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Netflix Fueled by Oil and Gas in New Mexico

The following appeared at National Review’s website on December 25, 2020

We have known for decades the extent to which progressives dominate Hollywood. In the age of social media, Hollywood celebrities waste no opportunity to show that they stand with the poor, the downtrodden, and the righteous. But they have a way of showing themselves up as the hypocrites we already know that they are.

Let’s start with “fracking.” Fact: a few years ago, more than 100 Hollywood A-listers signed on to an effort under the banner of Artists Against Fracking to ban hydraulic fracturing. Yet it’s no secret that many of Hollywood’s numerous well-heeled opponents of “fracking” have something of a weakness for private planes and, even in their humbler moments, for large SUVs. It’s not much of an exaggeration to think that some of them probably gobble up more energy in a day than average Americans do in weeks.

But without hydraulic-fracturing technology, oil and gas production in my home state of New Mexico would almost completely dry up. This industry has made New Mexico a major energy producer, a crucial source of revenue and jobs for a state widely recognized as one of the poorest in the country. Fracking has safely opened massive new energy deposits with production concentrated in the Permian Basin, located in southeast New Mexico and shared with Texas. In fact, New Mexico is the third-largest oil-producing state, with over 1 million barrels per day at the end of 2019One-third of the state’s entire budget is generated by the industry.

Too bad. If the nation follows the advice of Hollywood’s anti-fracking activists, a poor state and its poor residents will be denied the benefits of an important natural resource and simply go without. While fracking remains legal (for now) in New Mexico, Hollywood’s hypocrisy goes far beyond merely advocating against this technology: some of its leading companies have found a way to suck up tax revenues right here in New Mexico that would otherwise be spent on public schools, health care, and other government services.

In an effort to attain the glitz and glamour of Hollywood, New Mexico’s liberal politicians are handing out some of the most generous subsidies available anywhere to Hollywood film companies. That those companies tend to lean liberal is, of course, only a coincidence.

Netflix is the latest production company to bring significant operations to the Land of Enchantment. The streaming company recently announced that it would expand its operations in the state, spending an additional $1 billion in New Mexico over the next 10 years.

That sounds good, but however liberal it may be, the entertainment industry is still the entertainment industry, and the deal comes with a catch. Netflix may be spending in the state, but it will also be receiving a very generous incentive from the New Mexico taxpayer, something of an irony when one-third of the state’s taxes are paid by “wicked” oil and gas.

Netflix (like any film company that operates in New Mexico) is eligible to have 25 percent of its expenses reimbursed by the State. Better yet, the length of the company’s ten-year lease means it “qualifies” under state law to receive an increased reimbursement of 30 percent.

Just to be clear, if Netflix does indeed spend $1 billion over the next decade as it asserts, it could be entitled to checks from the New Mexico Treasury totaling $300 million. If 33.5 percent of New Mexico’s budget comes from oil and gas over that time period, Netflix alone will effectively be receiving $100 million directly from the oil and gas industry.

Of course, if the “keep-it-in-the-ground” wing of the Democratic Party prevails and bans fracking on New Mexico’s federal lands, the state’s oil and gas revenues could plummet, forcing the State’s other taxpayers to pick up more of the bill for Netflix or triggering some sort of crisis in its relationship with the company

Unfortunately, when it comes to subsidies for Netflix, $300 million is just the down payment. The state is also fronting another $17 million in direct incentives to Netflix while the City of Albuquerque is coughing up another $7 million. These funds come from something called the Local Economic Development Act (LEDA), commonly referred to as a “closing fund.” These are payments made by state or local governments to preferred industries. One might believe that in a state as poor as New Mexico (consistently among the nation’s poorest) that taxpayers picking up the bill for 30 percent of a profitable corporation’s business expenses would be enough.

As things seem at the moment, Netflix is going to continue to grow and over time it should create more jobs in New Mexico. That will generate all the usual headlines about how great the company is for the state and its economy, but it will come at a tremendous cost. That cost is not just in lost revenue, but in tax rebates borne primarily by state taxpayers. This subsidy is both unfair and unsustainable.

