(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
With New Mexico’s politics trending hard left, what is a fiscally conservative think tank that focuses on New Mexico’s still-shaky economic situation to do? Quite simply, there will be more to do than ever.
For starters, New Mexico’s $1.1 billion oil-generated surplus brings both opportunity and peril. The Rio Grande Foundation has long called for reform of our state’s broken and politically manipulated gross receipts tax. The surplus is an opportunity for legislators to reform a broken system in ways that make New Mexico’s tax structure economically competitive in ways that encourage businesses to stay in New Mexico. Of course, we’d love to see New Mexico households given tax relief as well, but given the political winds in Santa Fe, revenue-neutral reform is likely the best we can hope for.
While the massive growth of oil production in the Permian Basin has generated optimism about New Mexico’s future we all have a stake in spending that money wisely. It is worth noting here that oil markets are fickle. They rise and fall quickly. It is unwise to put “permanent” new government programs (or tax cuts) in place based on oil revenues.
On that note the Netflix deal is no reason to eliminate the $50 million film subsidy cap. Unlike most economic development programs the film subsidy is NOT a tax credit.
It is taxpayers’ money that reimburses film companies 25 percent of what it costs to film a movie and 30 percent for television shows.
The Netflix deal CAN be a big win for our state if the cap remains in place and payouts remain strictly controlled. The New Mexico Film Office’s own 2014 report showed that film subsidies returned just 43 percent of what was spent to state and local coffers.
While the Rio Grande Foundation has always opposed film subsidies, if Netflix makes New Mexico its film hub without digging further into taxpayers pockets, the industry could wind up being a winner for the state.
Eliminating the subsidy cap could cost taxpayers hundreds of millions of dollars annually and would make budgeting in the Legislature a real challenge due to volatile annual expenditures.
To reform government and create jobs the Legislature should use former Gov. Susana Martinez’s occupational licensure executive order as a guide for reducing unnecessary burdens on workers and consumers.
This is another bipartisan reform idea as the Obama Administration urged (and offered a road map) for states to enact reforms to make it easier for workers to get work without unnecessary and expensive government permission slips.
All provisions of the order should be considered for legislative approval, thus giving them a permanence that they currently lack, but the “consumer choice” concept is the most important. This innovative idea would allow a person to practice without a state license as long as his or her employer informed prospective customers of the lack of a license.
Finally, the issue of New Mexico’s utilities and how they are regulated and managed will be critical in 2019. PNM is looking to get out of the San Juan Generating Station. This despite the fact that a whopping $500 million in scrubbing technology was just invested in an effort to clean the plant’s emissions. Unfortunately, if San Juan Generating Station is mothballed it will come at the cost of the utility’s customers throughout New Mexico in the form of significant increases in utility rates.
If Gov. Michelle Lujan Grisham and the Legislature follow through on their pledge to raise the renewable mandate on PNM and other utilities to 50 percent by 2030, PNM will use that to justify the rate payers’ bailing them out for their “stranded costs.” This could cost anywhere from $150 million to $800 million (PNM is being cagey with the actual “stranded cost” number). Of course this doesn’t even include the job and tax revenue losses felt on the Navajo Reservation and other various school districts and taxing authorities in the Four Corners.
The San Juan College president estimates it will lose $2 million from the closing alone.
The “blue wave” of 2018 will have major impacts in New Mexico politics. With great power comes great responsibility.
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. The views in this column are the author’s alone and do not reflect the view or opinions of New Mexico In Depth.
COMMENTARY: The Rio Grande Foundation is a nonpartisan organization, but like so many other New Mexicans we followed the recent election closely and were surprised by the “blue tsunami” that hit our state.
As a policy-driven organization, we look forward, not back. That said, the utter devastation of the GOP and most fiscally-conservative candidates on Election Day will make the 2019 Legislature and beyond quite interesting. We have a number of questions that we don’t know the answers to, but we hope will frame the policy discussion as we move forward:
• The gross receipts tax is a job-killing mess. Candidate Michelle Lujan Grisham pledged to address it, starting with naming a bipartisan tax commission to look at it. Will she really make tax reform a priority and will she get enough Democrats in the Legislature to get involved, or will the whole thing devolve into a push for higher taxes?
