The Truth About Transparency in NM’s CAFRs

Last week KRWG’s Anthony Moreno interviewed Truth In Accounting’s Sheila Weinberg, who explained why the Land of Enchantment performs abysmally when it comes to “how transparent [states] are to the public about their finances.”

TIA’s recent “Financial Transparency Score Report” placed New Mexico just one slot above last-place Connecticut on “a range of transparency indicators.” Weinberg told Moreno that the state has been “historically issuing its financial statement late,” with a jaw-dropping 426-day tardiness for its fiscal 2012 comprehensive annual financial report (CAFR), and a not-much-improved 342-day delay for fiscal 2016. (The standard for governmental entities is 180 days, TIA’s founder and CEO noted, with private corporations abiding by a 45-day standard.)

As Governing noted a few years ago, CAFRs are “dense,” with “a mind-numbing array of charts, graphs and number columns” — and only “the hardiest of souls” explore them. It’s in the job description for policy wonks, though, and the Rio Grande Foundation annually does a deep dive into the latest tome. But as Weinberg argued, taxpayers willing to tackle CAFRs deserve to get them in a timely and accessible manner. For a long time now, that hasn’t been a option in New Mexico. Something that Governor-elect Michelle Lujan Grisham’s nominee to head the Department of Finance and Administration should address, quickly.

Leaves Falling, RTW Jobs Rising

Since January 2015, the Foundation has tracked 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.”

In October, of 19,786 projected jobs, 14,428 — 72.9 percent — were slated for right-to-work (RTW) states:

As for the sub-metrics the Foundation scrutinizes:

* Eighteen domestic companies based in non-RTW states announced investments in RTW states. Just one went the other way.

* RTW prevailed in foreign direct investment, too. Twenty-one projects are headed to RTW states, with eight to occur in non-RTW states.

* Six greenfield investments were announced in RTW states, with just one in a non-RTW state.

Marquee RTW investments included:

* BlackRock, “an asset management firm and a technology solutions provider,” picked Georgia for its “Innovation Hub” (1,000 jobs)

* Pitney Bowes “announced the opening of its new 450,000 square foot Fulfillment, Delivery and Returns Super Center” in Indiana (300 jobs)

* Lonza opened “the world’s largest dedicated cell and-gene-therapy Center of Excellence” in Texas (200 jobs)

* Caterpillar chose to “locate a casting facility” in South Carolina (85 jobs)

* Israel-based drone startup Airobotics “launched its North American headquarters” in Arizona (80 jobs)

Methodological specifics:

* 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 from additional sources.

* If no job figure could be found anywhere, the project was not counted, whether it was a RTW or non-RTW state.

* Non-border-crossing relocations were not counted, border-crossing relocations were.

The Lost Jobs Decade Continues in Two NM MSAs

As ABQReport’s Dennis Domrzalski noted earlier this month, “New Mexico’s economy has … finally surpassed pre-recession jobs levels.”

But the bulk of the state’s employment comeback occurred in Albuquerque. (Las Cruces made an additional, although paltry, contribution.) The Duke City is, happily, up more than 20,000 jobs since just before the downturn hit.

Sadly, two of the four metropolitan statistical areas in the Land of Enchantment remain in employment droughts. As the charts below indicate, Farmington is down 9.3 percent from its October 2008 peak, while Santa Fe is 8.6 percent beneath is apex of July 2008.

Farmington’s suffering from a trend in low domestic prices for natural gas, but what is Santa Fe’s excuse? Errors of Enchantment suspects that taxes, a “living wage” of $11.40 per hour (both city and county), social engineering, and rampant NIMBYism might be factors….

The Phantom (Budget-Cut) Menace

 

Cuts.

Cuts.

Cuts.

So, so, so many cuts.

Listen long enough to the big spenders who populate the Land of Enchantment’s political establishment, and you might become convinced that for many years now, Santa Fe has “slashed” spending on “vital public services,” putting New Mexicans’ safety at risk while failing to adequately “invest in our children.” Whether blamed on Susana Martinez (a hardy perennial), the Great Recession, inadequate fedpork, or the state’s rollercoaster-ride on the vicissitudes of the oil market, the message is always the same: We must ratchet up government expenditures, to account for all the austerity New Mexico has been forced to endure over the past decade.

The problem with that narrative is … there’s no evidence to support it.

