (in 1000 Sq. Ft.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Building Building Phase 2 Building Building Phase 3 Building Building Annual Total Cumulative Total ,223 1,589 1,834 2,200 2,567 2,812 2,934 B. GENERAL ECONOMIC IMPACTS The Study also identifies the general economic impacts on the Village and the County that would occur due to the Project, and quantifies these impacts wherever possible. General economic impacts include additions to the Village s and the County s employment (number of average annual full- & part-time jobs), economic output (e.g., gross receipts), and earnings (the sum of wages, salaries and benefits, other labor income, and employer and employee contributions to Social Security). The Study also distinguishes between one-time economic impacts and permanent economic impacts. One-time impacts include benefits to the community that occur on a non-recurring basis as a result of construction and development activity, while permanent, recurring impacts refer to benefits that occur on a continuing basis, year after year, due to the data center s ongoing operations. Additionally, for purposes of the Study, all economic impacts are stated in constant (un-inflated) 2016 dollars, based on the assumption that the relative impacts of inflation in future years may be difficult to gauge. Facebook Data Center Village of Los Lunas Page 11

15 In evaluating economic impacts, the Study quantifies both direct and indirect/induced economic impacts on the Village and the County. Direct economic impacts reflect the initial or first-round increases in jobs, earnings, and output, all of which occur directly on-site at the Facebook data center. Indirect/induced economic impacts are the secondary and other additional rounds of economic activity that occur as a consequence of the direct impacts, and can occur elsewhere within the Village. The indirect impacts represent the economic activity buying and selling of goods and services of suppliers to the land use types analyzed. In this Study, suppliers to the Facebook data center consist of maintenance and repair professionals, utilities providers, janitorial services, security services, and various business support services. Furthermore, the suppliers representing the indirect one-time impacts are mainly heavy industrial and construction suppliers for the actual development of buildings, infrastructure, and facilities. The induced impacts represent the economic activity that results from household spending by employees of all companies directly and indirectly affected by the construction and operation of the land uses analyzed in this Study. Induced impacts created by the expenditures of employees at the Facebook data center would include local housing, retail outlets, gas stations, recreation venues and restaurants, child care facilities, and so forth. Indirect and induced impacts can occur throughout all industries of the economy, and have been categorized using the North American Industry Classification System (NAICS). Adopted by the Office of Management and Budget (OMB) in 1997 to replace the Standard Industrial Classification System (SIC), NAICS is a widely-used system to classify business establishments for the collection, analysis, and publication of statistical data in Canada, Mexico, and the United States. NAICS industries are identified using a six-digit coding system to classify all economic activity into twenty broad sectors, five of which are mainly goods-producing sectors and fifteen of which are services-producing sectors. This six-digit hierarchical structure allows for the identification of nearly 1,170 industries. The broad NAICS sectors include Construction (for One-Time impacts), and Information Services (for Permanent impacts), which are the focal NAICS categories analyzed within this Study to determine the indirect and induced economic impacts generated under the analysis. (i) IMPLAN MULTIPLIER METHOD Although most economists agree that indirect and induced, or multiplier effects exist, most economists also agree that such effects are difficult to measure. Patterns on spending and employment among suppliers and employee households often vary over time and from one region to another. Nevertheless, there are certain input-output models that can be used to estimate indirect and induced effects. In quantifying the indirect and induced economic impacts for the Study, DTA utilized the Impact Analysis for Planning ( IMPLAN ) Input/Output Modeling System, a type of quantitative economic model that provides an approximate measure of the multiplier effect of a firm s spending on payroll and the purchasing of goods and services. Like similar econometric models, IMPLAN helps to calculate the flow of payments for goods and services across different industry sectors, and between households and industries. Facebook Data Center Village of Los Lunas Page 12

16 The IMPLAN model can be envisioned simply as a large spreadsheet with hundreds of industries (plus the household sector) arrayed across the top as producers, and the same industries and households listed down the side as consumers. Each million dollars (output) in spending by any one consumer (i.e., the Project) is allocated across the producing industries from which it buys goods and services. These producing industries, in turn, spend money buying goods and services from their own distinct sets of suppliers. Thus, the IMPLAN multiplier model allows one to gauge the effect on each dollar an industry spends as it diffuses through a regional economy. Furthermore, it allows one to translate the overall regional impact of spending into jobs and employee compensation. Please refer to Table 1B for a diagram of the multiplier effect. TABLE 1B EXAMPLE OF THE MULTIPLIER EFFECT (INDIRECT AND INDUCED OUTPUT) Facebook Data Center The multiplier factors available to determine indirect/induced impacts are intended to reflect impacts for entire areas within a zip code. Therefore, the indirect/induced impacts identified in this Study to occur within the Village and County boundaries are based on assumptions established by DTA and are subject to change. Please refer to Appendix B for further information. Facebook Data Center Village of Los Lunas Page 13