• Lujan Grisham supported marijuana legalization, and the House is more progressive than ever. Is there enough support in the Senate to legalize recreational pot?
• Speaking of the Senate, will Senate Finance Committee Chairman John Arthur Smith be able to stymie efforts to tap the “permanent fund” for universal pre-K, or will there be a compromise or capitulation? Also, will the Senate in general and Smith in particular stand firm against what seems likely to be a raft of tax-and-spending proposals that have been bottled up by Gov. Susana Martinez for the past eight years?
• We know that K-12 spending will rise dramatically, but by how much? With Democrats in control of everything they have tremendous leeway to shape New Mexico’s education system. How will they spend that money, and will they be able to actually improve our state’s struggling K-12 system?
• With “progressives” running the show in the House and having already attempted to ban new charter schools, are New Mexico’s charter schools in danger?
• Will Republicans unite to oppose big-spending and taxing plans? The House GOP won’t be able to exert itself on many policies with a massive disadvantage and a “progressive” majority led by Speaker Brian Egolf, but Senate Republicans could influence policies with a reconstituted “cowboy coalition.”
• Will Democrats succeed in eliminating the $50 million cap on film subsidies and increasing the state’s “renewable” mandate to 50 percent from the current (as of 2020) 20 percent requirement? Is a $12 minimum wage inevitable? What economic impact will these policies have on the state economy?
• Finally, will New Mexico’s oil boom continue? The state has benefited greatly from the boom in oil production in the Permian Basin, which has been sustained by high oil prices. Since Oct. 1 the price per barrel has dropped from the mid-$70s to below $60. Future oil prices are hard to predict and even harder to base budget on.
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Declining oil prices are not the only concern. Land Commissioner-elect Stephanie Garcia-Richard is the first New Mexico land commissioner to have expressed hostility toward the oil and gas industry that funds this state’s economy and her office. Will she fulfill her anti-industry campaign rhetoric (which included banning fracking) or will she be willing to work with the industry while also advancing the cause of “renewables” and protecting state lands?
New Mexico has always been a pretty “blue” state. Gov. Martinez took a lot of heat for the sorry state of New Mexico’s economy even while Democrats in the Legislature prevented her from adopting most of her policy reforms (like “right to work” and education reforms). With the Democrats in total control and presumably in control of the coming redistricting process, is New Mexico the newest blue state like California?
Or if Democrats mismanage the budget, raise too many taxes, and things generally go poorly for Gov.-elect Lujan Grisham, will the pendulum swing back toward New Mexico being a “purple” state once again? And, if so, will Republicans/Libertarians/moderates be able to formulate a coherent strategy to take advantage of that overreach?
Paul Gessing is the president of New Mexico’s Rio Grande Foundation, 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.
Strong growth in the oil patch has given New Mexico’s legislators a little “new money” to spend. There is no shortage of ways that our Legislature has cooked up in order to spend it, but perhaps the worst idea of them all is to eliminate the $50 million cap on annual film subsidies.
The State of New Mexico’s 2014 study (curiously it was touted at the time by the media and film subsidy supporters) found that New Mexico’s film subsidy returned 43 cents to taxpayers for every dollar spent. That number actually overstates the return to state taxpayers as the workings of New Mexico’s gross ensure that local governments receive a “free” 10 cents for every dollar spent by the state while the subsidy returns 33 cents to the state’s own coffers.
It is always worth pointing out that unlike most government incentive programs, the film program is a spending program. Most tax credits and exemptions represent foregone tax revenues, but when a film crew spends, say, $100,000 in New Mexico, they receive a check from taxpayers for either $25,000 or $30,000 (25 or 30 percent) depending on whether they are shooting a movie or a TV show.
The $50 million cap is merely an attempt to limit the film industry’s annual budgetary impact. Limiting annual spending on film subsidies at $50 million also gives legislators a bit more certainty when it comes to passing an annual budget. Creating an annual budget is tough enough without a line item costing tens of millions of dollars with an unknown final cost. Remember, budgets are passed in advance of when they are spent so there is no way legislators can budget for an uncapped film subsidy.
The Rio Grande Foundation opposes the film subsidy on principle. The view that government should not pick winners and losers using subsidies and special exemptions is widely-shared by economists across the political spectrum. Robert Tannenwald of the Center for Budget and Policy Priorities (author of the report “State Film Subsidies: Not Enough Bang for Too Many Bucks”) is one of many liberal economists who oppose film subsidy programs like New Mexico’s.
