Gessing Column: Moody’s downgrade is a warning for NM

The following article appeared at on July 6, 2018.

COMMENTARY: Despite a $600 million surplus and an unemployment rate that has dropped to an almost-respectable 5.1 percent, New Mexico’s economy is in dire shape.

This bearish view of New Mexico’s economy is not held by the Rio Grande Foundation alone. Bond-rating analysts at Moody’s Investors Service recently downgraded New Mexico’s general-obligation debt — the second time they’ve done so in the past 20 months.

Moody’s downgrade is significant because the firm and its competitors in the bond-rating industries are not ideologues. Their goal is to ensure that clients (lenders) are paid back for the risk they assume. If that means governments raising taxes, so be it.

Moody’s views public policy much differently from the Rio Grande Foundation, but, in downgrading New Mexico’s debt, it has largely reiterated points that we have repeatedly made over the years:

  • Moody’s noted the deteriorating finances of New Mexico’s government-employee pension system. This is happening despite a rising stock market and recent changes that were supposed to stabilize the system’s finances.
  • The firm noted that budget “pressure is compounded by spending challenges associated with a large Medicaid caseload.” Under Obamacare, New Mexico’s Medicaid rolls have grown by 63 percent. Now that Washington is no longer picking up 100 percent of the tab for Medicaid expansion, the welfare program will place a growing burden on taxpayers in the Land of Enchantment.
  • Moody’s expressed concern with “a revenue structure more concentrated and volatile” than similarly rated states, “and an economy that has lagged the nation’s and below-average wealth levels.”

To summarize, New Mexico’s pension system is going broke, not due to market forces, but rather due to inherent flaws in the system. Medicaid expansion — which temporarily brought tens of millions of dollars into the state — will now cost taxpayers real money. New Mexico is too reliant on oil prices and production. And its economy remains weak, and its people’s incomes are too low.

Unfortunately, the problems Moody’s highlighted have been readily apparent for years, if not decades. They transcend gubernatorial administrations, and did not creep up on policymakers. Left unaddressed in a serious and substantive way, they are sure to worsen.

Alas, too many people and politicians in New Mexico are so wedded to the status quo that they either double down on failure, or are unwilling to share the hard truth for fear of angering one or another constituency.

The legislature is the primary font of economic policy in New Mexico, and thus deserves a bulk of the blame, but it is voters who re-elect the same people year after year. That said, while Governor Martinez attempted to push several economic reforms in Santa Fe, she never expressed a clear vision of what a freer and more economically prosperous New Mexico would look like — and how we needed to get there.

Martinez has often touted “economic successes” that had more to do with chance than anything she did, most notably the rising price of oil and growing production of both oil and natural gas. Worse, her decision to expand Medicaid — while arguably a political necessity — will increase dependency on government, while acting as a drag on economic growth.

There is an old political maxim that people get the government they deserve. Sadly, in New Mexico, despite public statements to the contrary, it seems as if a majority of voters prefer that their state remain reliant on its narrow revenue streams of government and oil, rather than embrace the kind of free-market and deregulatory reforms that would help it diversify.

If the Rio Grande Foundation can’t influence our legislature to act, perhaps Moody’s and the threat of rising debt burdens will.

Paul Gessing is the president of New Mexico’s Rio Grande Foundation, 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. Agree with his opinion? Disagree? welcomes your views. Learn about submitting your own commentary here.