Earlier this month, Errors of Enchantment took a look at spending on a few of liberals’ favorite programs and subsidies, such as “early childhood education” and Medicaid. But exploring all spending, adjusted for both inflation and population, confirms that Santa Fe’s spending machine has not been throttled back. The chart above depicts all-funds expenditures — everything from roads/highways to colleges and universities, prisons to museums, government “authorities” to interest on debt. The data show that the decade between the 2007 and 2017 fiscal years saw per capita spending expand by 7.9 percent.

And if we had figures for the 2018 and 2019 fiscal years, that 7.9 percent “gain” would likely be significantly larger. The 2017 fiscal year ended on June 30, 2017 — more than 16 months ago. (We won’t have final numbers on fiscal 2018 until the Department of Finance and Administration issues the comprehensive annual financial report for the year — and the bureaucracy’s CAFRs are consistently late.)

So before state legislators and New Mexico’s new chief executive rush to blow that $2 billion, not-likely-to-be-recurring surplus, a dose of fiscal reality might be in order. The harder you look, the harder it is to find the “cuts.”

Can the Last Aerospace Worker to Leave New Mexico Please Turn Off the Lights?

Errors of Enchantment has repeatedly documented how “all the corporate-welfare schemes implemented to promote aerospace in the Land of Enchantment [are] yielding zilch in results.” But more bad news arrived yesterday, when Honeywell Aerospace “told employees at its 500,000-square-foot plant … that all Albuquerque-based aerospace work would be relocated to … sites in Arizona, Florida and Puerto Rico over the next year.”

No details have yet emerged about how many jobs will be lost, but employees told the Albuquerque Journal that “the workforce totals up to 500, including those working for Bendix King, a subsidiary that does not appear to be affected.”

Whatever the number of layoffs, the corporation’s decision follows a clear trend. As the chart above shows, New Mexico employment in the sector the U.S. Bureau of Labor Statistics calls “Aerospace Product and Parts Manufacturing” has dropped 64 percent in the last decade. Crony capitalism, “investments” in preschool, and subsidies from Washington don’t appear to be getting the job done. Maybe it’s time for a different approach?

‘Voices’ for More of the Same

For some time now, the Rio Grande Foundation has debated whether to change our name to New Mexico for Flowers, Kittens, and Babies. It’s not such a wild notion, given how much funding — and attention — “New Mexico Voices for Children” gets.

The left-wing “nonpartisan, statewide advocacy organization” that “works to create systems-level sustainable change to improve the lives of New Mexico’s children” recently testified before the legislature’s Revenue Stabilization & Tax Policy Committee. The group’s “Roadmap to a Stronger New Mexico” offered, predictably, more of the same: higher taxes and more spending.

Having a cutesy name may garner the adoration of liberal pols and puff coverage by some in the media, but it doesn’t provide a license to bungle facts about important public-policy matters. Here are just a few of the whoppers found in the “roadmap”:

Claim: New Mexico doesn’t “raise enough revenue through the tax code to support education, health, public safety, and infrastructure needs.”

Reality: The Mercatus Center’s annual examination of states’ fiscal condition found that New Mexico notched the worst performance in the nation in terms of “taxes, revenues, and expenses as a percentage of personal income.” That means that the Land of Enchantment is at the greatest “financial risk should [it] experience a sudden downturn” — i.e., it has the least “fiscal slack” to “raise taxes or increase spending.”

Claim: New Mexico has “tried to tax cut our way to prosperity.”

Reality: At the state level, taxes in New Mexico are rather high. According to the Federation of Tax Administrators, the burden here, as a share of personal income, is greater than it is in each of our five neighbors. (State government in California, Massachusetts, Pennsylvania, Ohio, and Connecticut is “cheaper” than it is in the Land of Enchantment.) Yes, former Governor Richardson cut the personal-income tax and Governor Martinez snipped the corporate-income tax. Errors of Enchantment debunked the left’s claims about the former here. As for the levy on corporations, like all taxes, its burden ultimately falls on individuals, be they shareholders or employees. Besides, in the 2017 fiscal year, the corporate tax generated 0.359977 percent of the revenue used to cover to the state’s total spending. How much “damage” did a rate decrease from 7.6 percent to 5.9 percent do?

In addition, “Voices” conveniently overlooks the gross receipts tax hikes that have been broadly implemented by local governments since the turn of the century. The GRT burden has risen by 30 percent in Las Cruces. It’s up 31 percent in Santa Fe. Albuquerque’s GRT rose by 35 percent. Apparently, in the “Voices” world, these tax hikes don’t matter.

Claim: New Mexico has “[m]assive infrastructure needs.”