Increasing numbers of states are stepping back from their favoritism for Hollywood subsidies. Michigan and Alaska have eliminated their programs while Kentucky’s Gov. Matt Bevin has proposed eliminating his state’s program.
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Unlike in New Mexico, where the film subsidies have become another partisan football, at least one Kentucky Democrat expressed support for the Republican governor’s proposal to eliminate subsidies.
Democratic Rep. Chris Harris recently said, “This good-intentioned incentive has morphed into a major drain on our state budget. We haven’t been provided with any reliable data that would justify the cost of this program. Other states that have had similar tax credits in the past are reconsidering, and I believe Kentucky should as well.”
The fact is that despite the “new money” floating around the Roundhouse right now, there are more spending priorities than dollars. Medicaid, the Rail Runner, Spaceport, solar industry, the courts, early childhood, K-12, and higher education are just a sampling of the numerous budget areas being considered for more spending.
A complete repeal of New Mexico’s film subsidies is not in the cards right now, but with so many other spending priorities, a still-struggling economy, and all of this built upon volatile oil and gas prices, this is hardly the time to eliminate the film subsidy caps.
Paul Gessing is the president of New Mexico’s Rio Grande Foundation, 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.
No politician relishes the job facing New Mexico’s leadership in the months ahead. Facing massive budget deficits and the prospect of an election-year special session in an unpredictable and unsettled political season is no elected official’s anyone’s idea of fun.
Like most problems, New Mexico’s budget woes did not sneak up on us overnight. Decades of over-spending combined with tax and regulatory environments that make our State relatively unattractive as a place for doing business caused undue reliance on federal spending and extractive industries like oil and gas.
Economic realities have recently impacted both areas, exposing this.
The current situation could have been avoided with the enactment of pro-growth economic policies, but that didn’t happen. The task now is to balance the budget while minimizing the harm to our future economic prospects. Once the budget is balanced, perhaps the Legislature, especially the Senate, will embrace pro-growth policies.
The good news is that Gov. Martinez has made it clear that she won’t raise taxes. The last thing our businesses and hard-working New Mexicans need is higher taxes. According to the Kaiser Family Foundation in FY 2014 New Mexico spent $7,767 per-person. Among our neighbors, Colorado was the next-highest at $5,853. Texas spent $4,086 or just over half the amount spent by New Mexico. Clearly there is room in the budget to cut.
The other good news is that Rio Grande Foundation has pored over the budget and found enough cuts for policymakers to avoid tax hikes without harming its economic future.
The bad news is that some are already digging in to protect their preferred programs. Senate Democrats have already put education spending – 57 percent of the general fund budget – “off the table.” For their part, several leaders of the business community have urged the preservation of “economic development” spending.
The truth is that closing the budget gap will require compromise. Here are a few of the potential cuts laid out in the new RGF report:
• LEDA: $55 million; LEDA is classic “corporate welfare.” Worse, it is ineffective. Earlier this year, the Legislative Finance Committee (LFC) reported that “the state does not receive sufficient reporting from businesses using … LEDA … funds to properly evaluate” the program. Thus, “it is impossible to determine relative effectiveness and cost-efficiency” of it. Other dubious “corporate welfare” programs could add to the savings.
• Film subsidies: $50 million; There has never been a justification for spending $50 million annually to subsidize Hollywood studios. Massive deficits should mean massive cuts or elimination. Recently, Alaska and Michigan killed their programs while Louisiana downsized dramatically.
• Higher education: $30 million; Student populations are down by more than 8 percent, but the number of branch campuses continues rising. Reducing their number is an easy starting point. Cutting back on taxpayer subsidies for athletic programs (more than $4 million at UNM alone) must be considered as well.
• Personnel: $165 million; a 2014 study by the American Enterprise Institute found a 24 percent advantage for New Mexico government employees when total compensation, including the value of job security, was scrutinized. A 10 percent reduction in the total cost of state-employee compensation is a reasonable goal. This could be achieved by reducing the size of the workforce, by reducing compensation packages, or both.