As one of Hollywood’s biggest businesses, Netflix is a member of that elite group of publicly traded stocks known as the FAANGs (Facebook, Amazon, Apple, Netflix, and Google). Netflix flaunts its rapidly growing profitability, but it is still prepared to consume massive taxpayer subsidies not only from one of the poorest states in the country, but from a state that can only afford to pay out those generous subsidies thanks to the revenues it receives from the oil and gas industry that so much of Hollywood condemns.

Senator Bernie Sanders is still a hero to many in the entertainment industry and, to be fair, he at least takes a principled approach to such corporate welfare. Unfortunately, the same cannot be said for many in Hollywood and Democratic politicians like New Mexico governor Michelle Lujan Grisham. She has locked our state in to paying Netflix outrageous sums of money over the next decade at a time of great uncertainty for New Mexico and its economic outlook and thrown away the key. That much of that uncertainty comes from her own party only piles irony upon irony.

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

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RGF’s Paul Gessing talks New Mexico politics and policy w/ Mick Rich

The following conversation between RGF president Paul Gessing and Mick Rich (former US Senate candidate and owner of a construction business) aired on local television in Albuquerque, NM recently. It is split into four segments of about 10 minutes apiece.

In the first segment Mick and Paul discuss health care reforms made under ObamaCare, why it has failed, and how Biden plans to move forward with the same government-driven philosophy.

In segment two we discuss the evolution and economics of New Mexico’s film industry and its oil and gas industry.

In the third segment we discuss some of the crime issues at play in the City of Albuquerque.

In this segment we discuss the upcoming 2021 legislative session, the Rail Runner, Spaceport, and five things the Legislature SHOULD do to bring prosperity to our state.

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New Mexico’s Netflix ‘Deal’ A Blow To State’s Finances

This article appeared in the Roswell Daily-Record on December 15, 2020 and in several other New Mexico newspapers.

New Mexico remains among the most locked down states in the nation when it comes to the CoronaVirus. In October the State’s unemployment rate was among the highest in the nation at 8.1%. This difficult economic news combined with the election of a more “progressive” Legislature in November mean that tax increases (and even spending cuts) are likely in store for the upcoming 2021 legislative session. With New Mexico relying heavily on oil and gas revenues, the State’s economic pain will last beyond the coming year.

A new deal announced by Gov. Lujan Grisham with the well-known streaming service Netflix is being touted as good news for New Mexico’s economy. In announcing the deal the Gov. claimed, “My administration has expanded our state’s competitive film incentives, facilitating higher-wage employment for New Mexicans all across the state.” Under the terms of the deal, Netflix will dramatically-expand their footprint in the State spending $1 billion over the next decade.

Unfortunately, despite all the hype and big-sounding numbers, the Netflix deal is just another example of New Mexico’s economically-ignorant political leadership “buying” jobs and economic activity with taxpayer money. The reality is that New Mexico’s already strapped budgets will be drained even more in the years ahead by this new plan to subsidize Hollywood.

Something that too few in the media do is look closely at the particulars of the deal itself. For example: the State offers a 25% film “tax credit” which is really a rebate of 25% of the costs of production. Netflix is able to boost that rebate by another 5% since they are considered a “qualified” production facility. That means taxpayers will reimburse Netflix for 30% of their spending in NM. According to a new report from the Legislative Finance Committee (LFC) states that film subsidy payouts could increase annual tax credit payouts by $25 million beginning next fiscal year.

Lest there be any doubt that film subsidies actually cost the State and its taxpayers money, a separate 2019 LFC report noted, “Because film tax credit payouts are booked to Corporate Income Tax (CIT), actual CIT receipts are higher than the final amounts distributed to the general fund.” These subsidies take corporate tax dollars right out of the State Treasury and hand them to film companies.

“Tax credits” are just the starting point. Additionally, the State is providing $17 million in LEDA incentives; the City of Albuquerque is providing another $7 million in LEDA, and they will also provide an industrial revenue bond to abate some or all property taxes over a 20-year term for the first $500 million investment to build out the facility.

In total Netflix will receive $300 million + $17 million + $7 million + the IRB tax abatement to eliminate their property taxes.

Finally, even though NM has an annual cap on film tax rebate expenditures, the legislation exempted companies that purchase or sign a 10-year lease for a qualified production facility: this means the cap does not apply to Netflix.