17 II. LIMITATIONS A. ACCURACY OF INFORMATION The fiscal and economic models in the Study contain an analysis of revenues, costs, and impacts to the Village resulting from the Project. These models are based on both (i) information provided to DTA by Facebook and Village staff and (ii) certain DTA assumptions taken from DTA s municipal cost database, as compiled by DTA from previous fiscal impact studies prepared by the firm. The sources of information and basis of the estimates calculated in the Study are stated herein. While DTA is confident that the sources of information are reliable, DTA does not express an opinion or any other form of assurance on the accuracy of such information. The analysis of fiscal impacts contained in this report is not considered to be a financial forecast or a financial projection as technically defined by the American Institute of Certified Public Accountants. The word projection used within this report relates to broad expectations of future events or market conditions. Since the analyses contained herein are based on estimates and assumptions that are inherently subject to uncertainty and variation depending on evolving events, DTA cannot represent that such estimates will definitely be achieved. Some assumptions inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, the actual results achieved may vary from these projections stated throughout the Study. In addition, the fiscal analysis included herein focuses on the impacts of the Project if it were built during fiscal year , based on cost and revenue criteria and assumptions existing during that fiscal year. As is the case for most General Fund fiscal analyses, it would be speculative to project future cost and revenue factors because there is no certainty regarding what those factors will be. Assumptions made regarding the relative levels of cost and revenue increases for certain factors in future years would typically create a bias in the fiscal analysis that could in itself invalidate the results of the Study. Village staff has reviewed the Taussig Fiscal and Economic Impact Study and finds the general approach and methods of estimation reasonable based on facts and external factors known today. Due to the long-term nature of the project and therefore the projections, the actual results may vary from the projections. This report is based upon analyses, projections and estimations that rely upon the best available data and the current state-of-art approach in conducting such analyses. Facebook Data Center Village of Los Lunas Page 14

18 SECTION 2 DESCRIPTION OF RECURRING FISCAL REVENUES/COSTS The following section presents the recurring revenue and cost impacts to the Village General Fund and the methodology and assumptions utilized in the Study to project these impacts. Detailed numerical analyses of the revenue and cost impacts subsequently discussed in this section are contained in Appendix A. Revenues excluded from this analysis include miscellaneous non-recurring revenues, as well as intergovernmental revenues (such as grants), legislative appropriation, funding for capital projects, and park impact fees (from which the Project is exempt). I. ANALYSIS OF RECURRING REVENUES CASE STUDY METHOD: A. PROPERTY TAXES PAYMENT IN LIEU OF TAXES (PILOT) Pursuant to a Village ordinance for the issuance of Industrial Revenue Bonds, payment in lieu of taxes (PILOT) will replace property taxes; that is, the Project is exempted from property tax liability through agreements with the Village. Based on information provided by Facebook and the Village, in our model we assumed PILOT starting at $50,000 for the first building and increasing by $10,000 for each additional building. For example, PILOT would be $50,000 for Building 1 (annually over the ten-year build-out period), $60,000 for Building 2, $70,000 for Building 3, and so forth. Please refer to Appendix A for detailed information regarding the property tax and PILOT assumptions utilized in the fiscal impact analysis. B. GROSS RECEIPTS TAX (GRT) Historically, GRT is one of the General Fund s largest revenue sources, constituting roughly 76% of the included General Fund revenues in our analysis of the Village s FY budget. Based on estimates provided by Facebook, our model includes recurring GRT associated with taxable expenditures on data center vendors and utilities (with the utilities mainly consisting of electricity consumption). Our model also includes non-recurring GRT from the Project s expenditures on data center building construction and infrastructure improvements. Please refer to Appendix A for detailed information regarding the GRT assumptions utilized in the fiscal impact analysis. Additionally, a breakdown of the applicable Village and County GRT rates is provided in Exhibit 2 of Appendix B. C. ELECTRICITY FRANCHISE FEES Facebook has stated that it anticipates the Village will collect approximately $260,000 per building per year in electricity franchise fees as a result of the data center s energy usage. Please refer to Appendix A for detailed information regarding the electricity franchise fee assumptions utilized in the fiscal impact analysis. Note that the fiscal impacts of other franchise fees were obtained using the Persons Served method, described below in Section 2.I.f. Facebook Data Center Village of Los Lunas Page 15

