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Netflix Fueled by Oil and Gas in New Mexico

The following appeared at National Review’s website on December 25, 2020

We have known for decades the extent to which progressives dominate Hollywood. In the age of social media, Hollywood celebrities waste no opportunity to show that they stand with the poor, the downtrodden, and the righteous. But they have a way of showing themselves up as the hypocrites we already know that they are.

Let’s start with “fracking.” Fact: a few years ago, more than 100 Hollywood A-listers signed on to an effort under the banner of Artists Against Fracking to ban hydraulic fracturing. Yet it’s no secret that many of Hollywood’s numerous well-heeled opponents of “fracking” have something of a weakness for private planes and, even in their humbler moments, for large SUVs. It’s not much of an exaggeration to think that some of them probably gobble up more energy in a day than average Americans do in weeks.

But without hydraulic-fracturing technology, oil and gas production in my home state of New Mexico would almost completely dry up. This industry has made New Mexico a major energy producer, a crucial source of revenue and jobs for a state widely recognized as one of the poorest in the country. Fracking has safely opened massive new energy deposits with production concentrated in the Permian Basin, located in southeast New Mexico and shared with Texas. In fact, New Mexico is the third-largest oil-producing state, with over 1 million barrels per day at the end of 2019One-third of the state’s entire budget is generated by the industry.

Too bad. If the nation follows the advice of Hollywood’s anti-fracking activists, a poor state and its poor residents will be denied the benefits of an important natural resource and simply go without. While fracking remains legal (for now) in New Mexico, Hollywood’s hypocrisy goes far beyond merely advocating against this technology: some of its leading companies have found a way to suck up tax revenues right here in New Mexico that would otherwise be spent on public schools, health care, and other government services.

In an effort to attain the glitz and glamour of Hollywood, New Mexico’s liberal politicians are handing out some of the most generous subsidies available anywhere to Hollywood film companies. That those companies tend to lean liberal is, of course, only a coincidence.

Netflix is the latest production company to bring significant operations to the Land of Enchantment. The streaming company recently announced that it would expand its operations in the state, spending an additional $1 billion in New Mexico over the next 10 years.

That sounds good, but however liberal it may be, the entertainment industry is still the entertainment industry, and the deal comes with a catch. Netflix may be spending in the state, but it will also be receiving a very generous incentive from the New Mexico taxpayer, something of an irony when one-third of the state’s taxes are paid by “wicked” oil and gas.

Netflix (like any film company that operates in New Mexico) is eligible to have 25 percent of its expenses reimbursed by the State. Better yet, the length of the company’s ten-year lease means it “qualifies” under state law to receive an increased reimbursement of 30 percent.

Just to be clear, if Netflix does indeed spend $1 billion over the next decade as it asserts, it could be entitled to checks from the New Mexico Treasury totaling $300 million. If 33.5 percent of New Mexico’s budget comes from oil and gas over that time period, Netflix alone will effectively be receiving $100 million directly from the oil and gas industry.

Of course, if the “keep-it-in-the-ground” wing of the Democratic Party prevails and bans fracking on New Mexico’s federal lands, the state’s oil and gas revenues could plummet, forcing the State’s other taxpayers to pick up more of the bill for Netflix or triggering some sort of crisis in its relationship with the company

Unfortunately, when it comes to subsidies for Netflix, $300 million is just the down payment. The state is also fronting another $17 million in direct incentives to Netflix while the City of Albuquerque is coughing up another $7 million. These funds come from something called the Local Economic Development Act (LEDA), commonly referred to as a “closing fund.” These are payments made by state or local governments to preferred industries. One might believe that in a state as poor as New Mexico (consistently among the nation’s poorest) that taxpayers picking up the bill for 30 percent of a profitable corporation’s business expenses would be enough.

As things seem at the moment, Netflix is going to continue to grow and over time it should create more jobs in New Mexico. That will generate all the usual headlines about how great the company is for the state and its economy, but it will come at a tremendous cost. That cost is not just in lost revenue, but in tax rebates borne primarily by state taxpayers. This subsidy is both unfair and unsustainable.

As one of Hollywood’s biggest businesses, Netflix is a member of that elite group of publicly traded stocks known as the FAANGs (Facebook, Amazon, Apple, Netflix, and Google). Netflix flaunts its rapidly growing profitability, but it is still prepared to consume massive taxpayer subsidies not only from one of the poorest states in the country, but from a state that can only afford to pay out those generous subsidies thanks to the revenues it receives from the oil and gas industry that so much of Hollywood condemns.