In other words, Netflix is definitely going to grow and appear to create more jobs in New Mexico (which will make a lot of headlines), but it will do so at taxpayer expense. That cost is not just in lost revenue, but in actual spending. Those costs, generated through the tax credit, really a rebate, are borne primarily by State taxpayers. This subsidy is both unfair AND unsustainable.

Governor Michelle Lujan Grisham has now locked us in to paying Netflix outrageous sums of money over the next decade at a time of great uncertainty for New Mexico families and the state’s economic outlook.

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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Lights, Camera…Tax Breaks? Why Film Subsidies and Other Corporate Welfare Boondoggles Are a Bad Idea for New Mexican Taxpayers

Due to the COVID19 pandemic, the filming of movies and television shows has ground to a halt in New Mexico and around the country. While aspects of the pandemic are devastating to our economy, the shutdown of film is not one of them. That’s because of the outrageous subsidies the State provides Hollywood filmmakers.

In 2019 the Legislature more than doubled the tax subsidy program from $50 million to $110 million. This subsidy expansion would have a massive, negative impact on the State’s budget, especially now that the economic boom of the past few years ended with COVID.

New Mexico is a poor State. Budget cuts and tax hikes will be on the agenda when the Legislature meets in 2021. So, why should taxpayers subsidize Hollywood which grosses $10 billion annually in the U.S., while yearly global box office revenue for American movies nears $38 billion. Yet its profit margins are fattened by American taxpayers, who provide over $1.4 billion in annual subsidies to filmmakers.

Film subsidies are justified by claims that filmmaking will bring jobs and provide money for the local economy. The prestige of having your state’s locations and scenery featured in a popular film plays a role, too—yet, as with sports franchises, the concrete economic benefits generally prove to be elusive.

Today, New Mexico offers some of the nation’s most generous film subsidies, including a 25% tax credit for movies, a 30% tax credit for TV shows, plus a 5 % rebate for resident crew wages if the filming is shot over at least 10 days at qualified facilities (or 15 days if the budget is over $30 million). But these movie-luring investments are nearly always economic flops.

A 2014 Albuquerque Journal article reported that film production in the state had “provided thousands of jobs and generated $1.5 billion in total economic output [from 2010-2014], but film production activity—both movies and TV shows—generated an estimated 43 cents in tax revenue for every incentive dollar spent by the state between 2010-2014.” So, the state lost more than half its investment in movie-making subsidies.

Jim Wisnewski, one of Albuquerque’s more colorful casting agents, had nothing but praise for the role of film and television subsidies in his state:

We say bring it on, it’s great for New Mexico. Throw that state money at Hollywood—bring ‘em in. When they come, they have to spend money in the state, renting cars and hotels, eating at restaurants, and that’s all revenue for us, isn’t it? In fact, we’re proposing a studio be built on the border between New Mexico and Colorado so that those guys can take the 30% tax rebate from New Mexico and the 20% tax rebate from Colorado. They could get back 50% of their taxes that way.

This may seem humorous, but there is nothing funny about taxpayers footing the bill for films the networks are going to film anyway. With New Mexico again facing budget cuts (after having already made some in the recent special session), taxpayer dollars should not be diverted to rich Hollywood film companies.

For many decades, too many of our government’s policies have taken wealth from taxpayers of modest means and provided a big chunk of it to the rich. The same perverse policies are in place today, and there is every reason to believe that they’ll remain in place for the foreseeable future—unless we act as citizens to demand change.

While today’s politicians—especially those vying for the presidential contest in 2020—are proposing ways that the government should act to reduce income and wealth inequality, we ask, at the least, that the government stop making inequality worse.

This is one area of economic policy that the vast majority of Americans of all political persuasions agree on. Liberal or conservative, socialist-leaning or libertarian, Republican, Democratic, or independent—practically everyone will acknowledge the absurdity of having government take from the poor and the middle class to give to the rich.

Yet that’s exactly what happens, every day, in many ways, large and small. New Mexico taxpayers would be well served if their legislature cut such gifts to the rich from their budgets, starting with these ridiculous film subsidies.

