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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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A brief Rio Grande Foundation Analysis of PFM report on New Mexico’s tax structure (Part 2)

Yesterday we said we’d get an analysis of the PFM report on New Mexico’s tax code. As indicated in that post, there is some good information in the report even though we disagree with many of its findings. One of the best points made is the following which is taken directly from the report:Too often the only “equity” discussion that takes place is over “progressive” or “regressive” taxation. The PFM report acknowledges that New Mexico’s gross receipts tax is unfair to competing businesses within the same industries. As the text above points out this bias assists bigger firms and penalizes smaller ones.

Overall, the analysts seemed concern about the gross receipts and specifically argued for NOT raising rates on that tax. Unfortunately, that’s where the restraint went out the window. The report FAILED to mention New Mexico’s heavy (existing) tax burden (7th-highest as a percent of income) and bloated and inefficient government, yet it included numerous MAJOR tax hikes and NO tax cuts. The tax hikes mentioned included:

  • Higher marginal rates at higher income levels.
  • Eliminating the capital gains personal income tax exemption.
  • Re-institute an estate tax.
  • Increase the gas tax rate.
  • Establish a structure for taxing recreational marijuana (we support the policy, but of course this is still more government revenue).
  • Broaden the gross receipts tax base to include food and, for lower income taxpayers while enacting a revenue neutral refundable personal income tax credit.
  • Continue to expand excise taxes to align with new forms of goods or services, such as vapor products.
  • Consider a carbon tax or so-called “market-based approaches.”

While there are elements of some of these ideas that could be part of a broad-based, revenue-neutral tax reform plan, including “shifting greater local funding responsibility to property taxes and away from gross receipts taxes” the report is WAY too focused on generating more money for the State and focuses far too little on spurring economic growth and job creation.

Finally, although the overall report is lacking, one additional bit of good news is that PFM specifically calls out film subsidies. Again, the full text is below directly from the report:

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Haaland would be far to the left of Lujan Grisham on energy

UPDATE: Per several news reports, Haaland HAS indeed been chosen to head the US Department of the Interior.

New Mexico women appear to have the inside track in the Biden Administration for Interior Secretary. The post was apparently offered to Gov. Lujan Grisham who turned it down. Now, Albuquerque-area Congresswoman Deb Haaland is being promoted for the job by none other than Speaker Nancy Pelosi.

We at the Rio Grande Foundation have been critics of Lujan Grisham’s economic and COVID policies, but on energy issues, Lujan Grisham is actually a moderate while Haaland is on the far-left wing when it comes to energy issues. If implemented, her stated policies would be a disaster for New Mexico and other energy producing states.

Haaland told The Guardian, “I am wholeheartedly against fracking and drilling on public lands,” she said. She is also a staunch supporter of the Green New Deal.” According to a recent study of the issue, “New Mexico would see even steeper revenue losses under the study’s forecasts. The state would lose on average $946 million per year in oil and gas tax revenue in the first five years under a lease moratorium, and on average $1.2 billion per year in tax revenue in the first five years under a drilling ban.”

Lujan Grisham, on the other hand, voted FOR crude oil exports when she was in Congress. She also has said that she’ll ask for an exemption from any future drilling ban (on federal lands). While Lujan Grisham has said that New Mexico would “transition away from fossil fuels” and she even signed New Mexico’s own version of a “Green New Deal,” she is nowhere near as radical as Deb Haaland when it comes to energy.

If Haaland becomes Secretary of the Interior, energy-producing Western states better watch out!

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A brief Rio Grande Foundation Analysis of PFM report on New Mexico’s tax structure (Part 1)

Yesterday, a report called “State of New Mexico Tax Structure: Issues and Alternatives”was released by a firm called PFM Consulting. The report is worthy of a detailed analysis and it has generated several stories in the media.  

A few initial thoughts: 1) I’m glad they posted the report at a link that can be easily-accessed by the public and policymakers. 2) As these documents go it is relatively accessible in terms of its language. 3) Taxes are a very important component of public policy, BUT they are one of several policy areas that must be addressed to make New Mexico economically competitive. 4) Analysts and legislators of differing backgrounds can view the same data and have completely different conclusions. While the media have covered some reactions from policymakers, we will offer our insights in a 2nd post to be published tomorrow (December 17).

Here are a few charts taken directly from the report which illustrate New Mexico’s serious economic challenges:

  1. Over the last decade New Mexico’s neighbors saw much faster employment growth although we did outperform Alaska and Wyoming which the report includes by way of further comparison.