Senator Bernie Sanders is still a hero to many in the entertainment industry and, to be fair, he at least takes a principled approach to such corporate welfare. Unfortunately, the same cannot be said for many in Hollywood and Democratic politicians like New Mexico governor Michelle Lujan Grisham. She has locked our state in to paying Netflix outrageous sums of money over the next decade at a time of great uncertainty for New Mexico and its economic outlook and thrown away the key. That much of that uncertainty comes from her own party only piles irony upon irony.

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

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RGF’s Paul Gessing talks New Mexico politics and policy w/ Mick Rich

The following conversation between RGF president Paul Gessing and Mick Rich (former US Senate candidate and owner of a construction business) aired on local television in Albuquerque, NM recently. It is split into four segments of about 10 minutes apiece.

In the first segment Mick and Paul discuss health care reforms made under ObamaCare, why it has failed, and how Biden plans to move forward with the same government-driven philosophy.

In segment two we discuss the evolution and economics of New Mexico’s film industry and its oil and gas industry.

In the third segment we discuss some of the crime issues at play in the City of Albuquerque.

In this segment we discuss the upcoming 2021 legislative session, the Rail Runner, Spaceport, and five things the Legislature SHOULD do to bring prosperity to our state.

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

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

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

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

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

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

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

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On energy policy Biden should take his cues from Obama

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


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

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

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

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

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

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

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

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Biden Energy Policies Will Make Blue New Mexico See Red

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

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RGF recent radio appearances

This has been a big week for the Rio Grande Foundation on the air. Paul recently sat down with Bob Clark of KKOB 96.3FM. You can find that show here. Bob and Paul discuss numerous topics from the death of Ruth Bader Ginsburg and her legacy as well as well as Paul’s family’s efforts to home school their children.

Paul also sat down with Jim Williams at KNKT Radio 107.1 FM. We discussed numerous issues in their discussion. You can listen to that discussion at the link above or by clicking on the image below.

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Gov. Lujan Grisham needs to “Do No Harm” to Four Corners

Farmington Daily Times

Prior to the COVID-19 outbreak in New Mexico, the Four Corners region of New Mexico faced serious economic challenges. The declining price of natural gas which had been the basis of the area’s economy for decades was the most significant issue.

The price which exceeded $15 per million cubic feet (MCF) back in 2008 embarked on a rapid decline with the advent of the “fracking” revolution. The price is now below $2.00 per MCF and shows no sign of rising in the foreseeable future. That’s a decline of over 80%.

The next “shoe” to drop was the Gov.’s Energy Transition Act which placed the San Juan Generating Station on a path to closure in June of 2022. Efforts by the City of Farmington and Enchant Energy could result in the plant remaining open beyond that deadline.

What is Governor Lujan Grisham’s position on the Enchant Energy project?  No one seems to know. This critical economic issue like so many others has taken an extreme distant back seat to COVID-19.

The Four Corners region needs a Governor and state government that can do more than one thing at the same time. San Juan Generating Station’s employees, and Four Corners’ government officials and economic planners could certainly benefit from state government leadership.

In addition to the extreme energy industry challenges, the Four Corners has also been disproportionately hit by the effects of COVID-19. The Four Corners region has been hard-hit by the virus and has faced stricter timelines for its opening and subsequent economic recovery. The result has been job losses and severe decreases in economic activity for the Navajo Nation and the region as a whole far greater than many other parts of New Mexico.

Add on top of all of these factors and the Gov. is facing a second impactful decision regarding the so-called “Methane Rule.” The Gov. is expected to impose some kind of new regulatory regime on natural gas producers, predominantly in the Four Corners in the months ahead. While environmentalists claim an untold bounty will be reaped in the form of capturing “vented and flared” methane, the reality is that strict rules as proposed by the environmental community would further devastate the region.

All of this is to say that Gov. Lujan Grisham literally holds the Four Corners’ future in her hands. No amount of job retraining money will prepare the local population for jobs that don’t exist. No amount of corporate welfare or state “investment” in things like movie studios will get the region on solid economic footing.

Rather, the region needs real jobs and real economic investment the likes of which job training and government “investment” simply can’t offer. Enchant Energy must be given an opportunity to make its carbon capture technology work. If it doesn’t or if economic conditions show that it is just not feasible, so be it, but the opportunity to keep hundreds of jobs and millions of dollars of economic activity and tax revenue in the region and State simply can’t be dismissed. However, if the carbon capture technology works New Mexico will find itself on the forefront of a new form of green, carbon-free energy.

Likewise, any methane rule must be designed with the realization that if the San Juan region becomes too costly in terms of regulations, natural gas producers will permanently close all but the highest producing wells, and more and more business will leave the state.  Given the massive surplus gas production and rock-bottom prices, it is hard to see additional producers and the jobs they bring ever returning to the region.

