Private success vs. Public sector failure: While we have certainly criticized Bill Richardson’s decision to build a $200+ million Spaceport for Richard Branson, in the bigger picture both Bransons’ and Bezos’ successes are achievements for the private space industry. New Mexico’s schools are overwhelmingly government-run and funded. It would be nice if those who are rightly frustrated by the failures of this system would join us in focusing their efforts on bringing private sector competition and competence to bear on the difficult challenge of improving literacy in NM.
The world is in awe that billionaire Sir Richard Branson has finally accomplished his 17-year goal of achieving spaceflight. On July 11, 2021, Virgin Galactic’s spaceship Unity reached 53.5 miles above the Earth with a crew including Branson. They spent a few minutes in zero gravity and returned safely to the runway of Spaceport America near the small town of Truth or Consequences, New Mexico. Congratulations!
The international scene is abuzz with this latest and undeniably impressive addition to Branson’s resume: but at what cost? Branson launched his flight from Spaceport America, a project initially conceived as early as 1992 when the Southwest Space Task Force was formed to develop and advance New Mexico’s space industry. The project received seed funding through a taxpayer-approved initiative in April 2007 when voters in Doña Ana County approved the spaceport tax.
Almost every year since, supporters of Spaceport America have announced the “upcoming launch” from their facility or the need for additional tax dollars to expand the Spaceport and its capabilities. To bolster their claims for additional tax money, Spaceport America commissioned a study by the consulting firm Moss Adams of Albuquerque. The study made headlines with the implausible claim that Spaceport America began producing net benefits for New Mexico as early as 2013.
In March 2020, the Rio Grande Foundation tallied up the total costs to taxpayers, determining that New Mexicans have borne a total project cost of $275 million, while revenues approach only $54.3 million for the state over the last 12 years. The vast majority of taxpayer-funded spending related to capital projects and nearly $10 million in operational expenditures. In fact, new information shows New Mexico shelled out an additional $1.5 million in advertising expenses related to the Virgin Galactic flight.
Branson is already a billionaire. Why are New Mexico’s politicians lining the pockets of these already wealthy and successful entrepreneurs through taxpayer-funded, industry-specific subsidies? The impact of corporate welfare disproportionately affects the economically disadvantaged, especially in impoverished communities like Doña Ana County and New Mexico as a whole.
In fact, New Mexico trails the southwest in employment recovery. A recent report by WalletHub highlights the state’s 620 percent increase in unemployment claims, referring to the change in the number of initial unemployment insurance claims in the week of July 5, 2021 compared to the week of July 8, 2019. How can a state in this state afford to help send a billionaire to space?
Sir Richard Branson is now an astronaut. But from my perspective as a New Mexican and taxpayer, he sure seems like a wild-west robber baron, holding up taxpayer stagecoaches of the poorest state in the country to fulfill his personal vendetta of beating fellow billionaires Jeff Bezos and Elon Musk in the billionaire space race. He’s “Six-Gun” Branson, 21st-century robber baron, a stark reminder of our 19th-century industrial past.
In the end, his mission was accomplished. But Six-Gun Branson has only proven that he can launch his spacecraft from any airport with sufficient runway length. I’d hazard a guess that soon he’ll be riding off into the sunset while my fellow New Mexicans are left holding the $275 million bag.
Patrick Brenner is the vice president of the Rio Grande Foundation, New Mexico’s free-market research institute and think tank. An advocate for open government, he leads the foundation’s government transparency and accountability efforts.
(Albuquerque, NM) – Immediately prior to the 2020 New Mexico legislative session, the consulting firmMoss Adams released a studyclaiming that Spaceport America began producing net economic and fiscal benefits for New Mexico as early as 2013.
Danny Seymour, a policy analyst at the Rio Grande Foundation, (the Foundation is a long-time critic of the decision by then-Gov. Bill Richardson to spend hundreds of millions of taxpayer dollars in such a speculative venture) immediately went to work analyzing the study and its findings. But Seymour didn’t stop at merely deconstructing the Moss Adams report.
Seymour’s analysis, using publicly-available information in the Moss Adams report and other public documents, shows that the Spaceport America has now cost New Mexico taxpayers in excess of $275 million. This number contrasts with the project’s “original” cost of $225 million, but in the meantime there have been operational expenses as well as significant expansions and improvements made to the facility at taxpayer expense.
In his analysis Seymour contrasts the Moss Adams claims of “break-even” with a broad calculation of how much the facility has attracted to the State. Seymour finds that the facility has brought in just under $55 million to New Mexico that would have otherwise not been spent here. Even this number should not be used to calculate profit and loss as only direct lease payments could really be counted in a profit and loss statement for the Spaceport.