19 D. INVESTMENT INCOME REVENUES Investment Income revenues are generated by the increase in General Fund Revenues resulting from the Project. This increase reflects growth in the following revenue categories: PILOT, franchise fees, gross receipts taxes, and multiplier revenues (as discussed below). Our model for calculating Investment Income assumes an investment period for recurring non-interest general fund revenues of 12 months; a Local Government Investment Pool ( LGIP ) approximate rate of return of 0.395%; and LGIP participation costs of 5 basis points, or 0.05%. Historic LGIP rates of return are sourced from the New Mexico State Treasurer s Office ( STO ) website. The projected Investment Income revenues (less earnings cost) generated by our model are not stable over the build-out period, but fluctuate within the range of approximately $8,000 to $23,000. Please refer to Appendix A for investment income for each year of the build-out period. MULTIPLIER METHOD: E. AUTO TAXES Auto Tax revenues to the Village General Fund are anticipated to increase due to Village population growth only, as opposed to employees or persons served. Therefore, Auto Tax revenues were projected at $8.68 per resident using the Per Capita Multiplier Method. F. OTHER FRANCHISE FEES Revenues from other franchise fees apart from electricity consisting of telephone, gas, and cable vision franchise fees were forecasted at $7.18 per Persons Served using the Per Capita- Employee Multiplier Method. G. LICENSES AND PERMITS Licenses and Permits are based on the Village s collection of fees for various types of permits and registrations, including building permits, liquor licenses, dog licenses, and business registrations. Revenues are forecast using a Per Capita-Employee Multiplier Method that results in a total multiplier of $4.53 per Persons Served. H. FINES This revenue category represents fines and penalties collected by the Village for various infractions, including court fines and parks citation revenues. Fines are forecasted at $3.33 per Persons Served using the Per Capita-Employee Multiplier Method. Facebook Data Center Village of Los Lunas Page 16

20 I. SUMMARY OF GENERAL FUND REVENUE CATEGORIES Table 2A below shows the multiplier amounts for each General Fund revenue category that our model forecasts utilizing the Per Capita or Per Capita-Employee (Persons Served) Multiplier Method. Categories projected using the Case Study method are also indicated. TABLE 2A GENERAL FUND REVENUES (MULTIPLIER METHOD) Category Multiplier Methodology Property Tax N/A Case Study Franchise Fees - Electrical N/A Case Study Franchise Fees - Other $7.18 Persons Served Gross Receipts Tax (GRT) N/A Case Study Auto Taxes $8.68 Per Capita Licenses and Permits $4.53 Persons Served Fines $3.33 Persons Served Interest Revenues N/A Case Study CHARGES FOR SERVICES: Charges for services, which are listed as General Fund revenues in the Village budget for FY , are deducted from General Fund expenditures in our model. For example, the Village budget includes charges for printing and copying, facility usage, property rental, Solid Waste Fund and Water/Sewer Fund bookkeeping, etc., as General Fund revenues; we subtracted these revenues from General Government expenditures in our model. Similar charges for services were offset against expenditures on Public Works; Public Safety: Police; and Culture and Recreation. Please refer to Appendix A for more details on the case study assumptions and revenue multipliers utilized in the Study. II. ANALYSIS OF RECURRING COSTS CASE STUDY METHOD: A. GENERAL GOVERNMENT COSTS Total General Fund expenditures included in our fiscal analysis amount to roughly $13 million after adjusting for charges for services. (About $3 million in capital outlay costs for administration and community services parks were excluded from the analysis as non-recurring expenditures.) In our model, we calculate total General Government overhead for FY by taking the recurring General Government expenditures and adjusting for charges for General Government services: i.e., $1,898,567 (GF expenditures) less $1,012,397 (charges) equals $886,170. General Government overhead costs are projected at a marginal rate of 7.30% of the Facebook Data Center Village of Los Lunas Page 17

