Category: Local Government

The State Investment Council Needs a Closer Look

Post author By Marina
Post date January 11, 2009

Transparency word magnifying glass searching for sincerity, clarity, openness, truth, accuracy, directness, fairness, honesty, believability and forthrightness

The pending loss of New Mexico’s $19 million investment in Eclipse Aviation raises important questions about how wisely the State Investment Council (SIC) is handling our money. This is not the first private equity investment by the SIC to go sour. New Mexico lost a $7 million investment in TCI Medical, a start-up nuclear medicine company that was supposed to create 100 jobs in Carlsbad but employed just seven people. The SIC also lent about $2 million to Millenium Transit, a bus manufacturing company in Roswell. That company is now in bankruptcy.

The SIC does not seem to know exactly what is being done with New Mexico’s money. It claims to have bought equity positions in 52 New Mexico companies, but it cannot say, despite repeated requests by the Rio Grande Foundation, how much money it has in each of these companies or what percentage of each company’s stock is owned by New Mexico taxpayers.

The Legislature, at Governor Richardson’s urging, has authorized the SIC to invest up to 9% of the Severance Tax Permanent Fund in acquiring stock in private New Mexico companies. This is a substantial amount of money. At the end of 2007, the SIC had over $141 million invested in private New Mexico companies.

So far, the SIC’s New Mexico private equity program hasn’t produced hard returns for New Mexico taxpayers. For years, the SIC claimed its New Mexico private equity program was in the black. But favorable (and inflated) valuations for Eclipse, the largest holding in the portfolio, accounted for those paper gains. With Eclipse in the tank, the false bloom is off the rose.

Even some of the SIC’s smallest acquisitions look questionable. Take for instance, its investment in Small Smiles. The SIC’s 2007 annual report showed an investment of an unstated sum in this New Mexico company. By directly contacting the venture capital firm that handled this investment, the Rio Grande Foundation learned that about $500,000 New Mexico taxpayer dollars have been invested in Small Smiles. The SIC itself had not been able to answer this question.

Contrary to the SIC’s annual report, Small Smiles, is not a New Mexico company. It is a national chain of low income dental clinics owned by a bank in Bahrain. Furthermore, at the time half a million taxpayers dollars were going to help Arab investors, Small Smiles was being blasted in an Emmy Award winning investigative television series called “Drilling for Dollars.” Small Smiles clinics in the Washington, D.C. area were exposed for abusing children by strapping them to “papoose boards.” Small Smiles had engaged in unethical billing practices. Parents came forward with complaints of unnecessary dental work being performed on their children without their consent.

The same complaints about Small Smiles arose in New York, Colorado and Kansas. New York Senator Charles Schumer has called for criminal prosecution and disqualification of Small Smiles from the Medicaid program. New York, in fact, did revoke Small Smiles’ Medicaid credentials.

The ABC news program “20/20” has conducted its own investigation of Small Smiles. and has an expose’ ready for national broadcast.

A review of SIC meeting minutes shows not one mention of Small Smiles’ difficulties. In fact, Small Smiles wasn’t discussed once though a half million dollars were invested in this troubled company.

The Eclipse bankruptcy proves that politicians and their appointees make very poor judges of the next big breakthrough in aviation or other technologies. The fact that even in its smallest investment the SIC seems less than completely informed should make taxpayers concerned about whether their money is being prudently managed.

There is scant oversight of the SIC’s investment practices and decisions. Only when a big investment like Eclipse craters does the public learn of losses. It’s time the Legislature revisit the discretion it has given the SIC, and provide for greater transparency and more informed decision making. It should also ensure inescapable accountability for those who make the wrong calls in handling the public’s money.

Paul J. Gessing is President of the 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.

Local Government Notable News Open Government

Nothing to Smile About: New Mexico’s Curious Investment in Small Smiles Dental Clinics

Post author By Marina
Post date January 11, 2009

Does New Mexico’s State Investment Council know what is being done with the tens of millions of dollars it has invested in New Mexico venture capital? That doesn’t seem to be the case, at least in the instance of one curious investment.

In its 2007 annual report the State Investment Council (SIC) reported it had acquired ownership positions in 45 New Mexico companies. These investments amounted to $141.4 million. That sum includes the $19 million invested in Eclipse Aviation, which is now in bankruptcy. The report does not disclose how much New Mexico has invested in these companies or what percentage of their stock is owned by New Mexico state government as the result of these equity acquisitions.

The Rio Grande Foundation has been asking the SIC for that information for two months So far, the SIC has not been able to provide an answer. It does not seem to be any more readily available to the SIC than to taxpayers who want to know what is being done with their money.

Except for the Eclipse Aviation investment and the millions invested directly in Earthstone, a Santa Fe cleaning products company, the rest of the SIC’s current investments in New Mexico companies have been made in partnership with a venture capital funds that are based in New Mexico or have an office here, though their principal office may be in another state.