2. New Mexico faces deeper poverty challenges than any of its neighbors or Wyoming/Alaska.

3. Related to poverty, New Mexico’s median incomes lag.

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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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Rio Grande Foundation in the news on paid sick leave AND public health order enforcement

In case you missed it, Albuquerque’s City Council recently punted on TWO big issues. RGF discussed both issues with KOB TV channel 4. You can watch the discussion relating to fines and even jail time for disobeying the public health order below.

And, RGF and the local business community has engaged in a the issue of mandatory paid sick leave. The Council (again) pushed the final vote to at least February 1, 2021.

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On energy policy Biden should take his cues from Obama

The following appeared recently in several New Mexico newspapers including the Carlsbad Current-Argus:


As states near the election certification date it appears the exact contours of the Biden Administration’s energy policies and how they will impact New Mexico remain open to debate. We must make sure that we don’t lose sight of how important natural gas has been in powering America’s economic resurgence and leading the charge to a cleaner environment.

Candidate Biden made numerous conflicting statements about his likely energy policies including on the issue of hydraulic fracturing or “fracking” which enables oil and gas producers to access previously inaccessible oil and gas sources. Elimination of this important process, even on “just” federal lands would have devastating impacts on New Mexico’s oil and gas industry and its economy.

During the campaign Biden repeatedly pledged not to lease any more federal land for oil and gas production. That pledge, with its potential to cast irreparable damage on our economy, got the attention of Democratic Governor Michel Lujan-Grisham. Last year the Governor wasted no time in announcing she would apply for a waiver or exemption for New Mexico on a federal ban aimed at crippling the oil and gas industry’s ability to fund public education. Gov. Lujan-Grisham should maintain this position and make sure New Mexico is allowed to continue our development of natural gas on public land.

Biden’s old boss, President Obama also understood the need to support oil and gas activity in oil and gas states, particularly activity surrounding natural gas. Obama was of course considered an environmentalist by political opponents and supporters alike. His support for natural gas was hardly contradictory, rather it was right in line with his environmental track record. That’s because natural gas emits CO2 at rates from 50 to 60% lower than does coal. 

In fact, the Energy Information Administration recently found that “U.S. electric power sector emissions have fallen 33% from their peak in 2007.” This was no coincidence or accident. These emissions reductions occurred because electricity consumers have increasingly sourced natural gas instead of coal. This progress would be reversed as a result of a federal leasing ban.

When it comes to energy and the benefits of home-grown natural gas resources, Biden should take his cue from former President Obama and the expressed wishes of Gov. Lujan Grisham. New Mexico energy, produced on federal, state, and private lands, can and should play an integral role in ongoing reductions to CO2 emissions.

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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Biden Energy Policies Will Make Blue New Mexico See Red

The following appeared at National Review’s website on December 1, 2020 6:30 AM

The former territorial governor of New Mexico (and author of Ben Hur) Lew Wallace once said, “Every calculation based on experience elsewhere fails in New Mexico.”

In so many ways Wallace was prescient about this beautiful, poor, and utterly unique state in the American Southwest. One “calculation” about modern politics that would perplex Wallace is the fact that a relatively poor, but oil-rich Western state elects politicians that are so directly at odds with its economic best interest.

After Texas and North Dakota, New Mexico is the 3rd– state in the US. The oil and gas industries combine to generate Furthermore, New Mexico’s oil and gas resources are heavily concentrated on lands managed by the federal government. The central role of energy, especially energy extracted within New Mexico’s borders and controlled by federal policymakers, might lead one to believe that New Mexicans would vote for pro-energy Republicans in federal elections.

Instead, New Mexico has become a safely blue state. It narrowly went for George W. Bush in 2004, but since then has gone for Democrats by wide margins. The situation is even more stark at the state level where Democrats have had “trifectas” (total control of both houses and the Governor’s mansion for 60 of the last 90 years. The GOP hasn’t had such governing authority in the State for a single year since 1931. Also, despite significant turnover, New Mexico has not elected a Republican to the US Senate since Pete Domenici retired in 2009. In 2020 Biden won the State 54.3 percent to 43.5 percent despite the very real fact that President Trump’s pro-energy policies were a boon to the New Mexico economy and the Biden Administration’s energy policies represents nothing less than a dagger aimed at the heart of New Mexico’s economy.

That “dagger” comes in the form of numerous, sometimes clear, often conflicting statements, candidate Biden made during the campaign. It is unclear what Biden will do regarding hydraulic fracturing or “fracking” which enables oil and gas producers to access previously-inaccessible oil and gas sources. He backed away from an outright nationwide ban late in the campaign. However, Biden has clearly stated that he would ban new gas and oil permits — including fracking — on federal lands.

