Gessing: New Mexico economy at tipping point

Paul J. Gessing
Rio Grande Foundation president
Paul Gessing

New Mexico has always been an economically-challenged, high-poverty state. With the 2016 elections rapidly-approaching, it is time for voters to ensure that the Legislature is willing to embrace long-overdue changes to New Mexico's economic system that will lead to private sector growth and reduced poverty.

In addition to its historical over-reliance on Washington, New Mexico's State government has always been bloated. According to the Federation of Tax Administrators, New Mexico collects the 9th-largest percentage of personal income from its residents of any state 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.

For starters, it is time to reform the tax code and right-size New Mexico government. New Mexico's gross receipts tax is uniquely harmful to the growth and development of small businesses. It also encourages businesses to lobby the Legislature for exemptions or outright subsidies before locating here. It is imperative that the Legislature act to reform this harmful tax structure.

The current budget crunch is an opportunity to reduce the size of New Mexico's government work force. Again according to Key Policy data from 2013, New Mexico has the 2nd–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.

Compensation of the government workforce is another issue. Also according to Key Policy, 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. This is a good argument for serious reform of New Mexico's government pension system including a shift from defined benefit to a defined contribution (401K-style) system.

The next fattest target is higher education. According to data from State Higher Education Officers, New Mexico spent the 5th-most on higher education among U.S. states in 2011, the most recent year for which data are available. The Legislative Finance Committee has done some excellent work on the proliferation of branch campuses. It is time to reduce their numbers significantly as cost-saving measure.

Another area of significant savings is the politically-popular, but economically-dubious film subsidy program. Similar programs have been panned by economists from across the political spectrum. A 2014 analysis done at the request of New Mexico's Legislature  found that the film program generated 43 cents in tax revenue (split between state and local governments) for every state tax dollar spent. Simply put, despite all the rosy press releases, New Mexico's film program is a money-loser for New Mexico.

Lest one be misled to believe that only “liberal” government programs must be on the chopping block, New Mexico's Local Economic Development Act program should be cut. Earlier this year, the LFC reported that “the state does not receive sufficient reporting from businesses using LEDA funds to properly evaluate” the 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.

Lastly, it is worth reminding readers that the RailRunner and Spaceport are two failed experiments from the Richardson administration that are sucking up precious tax dollars with minimum benefit.

Cutting the budget is no fun. We need to develop a private-sector economy in New Mexico. Our state is at a tipping point as the burden of state and federal government policies continues to grow. It is time to embrace serious economic reform in the Land of Enchantment.

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