As Charles Wollmann, the SIC’s Public Information Officer explains it, the SIC relies on these investment firms to determine how much is invested in each company. Accordingly, that information is not readily available to the SIC…or New Mexico taxpayers. Indeed, Wollmann has cautioned that some of this information may be proprietary and not for public disclosure.

The Rio Grande Foundation has taken a closer look at Small Smiles, one of the 45 New Mexico companies identified in the SIC’s 2007 report. We have learned that Small Smiles is not truly a “New Mexico company” but is a multi-state chain of Medicaid dental clinics owned by out of state interests and managed by a company whose ownership can be traced back to the small Arabian nation of Bahrain. Our investigation also reveals that by investing in Small Smiles the SIC has bought into a company with a record of abusing child patients and engaging in unethical billing that has put it under government investigation. And, as we have learned, there are more public relations troubles brewing for Small Smiles.

Small Smiles, a New Mexico Company? Try Colorado, Tennessee or even the Middle East.

Small Smiles operates Medicaid dental clinics for low income children and infants in nineteen states and the District of Columbia. It began operations in New Mexico in 2007, opening one clinic in Santa Fe, one on Albuquerque’s west side and one in southeast Albuquerque.

Through its partnership with Red River Ventures of Plano, Texas, the SIC acquired equity in Small Smiles in 2007. Bruce Duty, a director of Red River Ventures, told the Rio Grande Foundation that his company invested a total of about $5.5 million in “Smile Smiles, LLC.” About 10%, or $550,000 of that investment came from New Mexico’s SIC. The rest came from other investors, including the United States Small Business Administration.

There is no New Mexico corporation identified in the records of the New Mexico Public Regulatory Commission as “Small Smiles, LLC.” Instead, the Public Regulatory Commission corporations archive reveals three Small Smiles professional corporations corresponding to each of the three clinics. Each of the Small Smiles dental clinics was incorporated as a separate professional corporation.

None of the directors of the New Mexico Small Smile clinics are New Mexicans.

The director of the Santa Fe clinic and the clinic on Albuquerque’s west side is Kenneth E. Knott. He is a Senior Vice President of FORBA of Nashville, Tennessee. FORBA is one of the nation’s largest dental clinic chains. (More on FORBA below). Knott is a busy man. He is also a dentist, and is licensed in Ohio, the District of Columbia, Connecticut, New Hampshire, South Carolina, Kentucky, Oklahoma, and Virginia. He also is the director of Small Smiles Clinics in Akron and Youngstown, Ohio, Ft. Wayne, Indiana, the District of Columbia, and Reno, Nevada.

The director of the Small Smiles clinic in southeast Albuquerque is Adolph R. Padula. He is a retired dentist from Pueblo, Colorado. He is related by marriage to the DeRose family of Pueblo, Colorado, the founders of the Small Smiles chain of Medicaid dental clinics.

The corporate records of all three New Mexico clinics give either mailing addresses or identify a principal out of state address in Pueblo, Colorado.

So how does this tie Small Smiles to the Middle East? Follow the thread a little bit further.

First, we have to go through Pueblo. That’s where Small Smiles began, growing out of the DeRose dental clinic. The DeRoses once owned a string of dental clinics across the country catering to Medicaid patients. They sold their interest in Small Smiles to FORBA. Dr. Michael DeRose, one of the founders of the Small Smiles chain, in 2007 agreed to pay the federal government $10 million to settle charges his clinics had charged Medicaid for unnecessary procedures, such as capping children’s teeth. As reported below, this is an allegation that continues to arise against Smile Smiles clinics even after the DeRoses sold their interest to FORBA.

All Small Smile clinics are now managed by FORBA, which also began in Pueblo. FORBA owns the trademark on “Small Smiles.” FORBA stands for “For Better Access.” It has grown into one of the nation’s largest dental care management companies. It reported revenue of $142.2 million in 2006. That year it was acquired by a Sanus, a Nashville-based holding company, and then moved its main corporate offices to Tennessee. It continues to maintain some operations in Pueblo.

Sanus, in turn, was acquired by Small Smiles Holding, LLC, a company formed for the express purpose of acquiring Sanus.

But Nashville isn’t the end of the line. The terminus is Bahrain. In January 2007, just before SIC’s investment in Small Smiles, Sanus sold FORBA for $435 million to Arcapita Bank of Bahrain.

In sum, instead of investing in a New Mexico company, the SIC’s partner has invested in a company owned by a bank on the Arabian Peninsula. The SIC’s 2007 report, claiming an investment in a New Mexico company called Small Smiles, is incorrect.

