Category: Legislature

Santa Fe Spending Binge Kicks Into High Gear

Post author By Paul Gessing
Post date November 5, 2019

The Legislative Finance Committee has published the requests of New Mexico government agencies for FY 2021.

Last year the Legislature increased general fund spending by a robust 12 percent, but with oil production growing rapidly and prices per-barrel holding stable, New Mexico government is planning for another year of massive growth.

In fact, (not including funding requests for public school support and from higher education institutions) agencies are looking to further increase their budgets in Fiscal Year 2021 by a shocking 17 percent.

Some of the “highlights” or low-lights if you believe in limited government include:

260 percent from the Spaceport Authority;
72 percent from the Environment Department;
58 percent from Higher Education Department (the administration, not the schools themselves);
43 percent from the Tourism Department; and
28 percent from the Secretary of State.

This is obviously just a partial list of the dozens of government agencies’ funding requests. When taken together, however, it is clear that New Mexico government is on an epic oil-and-gas-fueled spending binge.

Will anything actually improve as a result of all this new spending? It is hard to see what all of this new spending will do to improve New Mexicans’ lives considering that New Mexico’s government is already among the largest in the nation.

According to a ranking published by the conservative group Americans for Tax Reform, New Mexico’s state government is the 2nd largest as a percentage of GDP. The biggest state governments were ranked as follows:

1. West Virginia (23.3 percent);
2. New Mexico (20.8 percent);
3. Arkansas (20.3 percent);
4. Alaska (18.9 percent); and
5. Mississippi (18.5 percent).

But, according to Wallethub, New Mexico taxpayers receive the 2 nd -worst return on investment of any state in the union.

To summarize, we have very big government already. Taxpayers are getting a poor return on their tax dollars. And, fueled by oil and gas, the growth of New Mexico government is about to be turbocharged.

Will all of this money be used to improve New Mexico’s education system, improve public safety, build roads, or reform its economy? Jobs and economic growth are plentiful right now, but this is driven by oil and gas and the strong national economy.

Unless tough changes are made to the systems undergirding New Mexico’s education system and economy, it is hard to see what this spending is going to achieve.

Our neighbors in Colorado have the best known solution to the boom and bust of state budget cycles. That State’s Taxpayers’ Bill of Rights (TABOR) which is part of their State Constitution limits annual spending growth at all levels of government to inflation and population growth. Surplus government revenues are returned to taxpayers.

Better still, all tax hikes in Colorado must be voted on and approved by the citizens.

Despite resembling New Mexico as a “blue” state, Colorado’s State government was just 29th largest and consumed 10.5 percent of the State economy.

That’s less than half of what New Mexico spends as a percent of GDP (according to the Americans for Tax Reform study above).

This preserves more money for Colorado citizens who, according to the Federal Reserve Bank of St. Louis, earn $58,000 per person annually. Here in New Mexico that number is closer to $41,000. That is an incredible difference given two neighboring, similar states.

For New Mexico to succeed policymakers need to slow the growth of government.

Reform problems in the tax code like the gross receipts tax and give voters a break on their taxes. Funding another massive expansion of government with this oil surplus is not going to help our State succeed.

Paul Gessing is 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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Opinion article: “Free” College Proposal Raises Serious Questions

Post author By Paul Gessing
Post date October 1, 2019

The following article appeared in several New Mexico news outlets on September 30, 2019 including the Las Cruces Sun-News.

Gov. Lujan Grisham has put forth a plan (set for debate and possible approval in the 2020 Legislature) for “free” college for New Mexico residents. For many families this may seem like an unadulterated good thing. And, as the parent of three who is pondering (and already saving for) the college educations of his three children, I totally understand that reaction.

But, from the viewpoint of an economist or even someone who is simply concerned about New Mexico’s future, there are several serious problems with this proposal.

