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Economy Spaceport

Senate Leader’s Record Bodes Ill for Economic Growth

 

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New Mexico’s Senate majority leader – arguably the most powerful elected Democrat in the State – recently laid out some of his views on the upcoming legislative session. He claimed to support “compromise,” but it is clear that what he really means is that he has no plans to support reforms that will boost New Mexico’s struggling private- sector economy.

Sen. Michael Sanchez’s intransigence is not surprising given that he and his allies have controlled New Mexico’s Legislature for many decades and (likely see the new House Republican majority) as a temporary loosening of control as opposed to a decisive break. That big-government ideology, by the way, has driven New Mexico to the bottom of most good lists and the top of most bad ones.

Sanchez, despite his rhetoric of compromise, has stated firmly that he opposes “right to work.” On the other hand, he supports a new $50 million “closing fund” designed to bring new businesses to our state.

His positions are not surprising for two reasons. Despite both policies ostensibly being “pro-business,” right to work will cost zero tax dollars, reduce the fundraising power of a key special interest group, and has reams of studies showing its effectiveness.

The closing fund, on the other hand, removes $50 million from New Mexico’s productive economy (taxpayers) and delivers it to politicians who have very poor track records of picking winners and losers (See Eclipse Aviation, Spaceport America and Schott Solar for a few examples). Worse, there is nothing more than anecdotal data showing closing funds have a positive economic impact. There are always new businesses that benefit from subsidies, but the negative impact on existing businesses and taxpayers is ignored.

In other words, Sanchez is perfectly comfortable with boosting the closing fund because it fits his ideological bias toward bigger government. It is also the way New Mexico has always “done business.” Of course, that has led us to our current, impoverished status.

I fully expect that Sanchez will play the role of obstructionist, not compromiser, for the foreseeable future. I hope I am wrong. Right to work is one of many important issues that should be given a fair hearing in the Senate regardless of Sanchez’s personal views.

There are literally dozens of solid, free market issues from tax credits for school choice to the elimination of worker’s compensation benefits for employees that show up to a job site drunk or high that also deserve a fair hearing. I am confident all of these will gain greater traction in Santa Fe than in past years.

In other words, Sanchez will have ample opportunity to show his true colors, and we plan to shine a spotlight on his behavior for better or worse.

The newly-ascendant House Republican leadership is not completely reliant on the Senate, however. It can increase transparency and good-government by video recording committee hearings and archiving the footage online. According to the National Conference of State Legislators, 39 states already record and archive committee hearings.

Another idea whose time has come is to accept remote testimony. It is no secret that New Mexico is a large, sparsely-populated state which makes getting to Santa Fe to participate in the political process a special challenge.

Allowing concerned New Mexicans from far away corners of the state like Farmington, Hobbs, Clayton and Las Cruces to testify from a central location like their local community college via nothing more complicated than a Skype connection would seem like a no-brainer. It could also boost interest in government and save the environment at the same time!

We have high hopes for reform in 2015. With stagnant federal spending and rapidly-declining prices in the oil patch, New Mexico needs a strong private sector more than ever. It is time our representatives in Santa Fe, Michael Sanchez included, embrace reform.

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

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Economy Notable News Spaceport Videos

Explaining The Folly of NM’s Spaceport

New Mexico’s political leaders have few tools available to make the New Mexico Spaceport a viable initiative moving forward. We the taxpayers have already dumped $220 million into the facility to build it (sunk costs). The question at this point seems to be whether the facility can at least generate enough revenue to pay for day-to-day operations. I recently sat down with Channel 13 KRQE to discuss the issue (my comments come toward the end of the story):

Given the recent crash in the Mojave Desert, there has been an upsurge of interest both nationwide and around the world. I recently discussed New Mexico’s struggles with the Texas Tribune and was quoted by a reporter from the UK’s Guardian newspaper.

Categories
Economy Spaceport Tax and Budget Taxes Transportation

Tax-Funded Spaceport was Never a Good Idea

 

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The recent crash of Virgin Galactic’s SpaceShip2 in the Mojave Desert was a tragedy for the pilot that lost his life in the accident. It was also a setback for Richard Branson, Virgin Galactic, and the entire private space industry. However, for New Mexico taxpayers, it was only the latest and most vivid sign that building a Spaceport was not a wise use of tax dollars.

The transition from publicly-funded space travel (NASA) to a competitive, private-sector model was destined to be choppy and unpredictable. It is very much an open question how humans will travel safely and regularly into space in private spacecraft.

Even NASA with its multi-billion dollar budgets never quite figured out how to get humans back and forth form space routinely and regularly. The Space Shuttle was originally intended to launch as frequently as once a week. That didn’t come close to happening even in the best of times.

