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Each New Mexican would receive $730 refund if we had Colorado protections in place

The following appeared in the Current-Argus on December 11, 2019.

According to the latest estimates from Santa Fe the state’s general fund budget is expected to be $7.882 billion next fiscal year. When Gov. Martinez left office in 2018 the budget was “only” $6.3 billion. In two short years, New Mexico’s budget will have grown by more than $1.5 billion, a 25 percent increase.

With the current group in charge New Mexico government is going to grow fat on oil and gas revenues while average New Mexicans pay higher taxes due to hikes passed during 2019.

There’s a better way to use the surplus and we don’t have to look far to find it. Policymakers should visit Denver to see how fiscal restraint in “blue” Colorado has created that state’s booming economy. In 1992, Colorado voters approved a Constitutional amendment restricting taxes and spending at all levels of government (state, local, and schools). Under this law, taxes cannot be raised without voter approval and if revenues grow faster than the rate of inflation and population growth, the extra money must be returned to the taxpayers.

Last month Colorado voters once again affirmed that they want surplus revenues returned to them. By a rather overwhelming vote of 56-44, voters rejected a ballot measure pushed by the state’s political establishment that would have eliminated those tax refunds. Despite being a “blue” state, Coloradoans want to control government spending and they like their refunds.

If New Mexico had the same law (known as the Taxpayers Bill of Rights or TABOR) that Colorado has, it could change New Mexico’s economy for the better in short order. Rather than being spent by the worst-run government in the nation (according to 24/7 Wall Street) much of that $1.5 billion surplus would be returned to the people of New Mexico instead of growing its government. In fact, accounting for New Mexico’s slow population growth and the inflation rate (in essence giving government the same money in real terms as it had before the oil boom really started), you get just under $1.45 billion available to return to New Mexicans. If that money were divided by giving all New Mexicans (just under 2.1 million of us) an even share, that would mean a refund of $731.90 per person.

We can all fantasize about what we’d do with an extra $730 lying around, especially during the holidays. More importantly, Colorado which is like New Mexico in many ways (dependent on natural resources, land-locked with few navigable rivers, but with stunning natural scenery) is an economic dynamo while New Mexico lags. Yes, the ongoing oil boom has given New Mexico a boost, but our economy trails badly behind Colorado.

For example, according to data from the Federal Reserve Bank of St. Louis, the average New Mexican earned $41,609 in 2018 while that same year the average Coloradoan earned $58,456. In other words, the average Coloradoan makes $17,000 a year more than the average New Mexican!

People notice these differences and vote with their feet. According to data from the Pew Center on the States, between 2008 and 2018 New Mexico’s population grew by 0.41%, the slowest rate of any state west of Kansas annually. Colorado, the third-fastest growing state in the nation, grew by 1.54% annually. And of course, like interest, that number compounds annually.

Colorado’s strict limit on government spending is not the only difference between the two states. But it is rare for neighboring states to differ so starkly when it comes to overall economic conditions and population growth.

By limiting government growth Colorado has unlocked its human potential and made itself a desirable destination. New Mexico has vast untapped potential, perhaps more than any other state in the union. We may never get the kind of constitutional limits on spending that Colorado has, but if New Mexicans demand just a bit more of this surplus be returned to themselves as opposed to being gobbled up by government, perhaps we’d begin to unlock it.

Paul Gessing is the president of New Mexico’s Rio Grande Foundation. 

 

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Stadiums should rely on private funding

The following appeared in the Albuquerque Journal on December 4, 2019.

Like so many in the metro area, I was impressed by the outpouring of support and high quality of play by the New Mexico United in its inaugural season. Considering the timing of United’s success, which came in the wake of UNM eliminating its men’s soccer team, it illustrates that private options are often better and more popular than publicly funded ones, even in the world of sports.

The same can be said for stadium construction. I have studied and worked on issues involving publicly financed sports stadiums since the 1990s. Economists across the political spectrum all agree that taxpayer-financed stadiums are economic losers. In a 2017 poll, 83% of the economists surveyed agreed that “providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated.”

One interesting note about United’s initial effort to obtain public financing for its stadium is that it is going to the Legislature first. This is somewhat unusual because sports teams are amenities that primarily benefit the local population in terms of enhanced entertainment options.

How many people travel from Carlsbad, Clovis, Farmington or Las Cruces to New Mexico United games? I don’t know the answer to that, but it is undoubtedly a tiny fraction of United’s fan base. With that in mind, why should New Mexico taxpayers as a whole pay for a stadium used largely by Albuquerque residents?

The only logical answer to that question reminds me of the famous quote from Willie Sutton, a bank robber who, when asked why he robbed banks responded, “Because that’s where the money is.” United are heading to Santa Fe because the unprecedented oil boom is burning a hole in legislators’ pockets and the team might as well strike while the iron is hot.

I don’t blame them, but in a state that continues to lag economically and educationally while suffering from serious crime issues, is a taxpayer-financed stadium for the wealthy owners of United and their wealthier-than-average fans really the highest and best use of this oil-driven surplus?

Finally, it is worth considering a few other recent local stadium issues as this discussion gets under way. The Pit renovation – the most recent publicly funded stadium project – is widely considered to be a disaster. While some renovations were inevitable in an aging facility, the cost and scope of the changes were intended in part to draw NCAA tournament games and other major events to the facility. This has not happened.

The Santa Ana Star Center in Rio Rancho remains a marginal facility which costs that city’s taxpayers $3.2 million annually and does not have a full-time tenant.

The renovation of Isotopes Park is by far the most successful local stadium project, but it was an on-site rebuild for a concept – minor league baseball – that had a long track record of fan support in Albuquerque. At the time there was much discussion over whether to build the facility Downtown or where the facility is and the previous facility was. Location of United’s proposed facility is going to be critical in determining the final price tag and success of this undertaking.

While United had a great first year, it is just that, a brand new minor league soccer team. What if United continues to be wildly successful and moves up to Major League Soccer? Will the proposed facility be obsolete? Or, what if the newness and excitement wear off and fans lose interest in the years ahead?

Lastly, while the challenges of playing soccer in Isotopes Park are self-evident, creative options should be considered before taxpayers are tapped. UNM has both an existing soccer facility as well as an underutilized but better-configured football stadium. Is there no way to leverage these assets for use by United?

Amenities like United are nice to have, but the oil boom won’t go on forever, and there are many issues to address in this state and city.

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Economy Legislature Notable News Tax and Budget Taxes Top Issues

Santa Fe Spending Binge Kicks Into High Gear

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

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 2nd 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

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

(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

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.

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

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

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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Education Legislature Notable News Top Issues

KRWG logo

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!

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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