Currently, the Governor and Legislature are salivating at the prospect of a $900+ million surplus in 2020. That number may be even higher due to the recent uptick in oil prices. The plan is for “free” college to cost “just” $25-$35 million annually. Unfortunately, we have nothing from the Lujan Grisham Administration to justify that cost. Given the tendency of government officials to underestimate the cost of new programs (the Rail Runner and Spaceport come to mind) it would seem that the real cost even at the beginning will be much higher.

Worse, unless some cost restraints are included in this legislation, colleges and universities located in New Mexico will have no incentive to constrain costs. On the contrary, they have every incentive to grow their bureaucracies and increase spending dramatically.

Another big problem with the proposal is New Mexico’s low-performing K-12 system. By nearly all indicators New Mexico’s students in K-12 are among the lowest academic performers in the nation. Is higher education really the problem when the K-12 system is failing?

It’s worth noting here that according to the State Higher Education Executive Officers Association (SHEEO) 2018 report on higher education finance, New Mexico already spends 2^nd most in the nation (as a percent of income) on higher education. If higher education spending is such a great “investment” for New Mexico, why do we remain one of the poorest and slowest-growing states in the nation (albeit with somewhat better numbers due to the Permian oil boom).

The fact that New Mexico’s already large investment in higher education hasn’t done much for our economy begs the next question: “Will there be jobs available for these expected graduates or are we training future workers in Texas, Arizona, Colorado, and other faster-growing, more economically-diversified states?”

If the Gov. does take substantive action to reform New Mexico’s economy by reforming the gross receipts tax and generally taking action to make New Mexico more economically dynamic and attractive, perhaps then we can keep more of these young, educated people in the State. However, the University of New Mexico’s falling enrollment and available population data indicate that New Mexico is losing its “best and brightest.”

Finally, as if all of these arguments are not enough, it is notable that “free college” is “regressive” in the sense that a vast majority of the benefits will go to people of higher incomes. Currently, 27% of New Mexicans have four year college degrees. Generally-speaking it is the middle and upper classes that can attain that level of education.

While the Governor’s plan may open the path to a few more needy students, how many of the bottom 25% of income earning students in the State can take the time to go to college? How many of them are academically-capable? While a middle-to-upper class parent of three stands to achieve a veritable windfall from “free” college, it is hard to align this with principles of tax fairness and “progressive” policies so in vogue in Santa Fe.

These are just some of the many problems with the plan. Hopefully the Legislature instead considers some of the many ways to improve K-12 education in New Mexico and engage in much-needed economic reforms that will make our State more prosperous and thus attractive for young workers from all walks of life.

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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Discussing the Gov’s plan for “free” college on KOB TV Channel 4

Post author By Paul Gessing
Post date September 26, 2019

Rio Grande Foundation president Paul Gessing sat down with KOB TV to discuss the plan for “free” college. You can check out the story below. As of Thursday afternoon, September 26, we have not received any details in terms of the estimated $25-$35 million price tag for the plan.

That said, regardless of the estimated starting price tag, there are numerous problems with this plan. I discuss a few of them in the story. More concerns are outlined here.

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Reason Foundation and Rio Grande Foundation Release Analysis of Task Force Plans for PERA Solvency

Post author By Paul Gessing
Post date September 24, 2019

(Albuquerque) The Rio Grande Foundation applauds Gov. Lujan-Grisham for taking on the tricky, but important issue of pension reform. In collaboration with the Pension Integrity Project at Reason Foundation, a national free market think tank, the groups have released an analysis of the preliminary recommendations of the Governor’s Public Employees Retirement Association (PERA) Pension Solvency Task Force.

The analysis which is available on the Rio Grande Foundation’s website reviews the task force’s proposals—intended to improve PERA’s solvency by eliminating over $6 billion in unfunded liabilities over the next 25 years—from an actuarial and financial perspective and finds them a positive step overall, with room in some areas to enhance solvency even further.