Grim Smiles

At the time that the SIC’s money was being invested, Small Smiles was the subject of a damning Emmy Award winning expose’ of its medical and business practices in Washington, D.C. area clinics. WJLA-TV of Washington, D.C. launched its investigative report with film footage of a screaming child being restrained on a “papoose board” while his mother was excluded from the room. The series of investigative reports also discovered that Small Smiles was using unlicensed x-ray technicians and billing Medicaid for hundreds of thousands of dollars in unnecessary dental work, including pulling children’s teeth without a valid medical reason.

“Drilling for Dollars,” triggered a criminal investigation by the Maryland Attorney General. Several insurance companies suspended Small Smiles and directed patients to seek dental work elsewhere. The report elicited complaints from patients and employees around the country that were collected at the television’s website.

In May 2008, New York terminated Small Smiles’ participation in its Medicaid program in response to reports by CBS-6 news of Albany that its Colonie clinic was performing unnecessary procedures such as needlessly crowning teeth. When Small Smiles challenged these claims, more than one hundred parents came forward with complaints of mistreatment backed by photographs. As in Maryland, parents were not permitted to be present with their children during examinations and dental procedures. A dozen parents also reported that their children were restrained on a “papoose board.” Some parents reported their children screaming in pain because the dentist operated before anesthesia took effect or operated without any anesthesia at all. Parents also reported the use of dirty dental instruments. Lawsuits have been filed by several parents against Small Smiles based on these allegations.

Small Smiles has drawn the ire of New York’s United States Senator Charles Schumer. After the New York Office of the Medicaid Inspector General revoked their Medicaid authorization, he issued a statement saying, “”I’m glad they’re terminating Small Smiles,” said U.S. Sen. Chuck Schumer (D-NY), a staunch critic of the company. “They don’t deserve to be in business and certainly not get any federal money.” Sen. Schumer says he has seen news reports documenting similar allegations against Small Smiles clinics in Denver, Rochester, and Washington D.C. “They ought to prosecute some of the people who did this,” he told CBS-6 via satellite from Capitol Hill. “This goes beyond a mistake. This is hurting our children and ripping off the federal government…and I think there ought to be a criminal investigation of this.”

Similar allegations against Small Smiles clinics in Kansas have been reported by The Wichita Eagle and in Colorado by KUSA-TV of Denver.

Debbie Hagan of Owensboro, Kentucky collects complaints from Small Smiles patients and parents at her blog, “Dentist the Menace.” (www.debbiehagan.blogspot.com). She also receives reports from dentists who have worked in Small Smiles clinics. One person identifying himself as a dentist who worked at a Small Smiles clinic wrote, “I was disgusted with the way children were treated. I wouldn’t take a dead snake to that place.” FORBA has sued Hagan for defamation and posting what it claims are copyrighted internal company documents. That has not stopped Hagan from continuing to run her blog.

The bad publicity for Small Smiles and FORBA may be getting worse. Good Morning America recently aired parents’ complaints against Small Smiles. Additionally, ABC’s nationally televised investigative news program “20/20” has completed a critical report on Small Smiles. According to its producer, Glenn Ruppel that report will air very soon.

What Did the SIC Know and When Did It Know It?

The SIC does not seem to have been aware of any problems with Small Smiles while its partner Red River Ventures was investing taxpayer dollars in that troubled company. A review of all the minutes of meetings from 2007 and 2008 of the State Investment Council and the New Mexico Private Equity Investment Advisers Council, which advises the SIC on private equity investments, did not reveal any discussion of nor any report on Small Smiles.

The SIC had no response when asked if it was aware of the history of problems of Small Smiles’ clinics. The SIC does say it is no longer categorizing Small Smiles as a New Mexico company.

Local Government Notable News Open Government

Elect Representatives to Serve, Not Bring Home Bacon

Post author By Marina
Post date March 14, 2008

With the onset of the first debates in the Republican primary for New Mexico’s open US Senate seat, some attention has been temporarily re-focused on the state’s myriad congressional races and away from the presidential race. Now is the time to discuss a few broad parameters outlining what we should expect from our candidates as they attempt to win the right to represent us.

The point I’d like to make here is that we should not judge our candidates by how much federal money they pledge to bring back to New Mexico. Brian Sanderoff, a respected New Mexico pollster, said that the loss of Sen. Pete Domenici’s ability to bring money to the state was “potentially devastating to New Mexico” and went on to compare the state’s prospective congressional delegation to a baseball team that has a lot of rookies that winds up in last place.

There will undoubtedly be a period of adjustment given the recent turnover and new faces, especially in the Senate since Domenici has held the seat since 1972. But will the loss of so much seniority really hurt New Mexico’s economy? More importantly, is it really healthy for New Mexicans to encourage their elected officials in Washington to grab as much money for the state as possible? I say “no.”