• K-12: $252 million; at $9,012, New Mexico spends more on K-12 per-student than Utah ($6,555), Arizona, ($7,208), Oklahoma ($7,672), Texas ($8,299), and Colorado ($8,647).
The most promising tactic for immediate savings to is to renegotiate the collective-bargaining agreements that excessively compensate teachers and administrators, especially through an unfair and broken pension system that incentivizes longevity over quality. Expanding school choice is another way to save money and cut costs.
Absent a “miracle” rebound in oil and natural gas prices, New Mexico’s budget faces long-term “structural” deficits. Gimmicks and tax hikes will not solve the problem. We’d all like to see a thriving private sector and voters will decide this November between two very different visions of New Mexico. In the meantime, we need to do some substantial pruning of the budget in order to avoid raising taxes that further make New Mexico uncompetitive with her neighbors.
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
ALBUQUERQUE — It is no secret that New Mexico faces serious budget challenges. Senate Finance Committee Chairman John Arthur Smith called the budget situation “a crisis” and noted that the State is facing a deficit of more than $150 million for the budget year that ended June 30 and faces a gulf of up to $500 million for the current fiscal year.
That means that New Mexico’s elected officials face the unpleasant task of making serious budget cuts in an election year. To assist in that effort, the Rio Grande Foundation has compiled a list of budget cuts that would enable policymakers to achieve needed savings. The paper, “What to Cut Solutions to New Mexico’s Budget Crisis” is available at the Rio Grande Foundation’s website www.riograndefoundation.org.
Said Rio Grande Foundation president Paul Gessing, the study’s lead author, “To her credit, Gov. Martinez has clearly stated that she opposes tax hikes. We applaud her strong leadership on the tax issue which also makes having a solid plan with specific budget cuts an imperative.”
Here are some of the specific ideas outlined in the new brief:
LEDA: $55 million; LEDA is classic “corporate welfare.” Worse, it is ineffective. Earlier this year, the Legislative Finance Committee (LFC) reported that “the state does not receive sufficient reporting from businesses using … LEDA … funds to properly evaluate” the program. Thus, “it is impossible to determine relative effectiveness and cost-efficiency” of it. Other dubious “corporate welfare” programs could add to the savings.
Film subsidies: $50 million; There has never been a justification for spending $50 million annually to subsidize Hollywood studios. Massive deficits should mean massive cuts or elimination. Recently, Alaska and Michigan killed their programs while Louisiana downsized dramatically.
Higher education: $30 million; Student populations are down by more than 8 percent, but the number of branch campuses continues rising. Reducing their number is an easy starting point. Cutting back on taxpayer subsidies for athletic programs (more than $4 million at UNM alone) must be considered as well.
Personnel: $165 million; a 2014 study by the American Enterprise Institute found a 24 percent advantage for New Mexico government employees when total compensation, including the value of job security, was scrutinized. A 10 percent reduction in the total cost of state-employee compensation is a reasonable goal. This could be achieved by reducing the size of the workforce, by reducing compensation packages, or both.
K-12: $252 million; at $9,012, New Mexico spends more on K-12 per-student than Utah ($6,555), Arizona, ($7,208), Oklahoma ($7,672), Texas ($8,299), and Colorado ($8,647).
The most promising tactic for immediate savings to is to renegotiate the collective-bargaining agreements that excessively compensate teachers and administrators, especially through an unfair and broken pension system that incentivizes longevity over quality. Expanding school choice is another way to save money and cut costs.
In conclusion Gessing said, “Cutting the budget is never fun. New Mexico needs a larger, healthier private sector built on sound public policies like economic deregulation, tax reform, educational choice, and a sound legal system.”
The following article by RGF president Paul Gessing was written in response to an article that appeared a few days ago (linked below) which attacked former New Mexico Gov. Gary Johnson’s fiscal record in New Mexico. As the free market think tank working in New Mexico, we at the Rio Grande Foundation felt it was worth clearing the air and explaining the pluses (and minuses) of Gary’s time as New Mexico’s top executive.
James Spiller recently wrote a scathing article in which he argues that the record of former New Mexico governor and current Libertarian candidate for president Gary Johnson is “not conservative and not even all that libertarian.”
As the head of New Mexico’s free-market think tank (although I was in Washington, not New Mexico, during the Johnson administration,) I’d like to offer my own thoughts on Johnson’s tenure. I’d also like to refute some of what Mr. Spiller has to say in his critique.