Rio Grande Foundation president Paul Gessing said of the Task Force, “We commend the Gov. for taking on this important issue. With massive budget surpluses available, now is an opportune time to put New Mexico’s PERA and ERB systems on sound financial footing. That said, we believe that the rising costs and financial risks New Mexico taxpayers have experienced over the last two decades are unsustainable, and the Task Force’s recommendations leave some systemic challenges—namely funding policy, actuarial methods and assumptions—unaddressed.”

Gessing went on, saying “Despite the conflict on both sides of the aisle, pension reform can and should be a bi-partisan issue. Successful reforms have been enacted in “blue” Rhode Island, politically-competitive Michigan, and “red” Utah. In fact, our Four Corners neighbors Arizona, Utah, and Colorado have all enacted major bi-partisan pension reforms in recent years. There is no reason for New Mexico not to tackle this important problem head-on while the budget is flush.”

The Reason/Rio Grande Foundation analysis walks through specific proposed solutions to New Mexico’s PERA issues including employee contributions, Cost of Living Adjustments (COLA), the 90 percent earnings cap, negative cash flow, and improving actuarial assumptions. Each of these areas needs to be addressed as part of a successful PERA reform.

Concluded Gessing, this report is part of what will be a team effort by his Foundation and the Pension Integrity Project to provide technical assistance to policymakers, educate stakeholders, and contribute to the ongoing pension reform discussion in New Mexico. We are eager to make sure policymakers of all ideologies and walks of life have an understanding of what can and should be done to fix PERA.

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No Need for New Permanent Fund in New Mexico

Post author By Paul Gessing
Post date September 20, 2019

The following appeared in the Las Cruces Sun-News on September 15. While there are a number of bad ideas being put forth in Santa Fe to use a portion of the oil and gas surplus, the idea of creating a new permanent fund

Budget analysts in New Mexico expect the Legislature will have an incredible $907 million of so-called “new money” when they convene in January. A vast majority of that money comes from the boom in oil and gas production in the Permian Basin.

With nearly $8 billion available in 2020, the general fund budget will be up nearly 27% over just two years. Even fans of bigger government have to be concerned about the rapid rate of government expansion in such a short period of time.

What should be done to solve this very nice problem to have?

Recently, some, including powerful Finance Committee Chairman Sen. John-Arthur Smith, discussed the creation of another New Mexico permanent fund, this one to finance early childhood programs. Smith’s support is noteworthy for two reasons. The powerful Finance Committee’s approval would be required for such a fund. And, of course, Smith has long stood in the way of efforts to tap the Land Grant Permanent Fund to finance a new pre-K/early childhood programs. Smith’s approval of a new fund would move it a long way toward adoption.

Would such a fund be a good idea for New Mexico? Permanent funds (be it the $20 billion Land Grant fund or the somewhat smaller Severance Tax fund) are also known as “sovereign wealth funds.” By definition these funds involve governments investing in businesses and other tools meant to generate a rate of return.

We should all be concerned about government investing in big business. But, the most important reason is that it makes government less accountable to the people.

How? Normally, if government needs to raise money from taxpayers, it has to work to please taxpayers and convince them to pay taxes and possibly pay even more taxes if revenues are inadequate. But when government entities are given dedicated revenue streams (without much legislative oversight or a need to show relevance), who is there to keep them accountable or demand changes as technologies and conditions evolve?

The Land Grant Fund has numerous beneficiaries that receive millions of dollars annually from the fund. A vast majority of that money goes to K-12 and higher education, but New Mexico’s Schools for the Blind/Deaf, the Boys’ School, the Miners Hospital of New Mexico, and State Hospital are all mandated to receive money from the Permanent Fund each year regardless of what is needed and with little outside oversight.

We are not criticizing any of these programs, but merely pointing out that permanent funds further reduce the already-limited ability for citizens and elected officials to impose accountability and oversight. The best means of providing accountability involves individuals in a competitive free market using their own hard-earned money to pay for goods and services. This is why the best use of the impending surplus would be to return it to the citizens of New Mexico.

