One Small Step for Fiscal Sanity?

Government spending is out of control in New Mexico. Fueled by a “windfall” of oil and gas revenue, Governor Richardson has proposed an 11 percent one-year budget increase that even the most optimistic in Santa Fe concede is “unsustainable.” With oil and gas prices dropping already, it is only a matter of time before New Mexico faces the music and trims its budget.

Unfortunately, without external limits of some kind, the natural inclination of politicians is to spend whatever the government takes in. After all, the special interests – those who typically receive direct benefits from government spending – have the incentive to hire lobbyists to work the halls of the Roundhouse in search of a bigger piece of the budgetary pie. Worse, with 11 percent spending growth on the table, there is no incentive for politicians to prioritize their spending.

But who stands up for the taxpayer in Santa Fe? The answer is usually nobody. That’s not because taxpayers don’t care; it is because as a broadly-dispersed interest group the incentives for lobbying are reduced.

So, how do we solve the problem of unchecked government spending? An amendment to the New Mexico Constitution known as the Taxpayer Protection Act was recently introduced by a group of House and Senate Republicans. The Act would amend New Mexico’s constitution to limit spending growth to 3.6 percent plus the rate of population growth in the state. In the event of a surplus, 60 percent of the unspent revenue would be deposited in the severance tax permanent fund with the other 40 percent returned to New Mexicans in the form of a rebate.

If it had been in place since FY 1989, the Taxpayer Protection Act would have resulted in $520 million being refunded to the taxpayers and an additional $780 million being deposited in the state’s permanent fund. General fund spending would be $3.8 billion this year as opposed to nearly $5.1 billion (a number that doesn’t even take into account the Governor’s proposed $5.7 billion in FY 2008 spending.

Placing limits on spending is a delicate balance. On one hand, you don’t want government to spend every nickel that comes in, but on the other hand, spending limits should have some teeth. Depending on your point of view, Colorado Taxpayers’ Bill of Rights is either the gold standard for tax limitation or the poster child of what to avoid. It is unlikely that New Mexico will adopt anything as strict as Colorado’s limit anytime soon.

Colorado limits spending to the combined effects of inflation and population growth. While the Taxpayer Protection Act also accounts for population, it gives a more generous 3.6 percent rate of increase than inflation would have provided in recent years. Since 2000, the annual inflation rate has never exceeded 3.4 percent and it has averaged 2.8 percent. This gives New Mexico government more room to grow than Colorado’s law allowed.

In addition to allowing for more government growth, the Taxpayer Protection Act differs from Colorado’s TABOR in that rather than refunding all excess revenue to taxpayers, 60 percent of the excess is placed in the state’s permanent fund for future use. In light of the fact that much of the $720 million in “new money” is the result of one-time resource extraction, this makes a lot of sense.

While future generations will thank us for putting more money away for them and current taxpayers will undoubtedly enjoy receiving tax rebates, limiting government growth will shift limited resources out of government and into the private sector, thus spurring long-term economic growth in New Mexico.

There are those who may quibble with the particulars of this proposal. Some will say it is too strict and some will say it is too lenient. But, the Taxpayer Protection Act is a good place to start the discussion on spending limits in New Mexico. Hopefully, legislators who are more typically inclined to spend with reckless abandon will give this legislative effort a fair hearing.

Paul Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.