Spiller starts by attacking Johnson’s fiscal record, claiming that he is a “big spender” compared with successors Richardson (a Democrat) and Martinez (a Republican). One problem is that Spiller “credits” Johnson with spending money he had little control over. His spending numbers include federal dollars that flow into the state for everything from Medicaid to education. Including just the General Fund that the legislature and governor must agree to each year, Johnson’s first budget was $2.7 billion and his final budget, eight years later, was $3.9 billion (an increase of about 41 percent).
Thus, under Johnson, New Mexico’s General Fund spending grew by 4.67 percent annually, not the outrageous 7.29 percent rate cited by Spiller. Once you factor in inflation and New Mexico being a relatively fast-growing Western state (population growth in the Land of Enchantment has stagnated since the late 2000’s economic crisis), Johnson’s spending record looks much better.
As a self-identifying libertarian, I still find that growth too fast, but there is no doubt that Governor Johnson has more fully embraced his Libertarian viewpoint since leaving office in 2003.
Of course, annual budget growth is only part of any governor’s fiscal record. Spiller accurately notes that Bill Richardson, a Democrat who immediately followed Johnson, grew government at a slower rate during his eight years in office. Make no mistake about it, Richardson was no fiscal conservative. During Richardson’s first six years in office, General Fund spending grew by more than 6.5 percent annually.
But, Richardson’s big-spending dreams were dashed by the 2008 economic crisis which saw state spending decline by an average of 8.51 percent over two years. The money simply wasn’t there. Worse, Richardson foisted two massive boondoggles upon New Mexico taxpayers: a $225 million spaceport built for Virgin Galactic that sits largely unused in the desert and a commuter train that sucks $50 million annually out of taxpayers’ wallets.
To his credit, Johnson didn’t foist any costly boondoggles upon his successor or future taxpayers. In fact, New Mexico’s budget was sufficiently strong that Richardson was able to enact major pro-growth tax cuts immediately upon taking office. Johnson too pushed tax cuts while in office, but Richardson was able to follow through, taking the state’s top income-tax rate from 8.2 to 4.9 percent.
Richardson succeeded where Johnson failed in cutting taxes in large part because during Johnson’s tenure the New Mexico legislature was controlled entirely by Democrats. These were no razor-thin margins either: Democrats held approximately 60 percent of all legislative seats.
With so many Democrats in the legislature, Johnson’s main impact was in vetoing an astonishing 739 bills over his eight years in office.
Nonetheless, Johnson’s agenda was stymied in other ways by the partisan makeup of his state’s legislature. Every year Johnson proposed school-choice vouchers and every year the Democrats in the legislature killed them.
Though he struggled to achieve major free-market reforms during his tenure, Johnson did get the legislature to approve the use of private companies to build and run new prisons. These prisons ran at a much lower cost than the government-run prisons even when amortizing the initial construction costs. This helped to end prison overcrowding in New Mexico.
One point that Spiller is correct on is New Mexico’s film-subsidy program. The Rio Grande Foundation has consistently opposed this subsidy which Richardson expanded from 15 to 25 percent. For every $1,000 a Hollywood film spends in New Mexico they get a $250 check from New Mexico taxpayers. In 2012 Representative Justin Amash of Michigan rightly challenged Johnson on this supposed “success” on social media calling film subsidies “central planning and cronyism.”
Is Gary Johnson’s spending record perfect? No, but perfect is not on the ballot this year. He’s running as a fiscal conservative against two candidates who eagerly support bigger government across the board. In most any presidential election you could do much worse than New Mexico’s former Governor. That is especially so this year.
— 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.
Journal columnist Winthrop Quigley seems to believe that what New Mexico’s struggling economy needs right now is higher taxes. We at the Rio Grande Foundation couldn’t disagree more and believe raising taxes would have further deleterious effects on our economy.
Disagreements aside, we do share agreement with Quigley that New Mexico’s tax structure must be reformed. The gross receipts tax is uniquely harmful to the growth and development of small businesses. It also encourages businesses to lobby the Legislature to lobby for exemptions or outright subsidies before locating here. The Legislature must act to reform this harmful tax structure.