Targeting federal lands would devastate New Mexico’s oil and gas industry and its economy due to the State’s large federal estate within its borders. According to the Institute for Energy Research, federal land represents 34.7 percent of the land in New Mexico. In fiscal year 2019, New Mexico received energy-related disbursement (from the federal Bureau of Land Management) at $1.17 billion, the highest payment made in any state (Wyoming was next with $641 million, and then Colorado on $108 million) This was the highest payment from the BLM in the state’s history and compares with $455 million in FY 2017. A vast majority of this increased revenue is due to the use of fracking.

Furthermore, data from the Global Energy Institute indicate that if energy production on federal lands were banned, New Mexico would lose 24,300 jobs (10,000 direct, 14,300 indirect and induced), a significant hit for a state with a workforce of around ). Making matters worse, a good number of the ‘direct’ jobs lost are good-paying, something that is not easy to find in New Mexico, a state that consistently ranks among the poorest in the nation and has been hard-hit by the  Closing New Mexico’s federal lands to energy production entirely  cost the State $496 million in annual royalty collections, representing eight percent of the state’s total General Fund Revenues.

Biden’s proposed fracking ban is even too much for New Mexico’s Democratic Governor Michelle Lujan Grisham has said she’ll ask for an exemption from any future drilling ban. Acknowledging the tax revenue contributions to education funding, Grisham explained to the New Mexico Oil and Gas Association conference in Santa Fe last October that “without the energy effort in this state, no one gets to make education the top priority.”

Far from being an opponent, Lujan Grisham, a Democrat, is broadly supportive of Biden’s energy policies. Both of them have stated that they would like to “transition out of fossil fuels” despite New Mexico’s financial dependence on the Industry.

Biden’s aggressive anti-fossil fuels stance as relates to federal land not only puts him at odds with New Mexico’s Democratic governor (who is also on the short list to join his administration), it puts him far to the left of President Obama on the issue. In a 2012 presidential debate, Obama  stated, “We’ve opened up public lands.  We’re actually drilling more on public lands than the previous administration… And natural gas isn’t just appearing magically; we’re encouraging it and working with the industry.”

President Obama was of course considered an environmentalist by political opponents and supporters alike. His support for natural gas right isn’t difficult to reconcile with his environmental track record. That’s because (when used in a new power plant) natural gas emits CO2 at rates from 50 to 60 percent  than does coal.

Obama understood the vast benefits of natural gas, including the fact that it was appropriate to drill for it on federal lands. During his tenure, from approximately 21 million cubic feet to more than 28.4 million cubic feet.

If he truly cares about the environment, Biden would be wise to follow his predecessor’s playbook. According to the EPA, more natural gas meant net greenhouse gas emissions went down by 10 percent  from 2005 to 2018.  But if natural gas prices rise – and a ban on federal leasing is likely to contribute to higher prices, this  positive developments could go into reverse.  The Energy Information Administration recently projected that higher natural gas prices would cause coal’s share of power generation to increase from 18 percent to 22 percent in 2021.

Obama also signed into law legislation that ended the US government’s restrictions on crude oil exports back in 2015.

During the campaign Biden faced tremendous pressure from the left wing of his political base to come out for policies like the Green New Deal and bans on fracking and other fossil fuel based energy production. Biden has never been associated with such hard-left stances against economic policy and growth in the past. As noted above, even Obama is to the right of where Biden campaigned.

Hopefully President Biden has a more realistic approach to energy than did candidate Biden. New Mexico’s economic future is at stake, but so is the recovery of our nation’s virus-hobbled economy.

Rather than instituting a blanket ban on production of oil and gas on federal lands, a better approach would be to recognize the benefits, and work to make sure that any production is handled responsibly and safely. The growing American energy sector and American energy independence have delivered wins for the environment, for consumers, and for the US and state economies like New Mexico’s. Let’s keep it that way.

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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Wallethub report: New Mexico unemployment is worst in nation AND worsening as MLG locks down

Wallethub has continued to track (and we have continued to report) on the “recovery” in New Mexico’s unemployment situation during the COVID crisis.

According to their report released today, New Mexico’s unemployment insurance claims since this time last year are worse than any other state besides Kansas.

Also, New Mexico has recovered the least among states since the start of 2020.

Finally, illustrating the negative impact of Gov. Lujan Grisham’s recent shutdown policies, New Mexico’s unemployment saw the worst week-over-week increase over the prior week. https://cdn.wallethub.com/wallethub/embed/72730/geochart-unemployment-covid-19-v35.html Source: WalletHub