Unfortunately, the pressure to bring federal money back to the state looms large for candidates. Given the hype surrounding Sen. Domenici’s well-documented efforts on behalf of the labs and military bases, the issue has also loomed large in Republican Party criticisms of Rep. Udall and his lack of willingness or inability to stop cuts at Sandia and Los Alamos labs.

Gov. Gary Johnson, on the other hand, in deciding not to run for the Senate, cited the need for New Mexico’s delegation to “belly up to the federal trough” as one particularly unattractive aspect of the job. Johnson told the Albuquerque Journal, “I’d be terrible at that job.”

This is sad. Regardless of whether or not Gary Johnson or Tom Udall would make a good U.S. senator, New Mexicans should vote on whether they support each candidate’s agendas and not based on who can bring the most federal money to New Mexico.

After all, relying on the federal government has not made New Mexico a prosperous state in the past. In fact, while New Mexico receives more money from the federal government relative to what it sends to Washington in the form of taxes ($2 for every $1), we remain among the poorest states in the nation.

Given our sudden loss of clout in Washington, this might be the time to further efforts at economic development such as further reducing New Mexico’s income tax rates and creating a more business-friendly regulatory environment. Such efforts would be preferable to more narrowly targeted efforts, given the struggles experienced by Eclipse Aviation, Tesla Motors, and Green Rubber Global — three businesses that have received generous tax breaks and subsidies to locate here.

In an economy driven by federal spending, benefits are largely limited to recipients of government largesse that is taken from productive citizens in other states. Innovation and entrepreneurship are not cultivated as policymakers are not forced to create the conditions necessary for such activity to flourish. In an economy that is forced to sustain itself, creativity is nurtured and the benefits of this creativity are spread throughout the economy.

New Mexicans have little or no control over the location of military bases, Indian reservations, and a relatively robust federal presence. However we must disavow ourselves of the notion that federal spending is or should be the key to our economy.

More importantly, no matter who we vote for, we should elect our leaders based on how they will represent our state, not how much money they can take from taxpayers nationwide and bring home.

Paul Gessing is president of the Rio Grande Foundation, a research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

Local Government Open Government Tax and Budget

More Silliness in Santa Fe

Post author By Marina
Post date February 11, 2008

In case you have not been following the latest news in the video game industry, you may not be aware that a proposal cooked up right here in New Mexico has made news in gaming circles nationwide.

The proposal, which was developed by the Rio Grande Chapter of the Sierra Club and is being lobbied for by a coalition called “Leave No Child Inside,” is to levy a new 1 percent tax on TVs, video games and game equipment sold in the state.

Money from the tax an expected $4 million annually, according to proponents will go into a fund administered by the Public Education Department and will be used (unless a future legislature diverts it) to fund outdoor programs and other programs in an effort to fight obesity and poor school performance which may result from “excessive” TV, movie and video game exposure.

The legislation has been introduced in the current 30-day session by Rep. Gail Chasey, D-Bernalillo. Needless to say, because it essentially levies a “sin tax” on gamers and TV watchers, it has drawn the attention of many of the millions of Americans who enjoy these activities.

Unfortunately, with Gov. Bill Richardson’s massive health care proposal taking top priority and sucking up most of the media attention, the average New Mexican remains blissfully ignorant of this latest taxing effort in Santa Fe.

Of course, taxing video games to fund outdoor education sounds great to the average do-gooder. Video games and television are politically correct and they supposedly make us fat. Who could be against taxing such harmful products?

The bigger question is, “Why is the government trying to stop us from watching TV or playing video games?” Isn’t it an individual’s responsibility to exercise? Certainly, governments have increasingly involved themselves in every facet of our lives, from what we eat to whether we smoke, not to mention where we live (remember, suburbs are bad) and what we drive (or if we should take transit instead). But shouldn’t we draw the line somewhere?

Besides, as if in direct response to those who would tax TV and video games “for our own good,” senior citizens around the country are now using video games to stay physically fit. As reported recently in USA Today, Flora Dierbach, 72, who chairs the entertainment committee at a retirement home in Chicago, helped arrange a bowling tournament using the Nintendo Wii.

Said Dierbach, “It’s a very social thing and its good exercise É and you don’t have to throw a 16-pound bowling ball to get results.” She added, “The competition had people who hardly knew each other cheering and hugging in the span of a few hours.” That doesn’t sound like the zoned-out teenage slacker/video game addict to you, does it?

The fact is that no matter who is playing video games and watching TV, the state of New Mexico should not be in the business of using tax policies to mold us into better people. Government should serve us as citizens, not the other way around.

And, while a 1 percent tax, to be levied on top of the already onerous gross receipts tax which is levied at rates approaching 8 percent in some parts of the state, may not make or break anyone’s decision as to whether or not to buy the latest flat screen TV or game system, don’t expect the tax rate to stay at 1 percent for long if this misguided tax is adopted. After all, whether it is outdoor activity or incredibly expensive commuter trains, governments never run out of ways to spend money.