It is a myth that New Mexico is a low-tax state. According to the Federation of Tax Administrators, our tax burden as a percent of personal income is ninth-heaviest in the nation. This is far heavier than the tax burdens of our more economically successful neighbors : Arizona ranks 39, Colorado 45, Oklahoma 37, Texas 44 and Utah 31.
Now for the (substantial) disagreements.
Quigley argues that New Mexico public employee salaries are lower than those in neighboring states. Salaries are just part of the compensation for any worker, especially government employees.
According to Key Policy data from 2013, New Mexico state and local workers make 20 percent more than their private-sector counterparts once pensions and benefits are included.
This is the 12th-highest compensation ratio in the country and far higher than in neighboring states. It also is a very good argument for serious reform of New Mexico’s government pension system.
More importantly, public employees should be paid based on what the market will bear. New Mexico’s unemployment rate is higher than that of its neighbors. The pay of government workers should reflect local market conditions.
Perhaps more importantly, New Mexico’s government workforce is bloated. Again according to Key Policy data, New Mexico has the second-most government employees relative to private-sector workers.
When the number of government workers is compared to the population they serve and educators are removed from the equation, New Mexico falls to 10th-highest (according to Governing Magazine), but still far in excess of our neighbors.
As to specific ideas, we concur with Journal readers who have pointed to the RailRunner and Spaceport as likely cuts. Obviously, those aren’t enough. The next fattest target is higher education.
According to data from State Higher Education officers, New Mexico spent the fifth-most on higher education among U.S. states in 2011, the most recent year for which data are available.
The LFC has done some excellent work on the proliferation of branch campuses (number 25 at last count). It is time to reduce their numbers significantly, especially with overall enrollment declining.
Another area of significant savings is the politically popular, but economically dubious film subsidy program.
One company just received $325,000 from LEDA for the “creation” of just 14 new jobs. With those 14 employees paying income taxes on their $45,000-$50,000 salaries to New Mexico at 5 percent annually, it will take a decade for the state to recoup its “investment.”
And that assumes that the expansion would not have happened without state money.
Cutting the budget is no fun. We need to grow our economy, but our tax code is one of several reasons our economy hasn’t kept up with our neighbors’. Raising taxes will only further damage New Mexico.
The budget numbers are changing (for the worse) on an almost daily basis. The latest information calls for a 12% decline in General Fund revenues which means a reduction of $700-$800 million (not factoring in rainy-day funds etc).
The point remains, as I note below, that no matter how the budget gap is filled, there are some programs that should be eliminated in their entirety prior to cuts being enacted elsewhere.
Like spring follows winter, proposals to increase taxes on hard-working New Mexicans are flourishing in Santa Fe. Dozens of such proposals have been put forth, including several by Democrat Senate Finance Committee Chairman John Arthur-Smith. Gov. Martinez has repeatedly pledged NOT to raise taxes, so it is unlikely these proposals will be enacted, but what about the merits of the issue? Should taxes be raised in New Mexico?
One of Sen. Smith’s proposals that has attracted media attention is SB 281 which would re-impose the gross receipts tax on groceries. Groceries used to be taxed just like everything else bought in the store, but when he was governor, Bill Richardson decided to eliminate the tax on groceries. The broader gross receipts tax was hiked by half a cent. This all sounds simple, but was really a complex tax-shift that the Legislature has tinkered with since it was enacted.
And now, Sen. Smith wants to again tax groceries as a means of raising revenues in tight budgetary times. Taxing food is not an inherently bad idea, but it shouldn’t be done without reducing the gross receipts tax on other purchases.
That is only the start. Smith and his Democrat colleagues want to add taxes to everything from cigarettes to gasoline, to personal income, while also freezing New Mexico’s corporate income tax rate in place rather than continuing a scheduled phase-down to 5.9%.
The immediate concern for policymakers is New Mexico’s deteriorating budget picture. Due to declining oil prices, there is “only” $35 million in “new” money. Once $85 million in new costs for half-a-year of Medicaid expansion are added to the mix, everything else in New Mexico’s budget is being squeezed. Thus the calls for higher taxes.
Of course, New Mexicans are hard-pressed right now and it is shameful that politicians in Santa Fe want to increase taxes in a state with the highest unemployment rate in the nation and residents suffer from some of the highest poverty rates in the nation.