New Mexico is quickly heading from the proverbial “penthouse” to the “poorhouse” based on 40% of its budget (oil and gas) essentially evaporating overnight. The Four Corners faces even greater challenges thanks to economic forces beyond their or the Gov.’s control. Inflicting further, unnecessary economic damage on the region would be inexcusable.

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Understanding the Rio Grande Foundation

The Rio Grande Foundation often comes under criticism from the left. But sometimes we come under fire from the right as well.

For starters we are designated as 501c3 “education and research” think tank. We don’t make endorsements and we don’t “carry water” for any political party or politician. Various media outlets have called us libertarian, conservative, and free market. We call ourselves “free market,” but we don’t waste our breath and time arguing the finer points of ideology because we believe that our work is self-explanatory.

For starters, New Mexico is a deeply challenged state. We believe that a vast majority of these issues are self-inflicted. New Mexico lacks economic freedom and remains poorer and less well educated than our neighbors. We also spend a VAST majority of our time focused on state and local issues as opposed to federal ones.

Those issues broadly include:

  1. Size of Government: New Mexico has long been a state driven by government. Data show that state/local spending is too high and that government regulations make doing business in New Mexico less attractive than doing business elsewhere. We’ve worked on this issue from all angles including: all forms of taxation, subsidies and corporate welfare (notably film subsidies), but also LEDA, JTIP, and “green” subsidies.
  2. Regulation: Rio Grande Foundation has led the charge for “right to work” repeal of NM’s”Davis-Bacon” law, reform of government employee pensions, and against numerous “nanny state” regulations like plastic bag bans. We have also done extensive work against “green” programs from the Energy Transition Act to costly “green” building codes.
  3.   School Choice/Education Reform: Across the political spectrum New Mexicans agree that our K-12 system is failing. While politicians of both parties typically opt for some combination of more money, more time in school (pre-K), and some form of top-down accountability, the Rio Grande Foundation believes that parents and (to an extent students themselves) are better able to decide on the educational options that appeal to them. Charter schools are a good start and should be expanded, but more options are needed.

Additionally, the Rio Grande Foundation supports the US and New Mexico Constitutions, we stand up for free speech, gun rights, private property, and open government.

We don’t take on immigration, gay rights, or abortion issues.

So, there you have it. We at the Rio Grande Foundation have our plates very full, but we are making a difference in New Mexico every day. If that appeals to you, please consider making a tax-deductible donation today!

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New Mexico faces tough economic decisions

The following appeared in the Santa Fe New Mexican on March 27, 2020.

We don’t know when the virus that has so dramatically changed our lives will begin to recede, but when it does, New Mexicans will face a changed state.

It is not a matter of whether we’ll have a special session, but when. Under Gov. Michelle Lujan Grisham, New Mexico’s General Fund budget grew by more than 20 percent over the last two years from $6.3 billion to $7.6 billion. This rapid growth was recognized by many, including Senate Finance Committee Chairman John Arthur Smith and nearly all Republicans, as too much, too fast.

The collapse in oil prices alone would likely cause a special session. In mid-January, oil was in the mid-$60s per barrel. Now it is in the low $20s. With approximately 40 percent of New Mexico’s budget dependent on the oil and gas industry, the situation is serious. Of course the added economic disruptions caused by the virus only amplify the economic challenge.

New Mexico has some reserves to fall back on, and federal dollars will be pumped into our state economy. But low oil prices are both a short- and long-term problem. Even when economic activity (and thus oil and gas demand) returns to normal, too much oil is on the market. We have no idea how long oil prices will be depressed, but there is nothing on the horizon that suggests a dramatic price increase.

To address the budget situation, plans for “free” college and the $320 million contribution to the state’s new early childhood fund are low-hanging spending programs that need to be reconsidered. Film subsidies have been in place longer, but must be reconsidered as they are a net drain on the state’s economy.

Finally, we know New Mexico’s unemployment rate is going to skyrocket, and the private sector/small business is going to bear the brunt of the pain. Government employees (including teachers) received generous raises over the last few years. Those may have to be negated due to budgetary reality.

Hopefully this crisis finally spurs long overdue efforts to diversify New Mexico’s economy. The Rio Grande Foundation and others have long pleaded for the state’s Democratic-dominated Legislature to enact economic reforms to diversify the economy beyond oil and gas. That has not happened. We are going to pay a steep price for that.

In recent years, there has been a push to reform New Mexico’s economically problematic gross receipts tax in a revenue-neutral manner. It results in taxes being paid on top of taxes and it also makes small businesses operating in our state less competitive by requiring them to pay taxes at rates approaching 8 percent for various services and business inputs that are not taxed in other states. Efforts to reform this tax have had bipartisan support but have gone nowhere in the Legislature.