*Phil Harvey and Lisa Conyers are co-authors of “Welfare for the Rich,” a new book that was published on August 4, 2020. For more information, go to www.welfarefortherich.com
and @PostHillPress

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Understanding the Rio Grande Foundation

The Rio Grande Foundation often comes under criticism from the left. But sometimes we come under fire from the right as well.

For starters we are designated as 501c3 “education and research” think tank. We don’t make endorsements and we don’t “carry water” for any political party or politician. Various media outlets have called us libertarian, conservative, and free market. We call ourselves “free market,” but we don’t waste our breath and time arguing the finer points of ideology because we believe that our work is self-explanatory.

For starters, New Mexico is a deeply challenged state. We believe that a vast majority of these issues are self-inflicted. New Mexico lacks economic freedom and remains poorer and less well educated than our neighbors. We also spend a VAST majority of our time focused on state and local issues as opposed to federal ones.

Those issues broadly include:

  1. Size of Government: New Mexico has long been a state driven by government. Data show that state/local spending is too high and that government regulations make doing business in New Mexico less attractive than doing business elsewhere. We’ve worked on this issue from all angles including: all forms of taxation, subsidies and corporate welfare (notably film subsidies), but also LEDA, JTIP, and “green” subsidies.
  2. Regulation: Rio Grande Foundation has led the charge for “right to work” repeal of NM’s”Davis-Bacon” law, reform of government employee pensions, and against numerous “nanny state” regulations like plastic bag bans. We have also done extensive work against “green” programs from the Energy Transition Act to costly “green” building codes.
  3.   School Choice/Education Reform: Across the political spectrum New Mexicans agree that our K-12 system is failing. While politicians of both parties typically opt for some combination of more money, more time in school (pre-K), and some form of top-down accountability, the Rio Grande Foundation believes that parents and (to an extent students themselves) are better able to decide on the educational options that appeal to them. Charter schools are a good start and should be expanded, but more options are needed.

Additionally, the Rio Grande Foundation supports the US and New Mexico Constitutions, we stand up for free speech, gun rights, private property, and open government.

We don’t take on immigration, gay rights, or abortion issues.

So, there you have it. We at the Rio Grande Foundation have our plates very full, but we are making a difference in New Mexico every day. If that appeals to you, please consider making a tax-deductible donation today!

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Talking New Mexico Budget/2020 session/Oil and Gas Downturn w/ Fred Martino on KRWG

RGF president Paul Gessing recently sat down with Fred Martino of KRWG TV in Las Cruces to discuss the aftermath of the 2020 Legislature and how things will likely shake out in the wake of the Coronavirus situation and the rapid decline in oil and gas prices.

 

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New RGF video explainer illustrates failure of New Mexico’s biggest corporate welfare program

The Rio Grande Foundation is constantly on the lookout for ways to educate New Mexicans about what their tax dollars are being used for and what state and local government could or should be doing better. To that end the Foundation has developed a short video, accessible to folks on the left, right, and center which explains the myriad issues with the subsidies New Mexico lavishes on one “special” industry.

If you agree with us that film subsidies are unwise and overly-generous, tell your legislators here.

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Rio Grande Foundation provides counterpoint on NBC/Universal subsidy deals counterpoint on NBC/Universal subsidy deal

The Rio Grande Foundation had an opportunity to explain (again) why New Mexico’s film subsidy program is not the economic winner it is so often touted as in a number of media outlets. Click on the 1st story below for the KOAT story:

Also talked to KOB Channel 4:

Finally, sat down and talked to Bob Clark of 770 KKOB. You can listen to the podcast.

 

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Legislative analysts agree: Film subsidies are money-loser

For years the Rio Grande Foundation has attempted to educate New Mexicans on the bad economics of film subsidies. The program which actually began under then Gov. Gary Johnson was enhanced by Bill Richardson when he and the Legislature made it state policy to return 25 cents for every dollar spent in the State to the film industry.

The amount that could be spent in support of the film industry was uncapped during the Richardson Administration leading to some wild swings in annual subsidy payments. That situation was partially resolved during the Martinez Administration when a $50 million annual cap was placed on payouts, but subsidies could (and did) accumulate above that amount.