“Ultimately,” notes Seymour, “to be considered economically successful (let alone profitable), New Mexico’s Spaceport must become the home base for Virgin Galactic’s frequent manned commercial launches as the project was originally sold to the people of New Mexico.”
In conclusion noted Seymour, “Major government construction projects like the Spaceport often suffer from the “sunk cost” problem. It is easy to sell elected officials on the idea that the next dollar spent will make the project a success. In reality the Spaceport is a cautionary example of a State government spending taxpayer money on an extremely speculative project for which it had no expertise.”
RGF president Paul Gessing recently sat down with Fred Martino of KRWG TV in Las Cruces to discuss the aftermath of the 2020 Legislature and how things will likely shake out in the wake of the Coronavirus situation and the rapid decline in oil and gas prices.
The following appeared in the Las Cruces Sun-News on February 12, 2020.
A study released recently by the consulting firm Moss Adams made headlines with the rather implausible claim that Spaceport America began producing net economic and fiscal benefits for New Mexico as early as 2013. Since its anchor tenant, Virgin Galactic, has yet to launch a single manned space tourism flight, the Rio Grande Foundation undertook a detailed critique of these claims, relying on the audited financial statements from the Spaceport Authority and Capital Spending Records.
Using these publicly-available data along with information from the Moss Adams report which were not previously available (such as estimates of Virgin Galactic’s spending on employee relocation), we estimate the Spaceport project has cost taxpayers roughly $275 million while generating just $54.3 million in income over the last 12 years. The Spaceport’s audited financial statements do not list any revenue other than taxes and transfers from the State government before 2015, making the 2013 breakeven date presented to the media especially egregious.
Only some very creative accounting can turn a $221 million dollar loss into a net profit, but no one has ever faulted paid proponents of more government spending for a lack of creativity. The report seems timed to gather support for a significant hike in tax dollars appropriated for the Spaceport. Notably, the most “pessimistic’ scenario imaginable in the Moss Adams scenario analysis projects “only” $81.25 million of additional financing. Runway extensions, hangars, and other infrastructure have been added on to the facility over the years and (as we learn from the Moss Adams report) there are millions of dollars worth of taxpayer-funded infrastructure projects to come at the facility.
One of the biggest problems with the Moss Adams report is it considers the $100 million collected and spent by various Southern New Mexico counties as a positive in the overall return on the facility. It is true that construction companies were hired and projects were undertaken at the facility with that $100 million, but what about the $100 million in foregone economic activity on the part of taxpayers and businesses who saw their gross receipts tax burdens go up in order to fund the Spaceport?
This report, like so many other “economic impact studies,” relies on a controversial tool known as “input-output modelling,” a favorite for lobbyists and consulting groups eager to show credulous politicians that $100 million for a new sports stadium will create an economic renaissance in the area. These models take in more sober revenue calculations, and multiply them by arbitrarily determined “multipliers,” which inflates the benefits based on little more than faith and fancy math.
So-called economic “multipliers” are problematic under the best of circumstances, but one of their worst problems is when their impact is calculated only after the money is taxed away by the government. Ignoring the economic impact of allowing people to keep their own money not only stretches logic, but such mental gymnastics could be used to make any government program look like a winner for the economy.
At this point, we at the Rio Grande Foundation are not calling for the State of New Mexico to sell this facility as we have in the past. In fact, like most New Mexicans we also hope for a successful manned flight out of Spaceport America in the near future.
But, to call the facility a financial success before the primary purpose for which it was constructed rings false on its face. And, to use this as a talking point to request even greater access to taxpayer funding in the near future is to base important economic policy decisions on faulty information. We in New Mexico should know better than most that new government spending programs are not the ticket to prosperity. After a decade of broken promises, it’s well past time companies like Virgin Galactic stopped asking taxpayers to pick up their tab.
Seymour is a policy analyst with New Mexico’s free market think tank, Rio Grande Foundation
(Albuquerque, NM) — The 2018 session of the New Mexico Legislature won plaudits from across the political spectrum as a one of “bipartisan” successes. Unfortunately, when the Rio Grande Foundation’s analysts sat down to take a close look at the votes taken by legislators of both parties for its 2018 Freedom Index, they found that “new money” led to votes for bigger government. Not only that, but several memorials and resolutions passed that set the stage for higher taxes and more spending down the road.
The Foundation’s “Freedom Index” ratings put HJR 1, the effort to tap the Permanent Fund for an expansion of pre-K programs, as the worst single proposal this session. Several other bills merited negative ratings, including the budget, which contained numerous unfortunate provisions — including $10 million for a new hangar at Spaceport America and unnecessary raises for government employees.
Notably, the legislature did very little to address New Mexico’s myriad economic challenges. A right-to-work law, as well as other regulatory reforms, were killed in committee before receiving floor votes. Revenue-neutral tax reform, pushed off the agenda back in November, was not reexamined.