During the current, short, 30-day session, even a group with the sympathetic-sounding name “Leave No Child Inside” will have difficulties getting their new tax enacted into law. But if New Mexicans don’t speak out now, similar proposals will undoubtedly rear their ugly heads in the future.
Gessing is the president of New Mexico’s Rio Grande Foundation, an independent, tax-exempt research and educational organization.

Local Government Tax and Budget

Albuquerque Should Learn Lesson from Wi-Fi Debacles

Post author By Marina
Post date July 21, 2007

Albuquerque Mayor Marty Chavez made a splash recently in the local media when he requested proposals from several companies asking them to find ways to create a free, citywide wireless Internet service. Providing free wireless access may sound like a great idea, but there are some big problems with the proposal.

First and foremost, while costs will not be known until all proposals are in, the experiences of Sandoval County in particular (and governments nationwide) show that wi-fi service could stick taxpayers with a big bill while stunting the growth of internet access in the City rather than moving it forward.

Before moving forward, in fact, city officials should carefully study the debacle unfolding with Sandoval County’s scandal-plagued broadband system. The County was originally supposed to provide fully-functional wi-fi access county-wide at a cost of $9 million. To date, 3 million taxpayer dollars have been spent with no results. Much of this money has been wasted or perhaps even stolen and state auditor Hector Balderas is now looking at situation.

Unfortunately, Sandoval County is by no means alone in its struggles with taxpayer-financed internet access. As Sonia Arrison, Dr. Ronald Rizzuto, and Vince Vasquez, report in their recent report, Wi-Fi Waste: The Disaster of Municipal Communications Networks, published by the Pacific Research Institute, publicly-financed broadband systems invariably cost more and deliver less than promised.

The survey examined 52 government-owned networks that compete in the cable, broadband, and telephone markets. It concludes the government-owned systems are “financial disasters.”

Among the major problems with these systems is that they rely heavily on loans and transfers from established municipal utilities such as electricity and water. Even with the power of the public purse, 77 percent of the time municipal networks can’t pay their way, the report observes.

Even with access to subsidies and loans not available to private-sector companies, municipal systems can’t break even, let alone establish positive cash flow, the report notes.

“Adding all the operating years together, our select sample of publicly-financed systems has been in existence for 294 years,” the authors write. “Of these 294 years, these operations have incurred negative free cash flow in 227 years. In other words, 77.2 percent of the time these networks have not paid their way.

Those subsidies also enable the government-aided networks to use their funding advantage to drive out more efficient private-sector competitors. This may not sound like much of a problem in the short term if the city receives is a “state-of-the-art” system at the outset, but unlike roads and sewers, internet technology is evolving constantly and rapidly.

Today’s wi-fi technology may not be enough for tomorrow’s needs. Unfortunately, depending on how the technology evolves, competing with a “free” service may be too much for Qwest and Comcast, thus negatively effecting high-end users.

Rather than throwing more money at a wireless project, Mayor Chavez should let the free market – that is the wireless companies and their customers – decide how widespread and robust wireless service needs to be. Some people are clearly willing to pay for high-speed wi-fi access in their own homes or at their local coffee shop. Why should they make the rest of us pay for a city-wide system?

Paul Gessing is President of the Rio Grande Foundation, a 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.

Local Government Tax and Budget

Take Time Booting Up Albuquerque Wi-Fi Deal

Post author By Marina
Post date July 18, 2007

The city is evaluating plans from five companies that submitted proposals last week to create a citywide wireless system for Internet and other communications.

The competitive process was kicked off by Mayor Martin Chávez as a way to bring free wireless to town and get more residents than ever before connected to the Internet.

The mayor envisions a two-tiered wireless Internet signal covering the entire city that will support not just the basics of Web surfing, e-mail and the like, but phone service and video as well. If this vision is fulfilled, the basic tier will be a free, 1 megabit signal for anyone and a premium service at 3 megabit for a reasonable cost. A secure 4.9 gigahertz signal for the city’s private use— fire, police, rescue and such— is also part of the proposal.

This all sounds great, and if a company is willing to step up and make what some analysts believe could be a $25 million investment for the privilege of providing this service, it would be hard for the city to say “no.”

But there are some very real stumbling blocks on the entrance ramp to the information superhighway that have tripped up our neighbors in Rio Rancho and Sandoval County.

Back in 2003, Rio Rancho contracted with a Michigan-based wireless company named Azulstar to provide eight hours of free wireless service to anyone accessing the network within city limits in return for use of the city’s rights of way.

The system is so dysfunctional that the agreement has been put on life-support until mid-August, at which point the deal may be terminated by the city. But, at least it hasn’t cost taxpayers anything.