As we (and others) have pointed out, this is the single most generous business subsidy offered by the State of New Mexico. Both economically and morally it is one thing to exempt a business from taxes that would otherwise be paid (think Industrial Revenue Bonds and their long-term property tax exemptions), it is another thing entirely for government to cut checks (using our tax dollars) to fund the ongoing operations of chosen businesses.

Even LEDA which does result in tax dollars being paid out to businesses locating new facilities in New Mexico is a one-time funding mechanism.

But under New Mexico’s film program our taxes are collected and handed over to film companies doing business in New Mexico. That fact was laid bare for the public to see when, shortly prior to the 2019 legislative session, it was reported that the State owed hundreds of millions of dollars to the film industry. In the 2019 session the Legislature agreed to appropriate (up to) $250 million to pay off that “debt.”

That payment would be a sensible use of the surplus if the Legislature at the same time enacted policies to wean the film industry away from ongoing government subsidies. Instead, the Legislature in SB 2 expanded the cap to $110 million annually and also allowed film producers unlimited subsidies if they have a qualified production facility within the State.

We know this will be a boon for Hollywood filmmakers, but what about New Mexico’s economy? New Mexico’s top fiscal leaders, Rep. Patty Lundstrom, Vice Chair of the Legislative Finance Committee, and Director David Abbey recently gave a presentation in which they discussed tax and budget changes made during New Mexico’s 2019 session.

They note that “film credit changes are estimated to cost $500 million to the General Fund over the next five years (in addition to the $250 million that would have been paid out under the existing cap). Also, they note that the revised film program is “likely the most significant state investment ever in a single industry…despite evidence of about a 40 percent return on the dollar.”

To say the least, this echoes what the Rio Grande Foundation has been saying for more than a decade. We are happy to have films made here, but the policy of opening up the State’s Treasury to ANY corporation is an economic loser.

Recently, Gov. Lujan-Grisham has been in the media encouraging film productions originally-slated for Georgia to come to New Mexico. Due to the Peach State’s own generous subsidies, Georgia has attracted a number of productions, but recently-adopted abortion limits have rankled some in Hollywood who are threatening to shift production elsewhere.

Ironically, due to the money-losing economics of film subsidy policies in both states, a film boycott could be a boon for Georgia’s overall economy and an even-bigger boondoggle for New Mexico’s which could see the annual film program’s costs skyrocket. Already, as Rep. Lundstrom and Mr. Abbey point out the subsidy program will cost an estimated $150 million annually.

This largesse targeted at one industry may seem affordable at a time of billion-plus dollar surpluses thanks to booming oil production in the Permian Basin, but at some point oil prices will fall for a sustained period or the spending aspirations of New Mexico’s Legislature will grow too quickly for oil revenues to maintain.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, 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

 

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Freedom Index Results Highlight Challenging 2019 Legislative Session

(Albuquerque) The Rio Grande Foundation has tracked floor votes in New Mexico’s Legislature from the perspective of individual freedom (both economic and under the US Constitution) for several years. Final results for the 2019 Legislature are available now.

Unlike most legislative “scorecards,” the Foundation’s Freedom Index tracks hundreds of bills (more than 800 bills were rated this session alone) and rates them from -8 to +8. High scores are tough to come by because minus votes actually subtract from the vote total. Thus, a positive overall score is considered “good.”

Unfortunately, as Rio Grande Foundation president Paul Gessing noted, “2019 was not a good year. In fact, when it comes to New Mexico taxpayers and their economic and constitutional freedoms, 2019 was the worst year he could recall.”

The Five Highest Point Scorers were:

Rep. Candy Spence-Ezzell
Rep. Rod Montoya
Sen. Mark Moores
Rep. Rachel Black (tied)
Rep. James Strickler (tied)

The Five Lowest Point Scorers were:

Rep. Joy Garratt
Rep. Sheryl Williams Stapleton
Rep. Daymon Ely
Rep. Debra Sarinana
Rep. Eliseo Alcon

The Worst Bills Rated and Voted on Included:

HB 2 (The Budget which increased spending by 11%)
HB 84 (Automatic Voter Registration)
HB 85 (Eliminating local Right to Work ordinances)
SB 489 (Forcing utilities to use 50% “renewable” electricity)
SB 2 (More than doubled film subsidies from $50 million to $110 million annually)