Reality: No, it doesn’t. A favorite claim of many Santa Fe lobbyists — and pols from both parties — the Rio Grande Foundation regularly debunks this one. Our bridges and highways are not “crumbling.” Killing the prevailing-wage mandate would make infrastructure spending go a lot further. Asinine projects, such as “Spaceport America” and the New Mexico Rail Runner Express, squander revenue that could be devoted to important water, transportation, and public-safety projects. And there are abundant reasons to avoid higher taxes on gasoline and diesel.

“Roadmap to a Stronger New Mexico” reads like the playbook for a future Governor Michelle Lujan-Grisham administration, so the Foundation will continue to examine it, and expose the scheme’s faulty assumptions, dodgy data, and irresponsible recommendations. Watch this space!

The Overlooked Unfunded Liability

Aside from an article in the Albuquerque Journal, the staggering unfunded liability for New Mexico “public servants” who get — or expect to get — monthly retirement-income checks has been AWOL in this year’s gubernatorial smackdown.

Surprisingly, and much to his credit, U.S. Rep. Steve Pearce, the GOP nominee, told the Journal that while pensions in the real world “transformed significantly over 20 years ago,” in government, they have “stayed generous and lagged many changes. At a minimum, new employees coming into the government workforce are going to have a very different system. Employees many years away from retirement are going to have to see significant changes.” It was a rare moment of fiscal courage/clarity in a campaign that has featured very little substance on the issue of the state’s woeful financial condition.

But pensions are not the only long-term obligation that legislators and governors have badly bungled. Bureaucrats at the local and state levels are awarded retiree healthcare benefits as well. As the Santa Fe New Mexican noted at the start of this year:

The system provides subsidized health insurance premiums for eligible retirees. There are about 97,000 employees paying into the program today. It provided coverage to about 39,000 retirees as of July.

That includes former state government employees as well as former employees of cities, counties, universities and charter schools.

The amount covered depends on years of service. Retirees can now get the full subsidy after 20 years on the job.

In contrast, retiree healthcare has all but vanished in the private sector. According to a 2016 Kaiser Family Foundation analysis, there was “a significant drop in the share of large employers (200+ workers) offering retiree health coverage, from 66 percent in 1988 to 23 percent in 2015.” (Smaller firms, it can be safely assumed, provide the perk at much lower rates.)

In 1990, rather than eliminate a perk than was disappearing elsewhere, Santa Fe established the New Mexico Retiree Health Care Authority (NMRHCA), to foster “quality of life and peace of mind by responsibly administering affordable, secure health care benefits for public retirees and their families.” Both employees and “employers” — i.e., taxpayers — make payroll-based contributions to the authority.

NMRHCA’s net position at the end of the 2017 fiscal year was $579 million. Not bad, right? Not exactly.

When juxtaposed against the state’s anticipated costs of providing healthcare coverage to the “retired,” $579 million isn’t all that much. The system’s net liability, at the end of FY 2017, was $4.5 billion. That’s correct — in January, lawmakers and the new governor could dump the entire (projected) FY 2020 surplus into the coffers of the NMRHCA, and its debt wouldn’t even be cut in half.

The authority recently gave a presentation to the Legislative Finance Committee, and as the above graph shows, within a few fiscal years, NMRHCA’s annual revenue sources will no longer match its annual expenditures. Then reserves begin to dwindle, and absent meaningful reforms, it’s likely that in the 2030s, insolvency will arrive.

The good news about the NMRHCA is that its enabling legislation provided “that the benefits offered to retired public employees may be modified, diminished, or extinguished by the Legislature,” and that there is no “contract, trust or other rights to public employees for health care benefits.”

So the authority’s board can take actions to shore up its finances. And occasionally, it does. According to its presentation to the LFC, effective January 1, 2020, the minimum age “to receive program subsidy” (excluding “enhanced retirees as defined by statute”) will be 55, and the period for eligibility “to receive maximum subsidy” will be 25, not 20, years.

That’s progress, but it’s not enough. Whether by board initiative, legislative pressure, leadership from the governor’s office, or a combination of the three, New Mexico’s taxpayers need relief. Compensation for local and state employment in the Land of Enchantment, already outrageously generous, is overdue for some judicious pruning. A bracing dose of reality is needed for pensions, but let’s not neglect NMRHCA’s hefty price tag.

Before We Blow Another $2 Billion on the Blob…

“I think everyone understands the moment in time in which we’re at and where we were at in education and how we can move forward. I think there’s a lot of buy-in.”