This all leads us to New Mexico where, at the behest of then Gov. Bill Richardson, our Legislature embarked our state upon a spaceport construction project at a cost to taxpayers of $220 million and counting.

A decade after this project was undertaken we have no idea what technologies will be used to fly people to space, whether companies can make space tourism profitable, and whether New Mexicans will benefit economically even if the space tourism industry succeeds.

Unfortunately, while Branson, Rutan, and other space pioneers are putting their own money and reputations on the line to make their space enterprises successful, the folks who unwisely got New Mexico into this mess cannot be held accountable and will suffer no personal losses from their actions.

Bill Richardson is not lying awake at night wondering if New Mexico’s Spaceport succeeds and I know of no legislator or other elected official who lost their race due to their unwise “investment” in the Spaceport.

This is where the Spaceport goes from isolated mistake to cautionary tale. The Spaceport has proven to be a spectacular failure in large part because the people behind it didn’t have any “skin” in the game. This lack of consequences leaves politicians to make decisions based on all manner of personal and political desires.

That is not to say that private sector entrepreneurs don’t fail. Indeed, if you know anything about Steve Jobs, he failed time and again as do most entrepreneurs. But they have their own money at stake and thus have the incentive to make better bets and only make bets they expect to succeed.

Just as governments should not kill businesses through high taxes and onerous regulations, government should not attempt to place bets using tax dollars on favored industries or technologies.

The Spaceport is only the most vivid failure of such government overreach in New Mexico, but we see the Rail Runner piling up ongoing losses and massive “balloon payments” due in the not-too-distant future.

The film industry which the economically-ignorant cite as a great success has actually lost $147 million for taxpayers since 2010 according to the New Mexico Legislature’s own study.

In recent years, taxpayers have also lost $16 million in subsidies for Schott Solar and $19 million Eclipse Aviation.

These wasted tax dollars could have been returned to real New Mexico entrepreneurs in the form of tax cuts to produce jobs and a real economic stimulus to our state. Instead, those scarce dollars have been – and in the cases of the Rail Runner and film subsidies – continue to reduce our prosperity by taking money out of entrepreneurs’ pockets and allocating it to less productive uses.

The good news is that Gov. Martinez doesn’t seem inclined to grandiose spending on spaceports and trains. Hopefully, New Mexicans have learned an important lesson about the promises of politicians and, rather than government micromanagement of our economy – a tendency that has led us to our impoverished state – will support government as referee, not coach.

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

Categories
Economy RailRunner Spaceport Tax and Budget Transportation

The Spaceport and RailRunner: When Do We Stop Digging?

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How long do you keep spending money on something before you quit and cut your losses? New Mexico’s Legislature will soon face some difficult decisions as to how much taxpayer money to spend on two high profile, Richardson-era projects, the Rail Runner and the Spaceport.

Let’s start with the RailRunner. The train already costs taxpayers nearly $50 million a year in payments on the initial infrastructure and operations. That doesn’t include two balloon payments of $230 million (made in addition to operations costs) which will come due next decade.

Now, due to a new federal regulation, New Mexico taxpayer could be on the hook for another $30 million to implement a federally-required safety system for the Rail Runner. It is worth pointing out that the federal regulation behind this requirement is a huge waste. Even Cass Sunstein who was President Obama’s administrator of the Office of Information and Regulatory Affairs has stated during testimony in the US House that the new “Positive Train Control” regulation produced benefits that are lower than its costs.”

The fact that this regulation is an absurd waste of money is of little consolation to New Mexico taxpayers who will nonetheless be forced to pay this $30 million in addition to the ongoing costs for infrastructure and operations.

A second project that just keeps getting pricier is New Mexico’s Spaceport. Taxpayers initially spent $210 million to construct the facility in hopes of bringing a new, private space industry to the state. Unfortunately, the launch schedule of the facility’s main tenant, Virgin Galactic, has repeatedly been delayed. These delays along with costly additions to the facility have led to a nearly abject lack of positive economic activity generated by the facility and have instead caused the Spaceport to suck up even greater amounts of taxpayer money above-and-beyond the original cost.

In 2012, taxpayers spent an unexpected $7 million to extend a runway at the Spaceport that was allegedly too short for spacecraft to launch. Now, as delays continue and Virgin Galactic continues to push back expected launch dates, the Spaceport will be requesting another $6.8 million to pave the road to the facility from the South. The 23-mile road is currently an unimproved dirt road maintained by Doña Ana County. The northern road, which connects to the Spaceport via Truth or Consequences, is paved.

