Errors of Enchantment | Why is New Mexico not realizing its potential?

Time 2020-10-28 06:02:59

Web Name: Errors of Enchantment | Why is New Mexico not realizing its potential?

WebSite: http://www.errorsofenchantment.com

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The Gov. has some new COVID orders. While Paul and Wally both acknowledge that these are more focused on problem areas than her previous orders were, the Gov. has backed herself into a corner in addressing the Virus. Spread is FAR worse than it has been at any other time of this crisis.To that end, the Catholic Church (Archdiocese of Santa Fe) canceled services moving forward on its own. As we near Halloween what about other important events including Christmas and the State Legislature? The good news is Virus deaths haven’t jumped at least yet.Avangrid has reached a deal to purchase PNM. Paul and Wally discuss and note that Thursday’s podcast will discuss this in-depth.According to Wallethub New Mexico’s unemployment rate remains among the least recovered among US states. New Mexico’s September unemployment rate was also higher than any of the State’s neighbors.In the final presidential debate, Joe Biden said “We are going to transition away from oil and gas. Stop subsidizing the industry.” Wally and Paul discuss the second part of that statement.Finally, Paul and Wally both voted this past week. They discuss how they avoided the long lines some experienced and who they voted for in the presidential election. We truly do feel for UNM (and NMSU s) sports programs, especially those (like UNM football) who have been living in limbo because of the Gov. s orders. Of course, that limbo (and the likely loss of fan attendance revenues for Lobo basketball) isn t going to do much for the athletics budget looking forward.But, UNM is generally both too powerful and too unaccountable and the decision to essentially forgive the debts incurred by the athletics department by folding them into the overall UNM budget is unfortunate.Amazingly, the University has (according to the Journal) At the end of the 2020 fiscal year, the university had about $346 million in plant fund reserves. This is the fund out of which the deficit will be paid.While reducing athletics isn t enough to make UNM a lean and mean entity, folding money-losing extras into the overall budget is a way to undermine accountability, a point that we made when a similar move was made with the City of Albuquerque s golf courses. The following appeared in the Sun News on October 25 and several other papers and media outlets.A recent report from the Pew Center determined that New Mexico had the fourth highest volatility in tax revenue collection over the past 20 years. Unsurprisingly, the study cited reliance on oil and gas revenues as the likely cause of this volatility. What the study didn’t consider was the fact that New Mexico’s misguided economic policies actually reinforce our reliance on oil revenues.Over the years New Mexico has developed mechanisms like the “rainy day fund” and permanent funds (these are two different things) to help smooth the ups and downs inherently associated with rising and falling oil and gas prices and production.It has been well-documented that New Mexico has risen to be the 3rd-largest oil producing state in the nation. We often forget that Texas remains the largest oil producer at more than six times the amount produced here in New Mexico, yet Texas, as the report noted, “ranked close to the middle of states for overall revenue volatility.”Why is that? Simply put, Texas is less reliant on oil and gas than is New Mexico as a percentage of its overall budget. Again, according to Pew, “severance tax accounted for 7.5% of Texas’ total tax collections over the past decade.” That is a far more comfortable position to be in than New Mexico’s reliance for 40% of its budget from oil and gas.These are all pretty widely-agreed upon facts among New Mexico policymakers and thought leaders. This is where things get tricky.Democrats, especially their more “progressive” wing (now dominant in the Legislature) seem ready to eliminate oil and gas entirely without much in the way of a plan for how to fund New Mexico government. Long-time “progressive” Albuquerque-based Senator Jerry Ortiz y Pino argued in an op-ed this year that New Mexico should “go cold turkey” to stop our “addiction” to oil and gas. Gov. Lujan Grisham recently echoed those sentiments in a webcast with the US Climate Alliance, saying “New Mexico should transition out of fossil fuels.”Those sound like nice goals to many environmentalists, but aside from raising taxes on a massive scale, how do you fund State government? That question is left unanswered.According to NMSU professor Jim Peach, New Mexico faces not one, but two threats: 1) the short-term effects of reduced revenues and slower economic growth from the lockdown; 2) the longer-term challenge of replacing oil as a funding mechanism for state government.Rather than killing the oil industry (or seeing revenues from it decline rapidly due to depressed demand) and then frantically looking to find a replacement, the Gov. and Legislature need to use the 2021 session to enact long-overdue reforms like GRT reform that CAN make us more competitive. Texas has no income tax and is a “right to work” state. It is known to be business-friendly and consistently scores well in state rankings on such issues. New Mexico, on the other hand, is rightly perceived as being rather hostile to business. And, the gross receipts tax is unfair and riddled with breaks for special-interests.One issue that is sure to come up in 2021 is tax hikes. Professor Peach and others have mentioned them with an air of inevitability. Tempting as they may be, tax hikes will make us even less competitive with Texas and other states as a destination for jobs and economic growth. Given the gulf between New Mexico and Texas in terms of economic competitiveness it is no surprise that the Federation of Tax Administrators ranks New Mexico as having the 7th-heaviest tax burden while Texas is among the lowest at 47th.Ironically, if New Mexico were to streamline government, truly make the state attractive for business, and thus diversify its economy, like Texas, New Mexico’s economy and tax revenues wouldn’t be as volatile. Unfortunately, we have a very long way to go to make that happen.