Even at the outset of the 30-day session, disappointment loomed. The lack of willingness to tackle New Mexico’s economic issues head-on only worsened as bipartisan votes were taken to raise taxes on pet food, study a Medicaid “buy-in” option, and bail out the economically struggling Four Corners area by coercing energy companies to invest in the region.
While the session as a whole was disappointing, there were some who stood up for taxpayers and free markets more often than their peers. The highest performer in the House of Representatives (and overall) was Rep. Yvette Herrell (R-Alamogordo). In the Senate, the top performer was Bill Sharer (R-Farmington). Other top lawmakers included Sen. Greg Baca (R-Belen), Rep. Cathrynn Brown (R-Carlsbad), and Rep. Zach Cook (R-Ruidoso). Top performers among Democrats included Sen. Jacob Candelaria (D-Bernalillo), Rep. Miguel Garcia (Albuquerque), and Rep. Nick Salazar (Ohkay Owingeh).
Poor performers were far more numerous this session, but the very worst in this year’s Freedom Index was, surprisingly enough, “moderate” Sen. Mary Kay Papen (D-Las Cruces). Rep. Sheryl Williams-Stapleton (D-Albuquerque) was the lowest-rated legislator in the House.
Concluded Rio Grande Foundation president Paul Gessing: “The 2018 session was yet another missed opportunity to reform New Mexico’s lagging economy. Lack of action was not unexpected. What was surprising was the growing bipartisan consensus toward even bigger government and more economically harmful taxes and regulations.”
Rio Grande Foundation president Paul Gessing recently sat down with KRWG’s Fred Martino. We discuss the Spaceport and ongoing issues there and then move on to talking about the 2018 Legislature and why voters should be so skeptical of government infrastructure projects.
The irrational belief that a bad investment will, one day, pay off, if we just hold on a little longer, has led to plenty of sorrow in the private sector. In the public sector, though, it’s taxpayers who are victimized when bureaucrats and elected officials refuse to walk away from failed projects once hailed as “economic development.”
“Spaceport America” is probably New Mexico’s worst example of the sunk-cost fallacy. The facility broke ground in June 2009 and “opened” in October 2011. Its “anchor tenant” is Virgin Galactic. Owned by U.K. mega-mogul Richard Branson (net worth, according to Forbes: $5.1 billion), the company aims to send tourists on brief, suborbital trips into space.
Virgin Galactic once hoped to launch their first customers as soon as 2008. Almost a decade later, no tourists have soared into the wild black yonder from New Mexico. And despite regular promises that other firms will soon make use of the spaceport, activity there remains essentially nil.
The facility’s dismal performance is a bitter pill for the Land of Enchantment’s taxpayers. It was built with hundreds of millions of dollars in borrowing, made possible by the state’s severance tax and a special gross receipts tax imposed on Doña Ana and Sierra counties. Of nearly $12 million in expenses in the 2016 fiscal year, less than 19 percent was covered by rent and user fees.
That left taxpayers to pick up the tab for the rest of the costs — including some extremely generous salaries and benefits for “managers” who have very little to do.
So are the spaceport’s officials ready to acknowledge their failure and unload the state’s terminally ill white elephant? Hardly — they’re looking to double down. During a recent televised forum hosted by KRWG in Las Cruces, Dan Hicks, the new CEO of the facility, averred that the “future of Spaceport America is so bright.” He’s seeking more funding for a freight-rail connection, another runway and a payload-processing facility.
Hicks wants his employer “to be able to compete on a national level.” To that end, it’s worth noting that Spaceport America’s competitors spend far less, and ask taxpayers to bear much smaller burdens.
The “Oklahoma Air & Space Port,” located in Burns Flat, was licensed by the FAA in 2006. It’s received more than $7 million in state appropriations, and handed $18 million in tax breaks to a now-bankrupt launch company. So its paltry results have been similar to New Mexico’s — at a fraction of the cost.
Spaceport America claims that SpaceX, Elon Musk’s amazingly successful start-up, is one of its tenants. But the company is “partnering” with the State of Texas and the City of Brownsville, who have ponied up $20 million worth of incentives, to build a launch facility along the Gulf Coast. While the subsidies aren’t needed and shouldn’t be appropriated, SpaceX has committed to spending far more than what taxpayers are being asked to contribute: $85 million.
Other budding spaceports are located in California, Florida, Alabama, Georgia, Canada and New Zealand. While plans for the facilities are fluid, it does not appear that many, if any, are as deeply committed to spending public dollars as Spaceport America. With more natural advantages — coastal locations, capable workforces, marketing to firms with less-risky launch technologies — they don’t have to.
Former Gov. Bill Richardson once claimed that Spaceport America would make southern New Mexico “a pioneer in the private space industry.” That hasn’t happened, and there’s no evidence that it will happen anytime soon. The costs to build and “operate” the spaceport so far have been sunk. Unfortunately, they’re not likely to resurface.