— State Rep. G. Andrés Romero (D-Albuquerque), vice chair, House Legislative Education Committee

Translation: The revenue spigots will be opened for PK-12 government education in New Mexico in 2019.

Regardless of who claims the governor’s office in eleven days, the pressure to boost subsidies to primary and secondary “public” education is sure to be immense. A judge has ordered that legislators increase spending “for the children,” and the budget surplus for the coming fiscal year could top $2 billion. It’s a perfect storm for huge new giveaways to unionized, monopolized schooling in the Land of Enchantment.

A half-century of real-world experience, of course, stands as a stark warning to the Santa Fe establishment’s desire to “move forward.” In the 1960s, sociologist James S. Coleman undertook a massive study of government schools and spending, and concluded:

Per-pupil expenditures, books in the library, and a host of other facilities and curricular measures show virtually no relation to achievement if the social environment of the school — the educational backgrounds of other students and teachers — is held constant. … Altogether, the sources of inequality of educational opportunity appear to lie first in the home itself and the cultural influences immediately surrounding the home; then they lie in the school’s ineffectiveness to free achievement from the impact of the home.

Several years later, Harvard scholars Mary Jo Bane and Christopher Jencks debunked the belief that “if schools could equalize people’s cognitive skills this would equalize their bargaining power as adults.” Children, they wrote, “seem to be more influenced by what happens at home than by what happens at school,” with “what happens on the streets” and “what they see on television” as additional contributors. “Neither the overall level of resources available to a school,” Bane and Jencks averred, “nor any specific, easily identifiable school policy has a significant effect on students’ cognitive skills.”

In the early 1990s, researchers at the Educational Testing Service studied the connection between non-classroom factors and student performance. They found that 91 percent of the difference among the outcomes of the states’ government schools could be explained by five factors, including the amount of time students spent watching television and the presence of two parents in the home.

Plenty of subsequent studies have confirmed that more money ≠ better outcomes, but perhaps the best analysis produced in recent years just arrived, courtesy economist Stan J. Liebowitz research fellow Matthew L. Kelly. Writing in the November issue of Reason, the pair thoroughly puncture “the pervasive and perverse notion that spending, by itself, is a positive factor” in student achievement.

First, Liebowitz and Kelly “excluded metrics not directly related to learning and looked solely at [National Assessment of Educational Progress] scores,” “disaggregated students by age, subject, and racial category to reflect a state’s student heterogeneity,” “gave equal weight to each category to produce a new average quality score for each state,” and “then ranked the states … to produce … ‘quality’ rankings.” Then the scholars asked: “How much are states spending to achieve their levels of success?”

As the scatterplot above shows, Liebowitz and Kelly found zero connection between spending on schooling and student scores. Some states (Florida, Texas, Georgia) post impressive results with modest expenditures. Others (New Jersey, Wyoming, Connecticut) produce high achievers, but at tremendous cost. Alabama, Oregon, and Nevada are relative skinflints, with little to show for their parsimony. Maine, Alaska, and New York are the worst of the worst — big spending, lousy achievement.

Liebowitz and Kelly concluded that “the self-serving interests of education functionaries who only gain from higher spending” should be ignored: “After all, minds and dollars are terrible things to waste.”

So before New Mexico’s petroleum bonanza is squandered, in toto, on teacher-union-approved policies, it might be worth devoting some time and attention to the unquestionably dismal record of boosting subsidies to “education” in the hope that student proficiency will improve. Ignoring the lessons of history won’t serve the state’s children — or its taxpayers.

Government Higher Ed’s Biennial Lobbying for … Itself

Every two years, New Mexicans vote on general-obligation debt backed by revenue from the Land of Enchantment’s statewide property tax. The Secretary of State’s GENERAL ELECTION VOTER GUIDE describes 2018’s proposed bonds thusly:

* Bond Issue A: “an amount not to exceed $10,770,000 to make capital expenditures for senior citizen facility improvements, construction, and equipment acquisition projects”

* Bond Issue B: “an amount not to exceed $12,876,000 to make capital expenditures for academic, public school, tribal, and public library resource acquisitions”

* Bond Issue C: “an amount not to exceed $6,137,000 million to make capital expenditures for the purchase of school buses”

* Bond Issue D: “an amount not to exceed $136,230,000 million to make capital expenditures for certain higher education, special schools and tribal schools”

Voters reflexively approve additions to New Mexico’s general-obligation debt, but this election, they’ve never had a better reason to shoot them down. In the last two years, Moody’s Investors Service has twice downgraded the state’s rating, primarily due to “extremely large pension liabilities,” “spending challenges associated with a large Medicaid caseload,” revenue that is “concentrated and volatile,” an “economy that has lagged the nation’s,” and weak “financial reporting practices.”