21 Village General Fund recurring costs, based on the assumption that the FY General Government expenditures, equaling $886,170, will remain at the same relative proportion of the FY Village General Fund non-governmental expenditures of approximately $12 million in future years. Our model assumes that General Government costs can be expected to increase on a one-for-one basis as a result of the data center land use development depicted in this Study. Therefore, this Study assumes that General Government costs increase at an estimated marginal rate of 100%, that is, at the full 7.30% General Government cost overhead rate. This approach results in projected annual General Government overhead costs of approximately $2,394 associated with the Project, obtained by multiplying the total multiplier expenditures of $32,778 by the rate of 7.30%. Importantly, as discussed above, the fiscal analysis included herein focuses on the impacts of the Project as if it were built during fiscal year , based on cost criteria and assumptions existing during that fiscal year. As is the case for most General Fund fiscal analyses, it would be speculative to project future cost factors because there is no certainty regarding what those factors will be. Therefore, any assumptions made regarding the relative levels of cost and revenue increases in future years would likely to create bias in the analysis that could lead to the invalidation of the results of the Study. MULTIPLIER METHOD: B. MUNICIPAL COURT Municipal Court costs include personnel services (e.g., judge, court clerks) as well as operating expenditures (e.g., attorney fees, data processing, office supplies, etc.). Costs in this category were projected at $15.83 per Persons Served using the Per Capita-Employee Multiplier Method. C. PUBLIC WORKS Public Works costs, including Administration, Engineering, and Operations and Maintenance expenses, were projected at $67.83 per Persons Served using the Per Capita-Employee Multiplier Method. The Public Works Department consists of the Streets Division and the Fleet Maintenance Division, which have multipliers of $44.82 and $23.01, respectively. D. DEVELOPMENT SERVICES (COMMUNITY DEVELOPMENT) Development Services costs, in our model, refer to costs associated with the Community Development department. This category, which includes certain costs associated with Village Planning, Code Enforcement, Economic Development, and Professional Services, was forecasted at $49.23 per Persons Served based on the Per Capita-Employee Multiplier Method. E. PUBLIC SAFETY In total, Public Safety costs were forecasted at $ per Persons Served based on the Per Capita-Employee Multiplier Method. Public Safety costs, in our model, consist of Law Enforcement and Fire Department costs, as well as estimated personnel services and operating costs to be allocated to the Village s new fire station. Law Enforcement (i.e., Police Department) Facebook Data Center Village of Los Lunas Page 18

22 includes costs associated with Police Services and Patrol, Administration, Traffic Enforcement, Crime Prevention, Volunteer Programs, and Community-Based Policing. Law Enforcement costs comprise about 65% of the Public Safety category and are forecasted at $ per Persons Served using the Per Capita-Employee Multiplier Method. Fire Department services include costs associated with Fire Suppression, Fire Prevention, Emergency Medical Technicians (EMTs), Equipment and Vehicles, Volunteer Programs, Outreach, and Training. Existing fire services costs financed through the General Fund are forecasted at $89.69 per Persons Served using the Per Capita-Employee Multiplier Method; in addition, the new fire station is associated with personnel and operating costs forecasted at $14.01 and $14.39, respectively, per Persons Served. F. CULTURE AND RECREATION Culture and Recreation costs, which include Community Services (Parks & Recreation) and Library Department services, are forecasted at $ per Persons Served using the Per Capita- Employee Multiplier Method. The Parks, Recreation, Open Space, and Facility Maintenance Division costs (e.g., park rangers, supervisors, sports and youth coordinators, special events, and building & grounds maintenance) are projected at $ per Persons Served, while Library Department services (e.g., Outreach, Education, and Technical Services) are forecasted as $39.97 per Persons Served. G. SUMMARY OF GENERAL FUND EXPENDITURE CATEGORIES Table 2B below shows the multiplier amounts for each General Fund expenditure category that our model forecasts utilizing the Per Capita-Employee (Persons Served) Multiplier Method. General Government, the category projected using the Case Study method, is also listed therein. TABLE 2B GENERAL FUND COSTS (MULTIPLIER METHOD) Category Multiplier Methodology General Government N/A Case Study Municipal Court $15.83 Persons Served Public Works $67.83 Persons Served Development Services $49.23 Persons Served Public Safety $ Persons Served Culture and Recreation $ Persons Served Facebook Data Center Village of Los Lunas Page 19