If the spaceport’s officials, and the politicians who fund them, can’t make the facility self-sustaining, it is time for the state to auction it off and reclaim whatever dollars it can for an investment gone horribly wrong.
D. Dowd Muska is research director for 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.
The Rio Grande Foundation is tracking announcements of expansions, relocations, and greenfield investments published on Area Development‘s website. Founded in 1965, the publication “is considered the leading executive magazine covering corporate site selection and relocation. … Area Development is published quarterly and has 60,000 mailed copies.” In an explanation to the Foundation, its editor wrote that items for Area Development’s announcements listing are “culled from RSS feeds and press releases that are emailed to us from various sources, including economic development organizations, PR agencies, businesses, etc. We usually highlight ones that represent large numbers of new jobs and/or investment in industrial projects.”
Last month, of 17,908 projected jobs, 12,274 — 71.9 percent — were slated for right-to-work (RTW) states:
Twelve domestic companies based in non-RTW states announced investments in RTW states. Just two announcements went the other way.
Foreign direct investment was also highly skewed. Eighteen projects are headed to RTW states, but only four are to to occur in non-RTW states.
Marquee RTW wins included the decision by Mercedes-Benz to spend $1.3 billion on a “major expansion” of its factory in Alabama, Boeing’s announcement of 200 new employees to “produce 747 fuselage panels” in Georgia, and Blue Origin’s pick of Florida for “launch, manufacturing and support facilities for its Orbital Launch Vehicle program.” (Ouch — another loss for “Spaceport America.”)
* All job estimates — “up to,” “as many as,” “about” — were taken at face value, for RTW and non-RTW states alike.
* If an announcement did not make an employment projection, efforts were made to obtain an estimate from newspaper articles and/or press releases by elected officials and economic-development bureaucracies.
* If no job figure could be found anywhere, the project was not counted, whether it was a RTW or non-RTW state.
* Intrastate relocations were not counted, interstate relocations were.
Journal columnist Winthrop Quigley seems to believe that what New Mexico’s struggling economy needs right now is higher taxes. We at the Rio Grande Foundation couldn’t disagree more and believe raising taxes would have further deleterious effects on our economy.
Disagreements aside, we do share agreement with Quigley that New Mexico’s tax structure must be reformed. The gross receipts tax is uniquely harmful to the growth and development of small businesses. It also encourages businesses to lobby the Legislature to lobby for exemptions or outright subsidies before locating here. The Legislature must act to reform this harmful tax structure.
It is a myth that New Mexico is a low-tax state. According to the Federation of Tax Administrators, our tax burden as a percent of personal income is ninth-heaviest in the nation. This is far heavier than the tax burdens of our more economically successful neighbors : Arizona ranks 39, Colorado 45, Oklahoma 37, Texas 44 and Utah 31.
Now for the (substantial) disagreements.
Quigley argues that New Mexico public employee salaries are lower than those in neighboring states. Salaries are just part of the compensation for any worker, especially government employees.
According to Key Policy data from 2013, New Mexico state and local workers make 20 percent more than their private-sector counterparts once pensions and benefits are included.
This is the 12th-highest compensation ratio in the country and far higher than in neighboring states. It also is a very good argument for serious reform of New Mexico’s government pension system.
More importantly, public employees should be paid based on what the market will bear. New Mexico’s unemployment rate is higher than that of its neighbors. The pay of government workers should reflect local market conditions.
Perhaps more importantly, New Mexico’s government workforce is bloated. Again according to Key Policy data, New Mexico has the second-most government employees relative to private-sector workers.
When the number of government workers is compared to the population they serve and educators are removed from the equation, New Mexico falls to 10th-highest (according to Governing Magazine), but still far in excess of our neighbors.
As to specific ideas, we concur with Journal readers who have pointed to the RailRunner and Spaceport as likely cuts. Obviously, those aren’t enough. The next fattest target is higher education.
According to data from State Higher Education officers, New Mexico spent the fifth-most on higher education among U.S. states in 2011, the most recent year for which data are available.
The LFC has done some excellent work on the proliferation of branch campuses (number 25 at last count). It is time to reduce their numbers significantly, especially with overall enrollment declining.
Another area of significant savings is the politically popular, but economically dubious film subsidy program.
One company just received $325,000 from LEDA for the “creation” of just 14 new jobs. With those 14 employees paying income taxes on their $45,000-$50,000 salaries to New Mexico at 5 percent annually, it will take a decade for the state to recoup its “investment.”
And that assumes that the expansion would not have happened without state money.
Cutting the budget is no fun. We need to grow our economy, but our tax code is one of several reasons our economy hasn’t kept up with our neighbors’. Raising taxes will only further damage New Mexico.