Occupational licensing reform is another bipartisan idea the Legislature has not acted on. Licensing laws unnecessarily place barriers between workers and employers. For (at very least) the duration of the crisis the governor should:

  • Allow full licensing reciprocity for qualified medical personnel from other states.
  • Relax occupational licensing rules and regulations so people can work. Giving haircuts in one’s home for money shouldn’t be a crime.
  • Suspend business licensing rules that interfere with solo or very small startups.

In the 2019 and 2020 legislative sessions, bipartisan legislation was introduced to remove licensing barriers for those previously convicted of crimes. The bill was vetoed in 2019 and died for lack of time in the 2020 session. This crisis and its economic aftermath offer an opportunity for Lujan Grisham to get serious about tax and licensing reform.

Rarely have economic times shifted so dramatically so quickly. Even the 9/11 terrorist attacks saw a slow, steady economic recovery after the initial shock. Shared sacrifice is a necessity, but so are innovative solutions. We’re all in this together.

Paul J. Gessing is the president of New Mexico’s Rio Grande Foundation, 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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Virus and oil price cash shift budget reality

The following article appeared in the Current Argus on March 13, 2020

With Coronavirus grinding travel and much of society to a halt and oil prices having crashed, there is little chance the budget passed during the 2020 Legislature will survive the year without some major revisions.

Even prior to the session ending Senate Finance Committee Chairman John Arthur Smith said, “I don’t think any of us can walk away from here and say the spending was controlled, we’re skating on very thin ice from a spending standpoint.” It’s hard to argue with that considering that Governor Lujan Grisham and the Legislature grew government by 20% (from $6.3 billion to $7.6 billion in just two years)

They should have seen this coming. Even as the Legislature met the price of a barrel of oil was dropping. On January 6, 2020 oil was $63.27 a barrel. It dropped to $42 a barrel before the Russians and Saudis announced their price war which further reduced oil prices to about $30 a barrel. Since oil and gas comprise 40 percent of New Mexico’s budget a sustained price war makes a special session very likely.

The Legislature didn’t learn their lesson of the last decade during which New Mexico experienced stagnant economic growth due to declining oil prices. Price dropped from over $100 a barrel to less than $50 a barrel over a few short weeks in late 2014. And, despite Gov. Susana Martinez’s efforts to address systemic problems in New Mexico’s economy, the Democrat-controlled Legislature opposed her at every turn. New Mexico typically underperforms its neighbors economically, but that situation grew far more apparent as New Mexico’s oil dependency was exposed.

By the time Michelle Lujan Grisham and a new band of more “progressive” Democrats took over at the start of 2018 New Mexico was suddenly awash in revenue thanks to new discoveries in the Permian Basin. But, did we get policy reforms designed to diversify New Mexico’s economy? Not at all.

While they talked a lot about “diversifying” New Mexico’s economy the Legislature did nothing of the sort. Instead they enacted numerous tax hikes and regulations that make New Mexico even less friendly to business. We are more dependent on the volatile oil and gas industry than before.

In 2019 the Legislature adopted HB 6, the largest tax hike in New Mexico history. Among many economically-harmful provisions, that law increased personal income taxes which disproportionately impacts small business. Excise taxes on new cars were also increased by 33%.

The controversial Energy Transition Act is also going to make it harder to attract energy-intensive manufacturing operations. The Act is already impacting the Four Corners economy directly with the shutdown of San Juan Generating Station coming soon, but the cost of shifting from coal to “renewables” is going to be substantial for all PNM rate payers. Businesses will avoid uncertainty and set up shop where electricity prices are not as expensive or likely to rise in the future.

The biggest problem of the past two years was that no pro-business tax relief was passed and no reforms were made to the onerous and problematic gross receipts tax. And, rather than embracing needed reforms like “Right to Work” or “Davis Bacon” prevailing wage laws, the Legislature and Governor teamed up in this year’s 30 day session to allow more time consuming and costly complaints to be levied at construction businesses (SB 98) and for local governments to face higher labor costs and labor forces that are harder to work with (HB 364).

Will we suffer the same economic stagnation if prices remain depressed? It is hard to say for sure. This is a volume-driven boom and is not as price-dependent as prior booms. But, if prices remain too low, the Permian Basin producers will reduce activities or pull out completely. That means fewer jobs and tax dollars.

What happens next is anyone’s guess, but we do know all 112 members of the Legislature are up for election in November.

Gessing is president of New Mexico’s free market think tank, Rio Grande Foundation