Sandoval County, on the other hand, has wasted at least $1.2 million on a system that, according to County Commissioner David Bency, is no more usable than “a series of tomato cans attached to a string.”

The problems that have plagued both systems should serve as a warning to Albuquerque leaders that they also must carefully evaluate the city’s role in setting up such a system. At the very least, Albuquerque must stick to its guns by making sure that no taxpayer money be spent to subsidize a wireless system.

Additionally, while not a direct financial subsidy, it would also be a mistake to give one provider exclusive favors that it doesn’t offer to other potential entrants. This could be a major stumbling block as any company making a $25 million investment will likely want to lock in some kind of monopoly status in order to protect its investment. Of course, consumers would then be locked in to the municipal service as other providers leave the city unable to compete with a favored provider.

It is important to have a clear understanding that providing wireless service is much different than managing roads and sewers. Roads and sewers require investments that make their private provision quite difficult under current conditions. Will the new system put private industry out of business?

Assurances must be made to ensure that those who are willing to pay for Internet and wireless services above and beyond what the city’s chosen provider offers will have that option available and that existing competitors will not be driven out of the market.

The last issue is changing technology. New technologies known as GSM (global system for mobile communications) and CDMA (code division multiple access) are widely deployed by major commercial providers. Is Albuquerque’s provider going to be ready to change if another technology takes hold? What if wi-fi becomes irrelevant as a technology in just a few years?

It is human nature to want something for nothing. Nowhere is that attitude more prevalent than the fast-changing field of computing, where more powerful at a lower price is the expectation.

Before we delegate our choices over how we connect to the Internet to the city’s chosen contractor, Mayor Chávez and the council must have a firm grasp on the issues and be willing to walk away if no one can properly fulfill these requests.

Paul Gessing is president of the Rio Grande Foundation, a 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.

Local Government Tax and Budget

County Should Stay Out of Wi-Fi Business

Post author By Marina
Post date May 28, 2007

Sandoval County’s scandal-plagued effort to create a county-wide publicly financed broadband system has been widely-reported on. The project has received $3 million in state and county funding for the supposed purpose of providing cheap, ultra-high-speed wireless access countywide, but much of this money has been wasted or perhaps even stolen. State auditor Hector Balderas is now looking at the situation.

Though it would be easy to simply blame the contractors and government officials who are attempting to get the project up and running by 2009 for being corrupt and/or incompetent, the fact is that Sandoval County should not be involved in such a project in the first place.

As Sonia Arrison, Dr. Ronald Rizzuto, and Vince Vasquez, report in their recent report, “Wi-Fi Waste: The Disaster of Municipal Communications Networks,” published by the Pacific Research Institute, publicly-financed broadband systems invariably cost more and deliver less than promised.

The survey examined 52 government-owned networks that compete in the cable, broadband, and telephone markets. It concludes the government-owned systems are “financial disasters.”

Those subsidies enable the government-aided networks to use their funding advantage to drive out more efficient private-sector competitors.

As government officials rush to show leadership and take credit for delivering the goods, they often trade short-term political benefits for serious, long-term financial problems: cost overruns, mounting debt, and tepid profits, the report observes. The report clearly shows what Sandoval County now knows: “Public telecom networks are risky gambles, regardless of the technology or the business model.”

The report also reveals the extent to which these operations rely on interest-free loans, inter-utility transfers, and permanent subsidies, the details of which in many cases are buried in financial reports, if reported at all.

“The footnotes in most of the networks’ financial statements have omitted any discussion of cost allocation between the telecom utility and other utilities, which suggests that utility accountants may be shifting around costs to enhance the appearance of telecom profitability,” the authors report.

The utilities also appear to be hiding other significant costs. “There is also the issue of system accountants’ failing to divulge major financial transactions on the printed public record. For example, at the end of the 2003 fiscal year, the telecom network of Harlan, Iowa, received an intra-utility loan for $768,025. In 2004, this intra-utility loan was forgiven but the financial-statement disclosures did not provide any explanation for this transaction,” the report says.

Even with access to subsidies and loans not available to private-sector companies, municipal systems can’t break even, let alone establish positive cash flow, the report notes.

Sandoval County is not alone. The county’s venture into providing the latest in high-speed Internet access was likely to cost taxpayers more and deliver less than was expected from the very start. The fact that governments run businesses poorly is a lesson that needs to be reinforced regularly lest other New Mexico governments repeat Sandoval County’s mistakes.

Rather than throwing more money at a wireless project that is clearly going to cost taxpayers far more than the original $9 million estimate, Sandoval County should “pull the plug” on this foolhardy taxpayer-financed venture immediately.

Some people are clearly willing to pay for high-speed wi-fi access in their own homes or at their local coffee shop. Why should they make the rest of us pay for a county-wide system?