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 The latest Wallethub report on how state unemployment rates are recovering is out. New Mexico remains among the least-recovered states as the graphic below shows:In other news, according to an October 16 report from the Legislative Finance Committee that we obtained, Gross receipts tax collections in New Mexico were down $31.6 million in August compared to the same month last year, according to preliminary data from the Taxation and Revenue Department.Furthermore, total fiscal-year-to-date GRT collections through August were down $30.3 million from the same period a year ago, or 6.3 percent.Basically, it appears that the combined effects of the Governors lockdowns, their increased intensity, and the lack another round of federal stimulus are having serious, negative impacts on New Mexico s economy. How long will this last? We have no idea. You may have heard by now that PNM (pending PRC approval) has been purchased by the Spanish utility Avangrid. According to the Albuquerque Journal article detailing the purchase, Avangrid paid 19.3% above the PNM share price.The following check was used by RGF president Paul Gessing as a prop in a 2019 hearing on the Energy Transition Act. It remains relevant as ever, but perhaps should be paid to the order of Avangrid now.  We don t know exactly what this all means, but we DO know the following:Gov. Lujan Grisham received a $2,500 donation for her campaign from the Spanish company last year.While Avangrid MAY be able to bring some efficiencies of scale to the deployment of renewables in New Mexico, PNM pledged to REDUCE electricity prices.The 19.3% premium (paid by Avangrid) HAS to come from somewhere and it is unlikely those efficiencies of scale will be enough to justify that premium price.This adds another wrinkle to the PRC election and ballot measure on the ballot this fall (the PRC will have to approve or deny this purchase).Arguably the damage to NM rate payers has already been done (or baked-in) by the ETA. The major impact New Mexicans see from this purchase is that one of the State s only major publicly-traded companies will be no more. Corporate sponsorships, jobs, and other aspects of PNM s presence could dry up over time. On this week’s discussion podcast, Paul and Wally discuss the rising number of COVID19 infections in New Mexico. The Gov. has planned a press conference later today. Paul argues that this rise is a result of the Gov.’s failed lockdown strategy and he expects more shutdowns.While the number of cases has grown rapidly, the number of deaths has not…at least not yet. Paul argues that this may be due to more effective treatment techniques and suggests a mitigation strategy may be better than a lockdown strategy. He also notes that while hospitals are full, according to UNMH COVID-positive patients represented less than 10% of overall patient cases.In economic-related news:NM tax revenues are volatileNM’s tax burden is heavyNM unemployment rate is among the slowest in the nation to recoverAnd, according to the Legislative Finance Committee, job losses are dominated by a few major sectors of New Mexico’s economy while government has seen minimal losses.Finally, Paul and Wally discuss the constitutional amendments on the ballot as well as the bond issues. Reminder: get out to vote! In the best of times (pre-COVID19) New Mexico has not done enough to overcome its serious inherent challenges in improving student outcomes. That has become an even bigger challenge with the emphasis on virtual learning by the State and districts like APS and Las Cruces (to name two big ones).The Center for Education Reform is a national education reform organization that advocates across the board for choice as well as teacher quality and innovation. In the group s Parent Power Index New Mexico (as usual) under-performs its neighbors. Notably, Arizona, which obtains better results form similarly at-risk students for less money, is the top-ranked state in the nation. You can find the entire, interactive index below.   In the same vein, the Center for Education Reform created a separate report card that just considers and ranks all 50 states based on their charter school laws environments. Again, Arizona takes the top slot while New Mexico  ranks as a low-C in the rankings.The fact is that New Mexico inherently has challenges in improving educational outcomes. Spending more money hasn t achieved success. It would be nice if the Gov. or the Legislature defied their allies in the unions and focused on improving the State s charter law and expanding school choice. According to a recent Pew Center report New Mexico has very volatile tax revenues when compared to other states. That report was discussed in some detail in this Center Square story. New Mexico had the fourth highest volatility in tax revenue collection over the past 20 years.What can be done? At the Rio Grande Foundation we have argued regularly for economic diversification through the introduction of more economic freedom, but Democrats who control the Legislature and Governor s mansions have stood steadfastly against serious economic reforms including, but not limited to, gross receipts tax reform.The following chart taken from the Pew chart directly shows that NM has the greatest volatility among its neighbors. Some recent presentations by New Mexico s Legislative Finance Committee (see chart below) truly show how we are NOT all in this together during the Gov. s COVID 19 lockdown.While an overwhelming majority of government workers (a huge sector of New Mexico s economy relative to other states) are doing just fine, many areas of the private sector have been devastated by the Gov. s lockdown policies. New Mexico s oil and gas industry and its leisure/hospitality (tourism) are down massively while others are also way down in terms of employment. The full report is linked above while the relevant chart is below:

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Why is New Mexico not realizing its potential?

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