But if a Wall Street warning is not enough to foster voter skepticism, consider the way the state’s system of higher education is using taxpayer dollar to push for its $136.2 million.

As it has done in the past, UNM claims that bonds are “a proven and accepted method of funding bricks [sic] and mortar projects throughout the state,” incurred to give “universities and specialty schools the ability to ensure students have the tools and resources they need to be successful.” (Even better — there “are no tax increases associated with these bonds.”) Here’s the school’s laudatory video promoting the benefits of bonding.

Bill Knief, “a part-time special projects coordinator for UNM-Taos,” has “watched over the years as well over $20 million of bond money has made possible what is, in my opinion, one of the finest college campuses in the state.” (But the flack “can’t presume to tell anyone how to vote; that’s a deeply personal decision best left to the individual.”)

In the promotion department, though, UNM can’t compete with NMSU. It has produced four videos to secure its share of the bonding loot, which would cover expenses for “a food science security and safety facility, animal nutrition and feed manufacturing facility and biomedical research center.” (See above.) According to Rolando A. Flores, dean of the New Mexico State University College of Agricultural, Consumer and Environmental Sciences: “The 2018 GO bond projects to be voted by New Mexicans in November of this year are vital for the future of New Mexico’s agriculture and food industries. The goal is to have a big push for agriculture in two major areas: food safety and security and generation of value-added from agricultural products by developing the food of the future. These two components, properly supported, can convert Southern New Mexico into a hub for the nation’s food safety and security and can bolster economic and community development in New Mexico.” (Not content with press releases, Flores took to the pages of the Albuquerque Journal, imploring voters to “be bold on Nov. 6 and shape the future of our state in a positive way.”)

Western New Mexico University President Dr. Joseph Shepard told the Silver City Sun-News that GO Bond D “is the primary source of funding that [WNMU] has to re-invest in our historic buildings and modernize facilities. By upgrading technology and improving safety, we give our students experiences that will help them contribute positively toward a better New Mexico future. Additionally, the bonds provide direct economic development for our area as various companies are hired to complete WNMU projects.”

Earlier this month, Becky Rowley, president of Clovis Community College, and Jeff Elwell, “chancellor of the three-campus Eastern New Mexico University System,” asked voter to “please send a message … that Curry and Roosevelt counties are firmly committed to supporting higher education.” Cecilia Y.M. Cervantes, interim president of Santa Fe Community College, did the same, telling readers of the Santa Fe New Mexican to “[s]upport your community, our students and a better future for all New Mexicans by voting yes on GO Bond D.”

Sadly, nothing in state law bars “public” universities and colleges from lobbying for themselves — on your dime. And it should come as no surprise that the proponents of “good government” in the Land of Enchantment are silent on the issue. (They’re equally AWOL on the issue of local governments hiring lobbyists to press Santa Fe for more state funding.)

No, it’s not illegal. But that doesn’t mean it isn’t wrong. If state lawmakers will take no action to halt the tawdry practice of postsecondary educrats using taxpayer resources to further enrich themselves, perhaps reporters and editorial-page editors will decide to stop allowing news articles and opinion pages to serve as passive conduits for government higher education’s relentless campaign for more, more, more.

September Marked RTW’s 45th Win in a Row

Since January 2015, the Rio Grande Foundation has tracked 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.”

In September, of 11,480 projected jobs, 7,211 — 62.8 percent — were slated for right-to-work (RTW) states:

As for the sub-metrics we track:

* Fourteen domestic companies based in non-RTW states announced investments in RTW states. Just two went the other way.

* RTW prevailed in foreign direct investment, too. Twelve projects are headed to RTW states, with three to occur in non-RTW states.

Marquee RTW investments in September included:

* Seattle-based Starbucks picked Georgia for its “new east coast satellite office” (500 jobs)

* Valkyrie Systems Aerospace announced a plan to “bring manufacturing facilities, as well as flight operations and training,” to Oklahoma (352 jobs)

* Australia-based Skyborne Technology, Inc., “a designer and developer of manned and unmanned next generation aviation systems,” opened a new factory in Florida (100 jobs)

Methodological specifics:

* 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 from additional sources.

* If no job figure could be found anywhere, the project was not counted, whether it was a RTW or non-RTW state.

* Non-border-crossing relocations were not counted, border-crossing relocations were.