PAUL GESSING is president of the Rio Grande Foundation, a 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.

Local Government Notable News

New Mexico’s Legislative Session: Busy But Undistinguished

Post author By Marina
Post date March 27, 2007

Many bills were passed during what was by all accounts a busy 60-day session, but the important question is whether we will be better or worse off than we were before. It is impossible to discuss everything that happened, but here are a few important points:

First and foremost, credit must be given to the governor, the governor’s task force, and those in the Legislature who worked so hard to protect taxpayers from the abuse of eminent domain. Assuming Gov. Bill Richardson signs the bill, which is based on a concept he has supported, property owners will be able to rest a bit easier knowing that local governments cannot take their land whenever they feel like generating more tax revenue.

Another good bit of news is that no tax hikes occurred this year. While the idea of raising taxes in a time of record-setting revenues may seem absurd, several tax hikes including a 60 cent-per-pack increase on cigarettes were considered and defeated this session. Raising taxes in times of budgetary crisis is a bad idea, but hiking them when revenue is overflowing from state coffers is inexcusable and sends a message that government is insatiable.

The absence of tax hikes was good and some taxes were even cut, but the small ($94 million) package of tax cuts passed this year was too small to have an impact on New Mexico’s economy. Worse, the cuts that were actually made including a gross receipts tax deduction for disabled street vendors were targeted in ways that will not improve New Mexico’s economy.

Despite its recent success which has coincided with a strong national economy, New Mexico remains one of the poorest states in the country. Our political leaders should be working day and night to improve that dismal statistic by reducing our heavy tax and regulatory burden. Small, narrowly-targeted tax breaks are not the answer.

Unfortunately, several actions taken during this session will have a negative impact on New Mexicans for years to come starting with the 10 percent increase in the general fund. That rate of spending growth is much more than double the rate needed to keep pace with inflation and population growth (about 4 percent).

With government growing so quickly, once oil and gas revenue suffer even the slightest setbacks, New Mexico’s budget could be in serious trouble. Worse, this rapid growth in spending took place while legislation that would have limited future spending growth that was introduced in both Houses the Taxpayer Protection Act was not seriously considered.

So, where will all of this new money go? A large portion has been allocated to increasing teacher salaries and expanding the state’s Pre K program. Although higher teacher salaries and expanded Pre K have been touted by many self-interested advocates among the education establishment, studies have shown that the benefits of Pre K evaporate by fifth grade. Worse, universally increasing the salaries of all teachers at once will do nothing to attract and retain the best teachers. Basing pay on teacher quality would be a far more effective way to increase teacher quality.

While more money was thrown at the teaching establishment this year, legislation that would allow taxpayers to take a tax credit for donating money to provide scholarships for needy children was killed once again. This effort which the teacher unions mislabeled “vouchers” would have given poor children and their parents the same ability as wealthy parents have to choose the school that is best for them whether that is a public or private school.

The last major legislative faux-pas of the session was increasing the minimum wage to $7.50 an hour. Fortunately, McDonald’s and most other employers of low-wage workers are already paying at similar wage rates and the wage will not automatically increase with inflation, thus somewhat mitigating the law’s negative impact. But New Mexico is a poor state with relatively low salaries; this wage increase will particularly harm border cities because none of our neighbors mandate wages as high as $7.50.

It was an action-packed session and some good was done. Unfortunately, massive spending without any economically-significant tax cuts will and a higher minimum wage will make it more, not less difficult for New Mexico to catch up with the rest of the country.

Paul Gessing is the president of the Rio Grande Foundation, a 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.

Local Government Open Government Top Issues

Eminent Domain Reform a Must This Session

Post author By Marina
Post date January 20, 2007

Things are finally looking up for New Mexico property owners. As most people are aware, in June of 2005 the United States Supreme Court further weakened the constitutional protection of personal property rights when it ruled in Kelo v. New London that any government could take a person’s property and transfer it to another, more connected private interest, in the name of economic development and greater tax revenue.

The court left it up to the states or congress to enact legislation to restore the constitutional protection of property owners. New Mexico’s Legislature passed a bill unanimously last session, which Gov. Richardson vetoed. Proponents of property rights, justifiably shocked and dismayed by the governor’s veto, look for actions this year to result in stronger protections.

Legislation passed last year was insufficient as it only protected owners from the taking of their property on behalf of another, presumably more well-connected private interest, for three years. Three years and one day later, the government could dispose of it as they wished. To his credit, and with the understanding that a vast majority of New Mexicans want their property rights protected, Gov. Richardson did not simply veto the bill.

Instead, he quickly formed a task force to study the eminent domain issue and make recommendations for the 2007 legislative session. More recently, Richardson has endorsed the task force’s recommendations and says that he plans to have them introduced as a package of reforms in the Legislature.