Lastly, in terms of the Spaceport, taxpayers are on the hook for yet another $5 to $6 million required for management and operations for each year that Virgin Galactic delays commercial flights from the southern New Mexico spaceport.

Obviously, as New Mexico’s economy continues to struggle and tax revenue growth remains slow, the Legislature faces some difficult decisions on these two projects. Are there any limits as to how much taxpayers should be expected to pay to support these facilities before we decide to abandon them or take drastic steps to cut costs? If so, when is enough, enough?

What priorities are we giving up in order to attract a manned, private space industry that has yet to take flight and a train that can never come close to breaking even at a total cost of over $1 billion (before accounting for this new federal regulation)?

While it is easy to dismiss the additional money as just another cost of these publicly-beneficial projects, from a budgetary perspective, a dollar spent on spaceports and trains is a dollar diverted from schools, tax reform, and other economic development priories.

Regardless of how the Legislature decides to move forward regarding these two projects, I hope that policymakers in Santa Fe understand realize that the embracing the basics of government is tough enough.

The painful lessons here are that hitching one’s star to “the next big thing” or spending massive amounts of taxpayer money in an effort to change transportation patterns may prove a costly gamble.

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

Categories
Spaceport Tax and Budget Taxes

Residents Should Think Twice on Spaceport Tax

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New Mexico’s political establishment has invested a lot of political capital in the proposed spaceport. Gov. Bill Richardson even visited Alamogordo recently to lend his support for the one-eighth cent hike in the county’s gross receipts tax.

But while politicians only want you to see the new spaceport, they are downplaying the real risk that the project will be a costly failure, not to mention the economic costs of further increasing gross receipts tax rates.

Residents of Otero County and throughout southern New Mexico have to wonder if their tax money will be wasted. After all, New Mexico’s spaceport will be competing to serve a market for private space travel that doesn’t even exist yet. Most voters are undoubtedly not aware, for example, that there are already three dozen operational spaceports worldwide.

Far from being a sure-fire investment, the spaceport will be just another example of politicians spending your tax money and taking credit for success or disassociating themselves with a failure. Is this really the kind of investment Otero County citizens should be making at a time of tremendous economic uncertainty?

The spaceport and other recent initiatives to increase government funding for corporate welfare under the code words “economic development” are counterproductive. They are the result of what economists call “concentrated benefits and widely dispersed costs.”

Those who receive the concentrated benefits are clearly defined, and they are grateful when politicians show up for ribbon cutting ceremonies and take credit. But those who pay in terms of lost business opportunities, jobs and wages are unseen and unheard, since the effects on them are individually imperceptible. Unfortunately, each time the gross receipts tax rate ratchets up just a little bit to support these boondoggles, the widespread losses outweigh the concentrated benefits.

For many taxpayers, a quarter percentage point increase in the gross receipts tax may seem very reasonable at first glance, even if the spaceport’s success is not guaranteed, but the unique issues associated with New Mexico’s gross receipts tax mean that increasing it should never be undertaken lightly.

Take a hypothetical entrepreneur whose costs are 50 percent of her total receipts. Alamogordo currently levies its gross receipts tax at 7.5 percent on her. A quarter percentage point increase will raise her rate to 7.625 percent. This may still seem comfortably lower than El Paso’s sales tax rate of 8.25 percent, but in reality the current gross receipts tax rate even before a potential spaceport tax hike makes the tax burden some 75 percent higher for a service-producing entrepreneur in New Mexico than it is in Texas.

To make matters worse, the business-to-business application of the tax can add another eight percent to New Mexico’s tax burden relative to Texas. For entrepreneurs whose costs are greater than 50 percent of receipts the burden is even higher.

What makes New Mexico’s gross receipts tax so burdensome?

Simply put, New Mexico’s gross receipts tax is not at all like a sales tax. Unlike Texas sales tax, for example, New Mexico’s gross receipts tax covers everything, including services. Only a few politically favored industries are exempted in the Land of Enchantment. Unlike most other states, New Mexico also taxes business-to-business transactions; Texas only taxes final consumption goods. The entire proceeds of each transaction are taxed in New Mexico. Some relief for New Mexico’s goods producing industries comes in the form of a deduction for the cost of raw materials.

So, what is the extra burden of this seemingly small increase (one-quarter of one percent) in the gross receipts tax rate for Otero County? Instead of a business tax burden on services that is some 75 percent higher than Texas in the example above, the burden would rise to 81 percent higher. Thus we see that small changes in the gross receipts tax rate can make a big difference.

Rather than spending millions of taxpayer dollars on a costly spaceport that may never provide a return on investment, isn’t it time we lowered the gross receipts rate to attract businesses and jobs the old-fashioned way?

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.