According to the Federation of Tax Administrators, New Mexicans face the 9th-highest state tax burden as a percentage of resident incomes of any state in the nation. The last thing we need is higher taxes.
New Mexico has some relatively easy solutions to its budget woes. The State spends approximately $50 million annually to subsidize film companies and the Rail Runner costs taxpayers another $25 million to operate. When times are good, these programs seem like nice things to have around, but are supporters really going to say that education, law enforcement, and behavioral health programs for the poor should be cut instead?
That’s ultimately their argument.
Of course many will come back with the “tax the rich” mantra, but New Mexico is poor. We have some rich people and some profitable businesses, but capital is mobile. They can leave our state anytime. And, as is plain to see, plenty of businesses avoid New Mexico.
We have one publicly-traded company (on a stock market) headquartered in the state (Public Service Company of New Mexico). We have seen our best-and-brightest moving to places like Texas for several years. Raising taxes isn’t going to help the cause.
It is time for tough decisions in Santa Fe. Alaska and Michigan recently eliminated their film subsidy programs. The Rail Runner is an epic money-loser even by mass transit standards. They are the fattest targets for policymakers, but there are plenty of others.
Gov. Martinez is right to avoid tax hikes. New Mexico’s economy faces enough challenges already.
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
When is $10 million in taxpayer money simply not enough? In the case of the people who already got a sweetheart deal to build Santa Fe Studios, when you can ask for $22 million more.
There is likely no other business in the State of New Mexico that has received as many subsidies as Santa Fe Studios. That hasn’t stopped the Studios have applied for $22 million in industrial revenue bonds to Santa Fe County.
Already, the State has provided $10 million in economic development grants. The County has provided a generous $6.5 million bank loan.
It’s not as if film studios in New Mexico require subsidies. Albuquerque Studios was built without direct taxpayer subsidy. One would think that if Santa Fe Studios’ business was good enough to require expansion, the owners could pay for it themselves like any other business. Unfortunately, once you realize that you can stick you hands into taxpayers’ pockets, the temptation to do so again is hard to resist.
And then there is the lack of transparency. In October of 2013, there was a dustup between another think tank, Think New Mexico, and the Studios over how many films had actually been produced at the Studios. Without a doubt, Think New Mexico was justified in questioning Santa Fe Studios which has given few details on how the tax money they have received has been used.
A November, 2013 story in the New Mexican noted that “Verification of the (Studio’s) job numbers has been less than vigorous. County officials appear to have accepted the hours reported by the studios as fact and have done little to substantiate them.” Santa Fe County needs to increase oversight at a bare minimum before even considering approval of another $22 million.
Of course, the millions of dollars pumped into Santa Fe Studios are only the tip of the iceberg when it comes to New Mexico’s ill-conceived and overly-generous giveaways to Hollywood. The biggest taxpayer rip-off is the $50 million or so each year New Mexico taxpayers throw at the film business in the form of its film rebate program.
Unlike other subsidies offered by the State, the film subsidy is not a reduction or elimination of taxes owed, rather it is a check cut to the film company for between 25 and 30% of taxable spending done in the State. Rather than foregoing otherwise taxable revenue, New Mexico’s film subsidies actually spend revenue collected from other sources.
That is one reason why such subsidies have drawn opposition from across the political spectrum. The liberal Center on Budget and Policy Priorities issued an entire report in 2010 called “Not too much bang for too many bucks.” Another liberal group, Citizens for Tax Justice, wrote in a 2013 blog posting, “Not only do film tax credits cost states more money than they generate, but they also fail to bring stable, long-term jobs to the state.”
Any objective organization, right, left, or center that takes a close look at the economics of film subsidies like those in place in New Mexico finds that they make no economic senses and that they ultimately harm taxpayers and the poor.
Unfortunately, the Legislature seems inclined to keep the gravy train rolling for New Mexico’s film industry at this point. But, Santa Feans can stop throwing their good money after bad by letting the County Commission know that profitable businesses should grow by reinvesting their own money, not by attaining ever-greater taxpayer subsidies.
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.
Eliminating the subsidy cap could cost taxpayers hundreds of millions of dollars annually and would make budgeting in the Legislature a real challenge due to volatile annual expenditures.