Those recommendations have been released and after careful analysis it is clear that the task force agreed with the Rio Grande Foundation and others that property rights must be protected. Recommendations made by the task force included:

Repeal of both the Urban Renewal and the Community Development laws. Over time, layers of laws have been enacted in New Mexico pertaining to eminent domain. This unanimous recommendation more clarifies than changes policy.
On a 10-7 majority vote, the task force recommended removing eminent domain authority from the Metropolitan Redevelopment Act. This is where the task force takes its firm stance against eminent domain for economic development and against the Kelo decision. The task force explicitly states that governmental “police powers” are the appropriate way to remedy “hazardous and unsafe conditions” without resorting to the “extreme powers contained in the Metropolitan Redevelopment Act.”
In another move to protect property owners, 14 of the 17 members of the task force expressed concern that “nearly any property in New Mexico could be found to be a slum or blighted area as currently defined.” To remedy this situation, the task force urges clearer language to ensure that “blight” really means what the term implies.
The task force also unanimously urged several procedural changes including increased hearing and notice requirements prior to eminent domain proceedings and the provision of relocation and transition assistance for those affected by eminent domain. Elsewhere, statutory language would be tightened under the task force’s recommendations.

These recommendations are an important contribution to the debate over eminent domain. Despite the overwhelming opposition to abuse of eminent domain as evidenced by the public outcry in the wake of Kelo, special interests — developers and representatives of local governments — have been effective in bottling up legislation in Congress and in some states. In fact, William Fulginiti, executive director of the New Mexico Municipal League, said that organization strongly opposed the task force’s recommendations and would work to prevent them from being implemented.

If Gov. Richardson truly has national ambitions, he must ignore Fulginiti and others who want to weaken your property rights and act this year on eminent domain. The task force’s recommendations are sound; the time for action is now.

Siebert Ickler, of Las Cruces, is an adjunct scholar with New Mexico’s Rio Grande Foundation, an independent, non-partisan, tax-exempt research and educational organization.

Local Government Notable News

New Mexicans Deserve Direct Democracy

Post author By Marina
Post date November 12, 2006

While politicians and voters around the country and here in New Mexico celebrate their Election Day victories and mourn defeat, voters in 24 states nationwide — not including New Mexico — also exercised a more direct form of control over how their affairs of state are managed. In these states, voters were able to place measures on the ballot through the initiative process, rather than waiting, sometimes forever, for politicians to tackle the issues.

In the Land of Enchantment, however, voters can only hope that the politicians they have elected will live up to their promises. In fact, New Mexico and Hawaii are the only western states (Rocky Mountains and beyond) that lack this form of direct democracy.

In the aftermath of Election Day 2006, it is clear that citizens do not always speak with one mind, but they always have something important to say. Gay marriage and efforts to prohibit it may get the most headlines, but did you know that 11 states considered measures to limit the use of eminent domain? With Gov. Richardson having vetoed a bill that would have restricted the use of eminent domain and polls showing that a vast majority of New Mexicans support such restrictions, wouldn’t it be nice to circumvent the politicians on this one?

Raising the minimum wage is another hot topic here in New Mexico, and while I personally believe that it is bad economic policy for states to legally-mandate wage levels, I am pleased that voters in six states were able to decide for themselves on Election Day.

The fact is that voters are by-and-large well-informed on these single-issue ballot measures and are often willing to take on issues considered too politically radioactive for politicians to handle. In fact, while three states — Oregon, Nebraska and Maine — rejected the placement of strict limits on the power of politicians to tax and spend, Colorado’s strict tax and spending limit was passed in 1992 through the initiative process. Some states may not be ready for Colorado-style tax and spending limits, but it would be nice if New Mexicans had the final say.

Legislative term limits are another area that voters are willing to tackle that most politicians, for obvious reasons, seem more than happy to ignore. In fact, 16 states nationwide limit the terms of their legislators and all of these states did so through the initiative process. As it lacks the initiative process New Mexico is of course one of the states lacking legislative term limits.

The term limits issue is perhaps only the most obvious issue on which legislators tend to act in their own interest while ignoring the will of voters. While a legitimate debate can be had over whether term limits improve governance, it is hard to argue that legislators view term limits as a anything but a mortal threat and they will not pass them. Tax and spending limits like Colorado’s are another limit on legislative power and, as such, such limits are not likely to pass in the absence of the initiative process. After all, it is the belief of overwhelming numbers of our legislators that they, not taxpayers, can make the best decisions on how to spend taxpayers’ money.

The fact is that voters are not always correct in assessing difficult political and economic decisions, but neither are legislators. Given the ever-increasing amounts of unfiltered information available to voters over the Internet and elsewhere, doesn’t it make sense to give citizens a greater say in New Mexico’s future?

Siebert Ickler is an adjunct scholar with 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.