If government must come in to play, at least legislators and the annual appropriations process combined with elections offer better oversight than would another permanent fund.

Instead of creating yet another avenue for government spending, we continue to advocate for long-overdue reform of New Mexico’s job-killing gross receipts tax. These reforms don’t necessarily mean big revenue cuts for government, but the available money can act as a cushion against revenue uncertainty as changes are adopted.

Once that is done the Legislature should consider returning a significant portion of this surplus to the people of New Mexico. Ideally this would be in the form of tax cuts, but even one-time rebate checks would be a welcome boon to the bottom lines of New Mexico families.

New Mexico needs to diversify and strengthen its economy and this can best be done through tax reform. Another spending binge (whether that’s done through the current budget process or creation of another “permanent fund”) is not what we need.

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Christina Sandefur’s Albuquerque presentation: “The Importance of Private Property Rights”

Post author By Paul Gessing
Post date September 20, 2019

Christina Sandefur was in Albuquerque recently to share the importance of private property rights. She touched on a number of interesting topics including New Mexico’s successful reform of civil asset forfeiture and eminent domain.

Thanks to Danny Seymour for recording this video!

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NM spends 2nd most in nation on higher education ALREADY

Post author By Paul Gessing
Post date September 19, 2019

With Gov. Lujan-Grisham having proposed “free” college, it is worth noting that New Mexico already spends more per $1,000 of personal income than any other state in the nation beside Wyoming.

What results have those dollars generated? Will “free” college make a big difference in those economic and educational outcomes?

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Post author By Paul Gessing
Post date August 30, 2019

The following appeared at KRWG.org on August 29, 2019.

Like all New Mexicans, we at the Rio Grande Foundation want to see an improved K-12 system in place. I have two daughters in traditional public school. While concerned about the quick turnover at the top of the PED, we are optimistic about the hiring of Dr. Ryan Stewart.

Stewart comes to us from the Philadelphia area where he worked with an education reform organization called Partners in School Innovation. According to news reports he is relatively young (38) but has impeccable credentials (degrees from Stanford and Harvard).

The Albuquerque Journal reports that he has a 9 year old son. This is notably mainly because the son attends a “private Quaker school” in Philadelphia. In other words, Stewart and his family are financially in a position to pursue his own form of “school choice.” His “choice” is one that would be beyond the financial capability of most New Mexicans. The Rio Grande Foundation found three different Quaker schools in Philadelphia ranging in annual tuition from $16,000 to $30,000.

We don’t begrudge him the ability to make the best decision for his child, but it is important that a child’s access to a quality education not be determined by parental incomes or the ability to move into a wealthy school district. Thus, we have long advocated for and supported choice whether that is in the form of charters, private, home, virtual, or other forms of schooling. And, according to new polling data from the University of Chicago, school choice is especially popular with African-Americans and Hispanics.

Unfortunately, “choice” is not so popular for many who have direct stake in the status quo. This attitude is especially prevalent among the unions who so strongly support his boss, Gov. Lujan-Grisham. They don’t want competition. They advocate for ever more money to be poured into the same broken education system that has proven so difficult to turn around.

Of course, the unions and others fail to acknowledge that according to the most recent US Census Bureau data, New Mexico spends more than any of our neighbors on K-12 education, but our results are worse. That data does not include the recent legislative session during which more money was been poured into the system and the previous administration’s accountability regime were been pushed aside.

New Mexico’s school choice options primarily consist of publicly-funded charter schools which faced the threat of a moratorium from Democrats in the Legislature in 2019 and home schooling which can be undertaken by anyone with the time and wherewithal to manage a child’s education at home.

New Mexico can and should offer private school choice options, especially tax credits and other options. These programs could specifically be targeted to assisting children from needy families or who go to school at low performing schools. In the recent past such legislation has been put forth on a non-partisan basis, but those efforts have consistently and stridently been opposed by the unions and thus killed.

We look forward to Dr. Stewart getting started in New Mexico. We know our education remains deeply challenged and that it is in need of aggressive and courageous leadership. With the recent influx of new spending, the argument that spending is“inadequate” is not going to cut it. New Mexicans expect improved results.

Welcome Dr. Stewart and good luck, my daughters and thousands of New Mexico children are counting on you!

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What’s wrong with the ETA?

Post author By Paul Gessing
Post date August 6, 2019

The following appeared in the Santa Fe New Mexican on August 3, 2019. More details on Mr. Costello can be found here.

I have written and studied electricity markets and regulations for almost 40 years. As a New Mexico resident, I have some deep concerns about the Energy Transition Act, which passed the Legislature this year and is now being implemented.

The San Juan Generating Station in the Four Corners will be shut down in 2022 and hundreds of megawatts of natural gas electricity generation will be shut down in the years ahead as part of an effort (under the legislation) to be 50 percent “renewable” by 2030.

Instead of the ETA, what New Mexico needs is a rational dialogue on new technologies. This discussion has not taken place because politically powerful interest groups including environmentalists, unions and the Public Service Company of New Mexico — the “iron triangle” — got together to stick it to ratepayers who don’t have a real voice in Santa Fe.

One example is those groups that regard anything less than a maximum effort to address climate change as morally objectionable and a social injustice. This obsession with climate change can threaten other policy objectives, like reasonable and stable rates, economic growth and reliable electric service. We should not be dumbfounded if this happens in New Mexico.

What we know for sure is that the ETA won’t have any detectable effect on climate change. No state action — even in California, let alone in New Mexico — would accomplish much in reducing global temperature. This means that politicians and other ETA advocates are asking — more accurately, forcing — New Mexicans to squander their money on something that would have almost next to zero benefits from reducing climate change.

Surely we can find better ways to spend our money. Supporters of the ETA talk about social justice in terms of our obligation to future generations to combat climate change. What about the obligations to the current generation? Especially troublesome is the effect on low-income households that will be forced to pay higher electricity prices and suffer less reliable electricity service because of a government action pushed by those who want to promote their agenda.

The ETA represents classic rent-seeking, namely a “sweetheart deal” where certain groups leverage their political clout in gaining governmental favors at the expense of the general public. It guarantees PNM recovery of its costs as long as it complies with the act, and it appeases environmentalists by subsidizing wind and solar to replace fossil fuels such as reliable, affordable and abundant natural gas.

To wit, the act requires the majority of PNM’s customers to fund the advancement of social objectives through inflated electricity rates without compensatory benefits. Here we are talking about the socialization of costs for nontraditional utility activities, like assisting displaced workers or advancing technologies that are not cost-effective, that benefit only a distinct few. In a nutshell, that is the ETA.

The Energy Transition Act is also anti-consumer by eroding the authority of the Public Regulation Commission to disallow from rates PNM’s imprudent costs. This shift toward cost-plus regulation diminishes the incentives of PNM to minimize its costs in serving its customers by creating a “moral hazard” environment: PNM has little or no financial risk, yet it manages the assets and makes critical decisions that affect risk. This means less consumer protection from PNM’s monopoly power. New Mexico needs stronger consumer advocacy to protect electricity consumers from legislation like the ETA.

Energy policies generally overstate the problem being addressed, fail to recognize the role of market dynamics in mitigating the problem and understate the cost of policy initiatives — for example, the costs of mandating renewable energy and subsidies. The ETA has all of these defects, which have the effect of dragging down the New Mexico economy in the coming years.

Advocates perceive the Energy Transition Act as one of those energy acts where everyone stands to benefits and no one loses. Well, like most things, there are two sides. The side that ETA advocates shoved behind the curtain portrays a government action that not only has blemishes but warts that will likely inflict long-term harm to New Mexico.

Ken Costello is an adjunct scholar on energy policy with 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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New RGF video explainer illustrates failure of New Mexico’s biggest corporate welfare program

Post author By Paul Gessing
Post date July 15, 2019

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.