RGF President Paul Gessing’s testimony on HJR 5 Taxpayers Bill of Rights

Paul Gessing Testimony on HJR 5

This testimony was given before the House Consumer & Public Affairs in the New Mexico Legislature on February 4, 2020. The bill which was sponsored by Rep. Rod Montoya (R-San Juan County) was unsurprisingly tabled (killed) on a party line vote

What should the Legislature do with the ongoing oil surplus? That is arguably the single most important question to be asked in the 2020 legislative session.

In New Mexico the tendency of the Legislature has been to spend the money. Some of it goes to various permanent and “rainy day” funds, but when considered relative to its neighbors, New Mexico government spends far more per person than its neighbors. Colorado in particular is a neighboring “blue” state that spends much less than we do here in New Mexico. In FY 2019, before the oil and gas boom really got rolling, New Mexico state and local governments combined to spend 23% of personal income while Colorado spent just 15%.

Not coincidentally, according to the Federal Reserve Bank of St. Louis, the average per-capita personal income in Colorado is $58,500 while the average income is New Mexico is $41,600. Colorado has achieved this success in large part by strictly limiting government spending growth since 1992. That state’s Taxpayers Bill of Rights limits annual spending growth to the combined rate of inflation and population growth. Voters have the final say on all government spending above that limit or any tax hike.

HJR 5 is a New Mexico version of Colorado’s tax and spending limit. It is more lenient in that it limits state spending to a combined rate of the percent increase in population growth + 3.6%. Furthermore it imposes a 3/5ths legislative majority requirement for the Legislature to keep revenues above that amount or raise taxes. Finally, surplus revenues above the limit would be split 50/50 between rebates to average New Mexicans and public education.

Based on calculations from the Rio Grande Foundation, if Rep. Montoya’s bill had been in place upon the departure of Gov. Susana Martinez in 2018, the citizens of our State and the public education system would have split over $1 billion in rebates or approximately $260 for each man/woman/child from the State over the past two years. That’s $260 returned to the hard-working citizens and taxpayers of New Mexico to invest for their own futures or put a down payment on everything from a new business venture to a new car.

Of course, the education system would be in line to see additional funding to the tune of at least $500 million as well.

Gov. Lujan Grisham talked about Colorado in her State of the State address. New Mexico does compete with our neighbors to the North. And, while we may have a tentative lead in the short term, over the last decade Colorado’s population grew by over 12.6%, one of the fastest rates of growth in the nation. New Mexico on the other hand grew by 1.8% which placed it 38th nationally in population growth.

Whether you support marijuana legalization as I do and the Rio Grande Foundation does (or not), it is Colorado’s limits on government spending that set it apart from New Mexico economically.

Finally, when it comes to raising taxes and spending increases, this Amendment’s 3/5ths requirement is extremely important. We shouldn’t have bare majority votes on whether to take more money out of hard-working New Mexicans’ pockets. Oklahoma, another faster-growing neighbor of ours, has a 3/4ths (75%) requirement for the passage of tax hikes. The requirement in this amendment would be 3/5ths of 60% of the Legislature.

This is not a retroactive bill. New Mexico government spending is likely to increase significantly this session although at a somewhat lower rate than last year. But, if the oil boom continues or economic growth continues to at its current pace, we believe that average New Mexicans should be direct participants and beneficiaries in it. We are our own unique state with its own unique needs, but limiting government spending will do great things for New Mexico as it has done for Colorado.

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Tipping Point New Mexico Episode 168: New Mexico Legislative Session Update

On this week’s podcast discussion which is being recorded near the midpoint of what is shaping up to be a very busy 30 day legislative session, Paul and Wally start by discussing the so-called “Red Flag Bill” which has been introduced in the New Mexico Legislature. SB 5  passed its first committee, SenatePublic Affairs. All of the Democrats voted for it (including Liz Stefanics and Jeff Steinborn). All Republicans voted against the bill. Spurred in part by this legislation a rally was held at the Roundhouse against Red Flag bill and in favor of gun rights on Friday. RGF was in attendance.

SB 60 and SB 201 by George Munoz would change the requirements of who serves on the PERA board in a good way

SB 72 which actually makes the pension changes made it out of Public Affairs Committee (Stefanics and Sedillo-Lopez voting against). You can read the editorial that Paul and Len Gilroy wrote on the issue here.  Paul and Wally further discuss NM’s PERA system which has created a large number of millionaires: https://errorsofenchantment.com/nms-10000-pera-pension-millionaires/

Social Security bills move forward in legislative committees, but as the AlbuquerqueJournal reports, they are “gaining momentum,” but according to Speaker Egolf are “unlikely to happen” because all of the surplus money has been “spoken for” by the various agencies.

HJR 1 to tap permanent fund is again moving in the session, but a leading expert from the center/left Brookings Institute throws some cold water on the idea that pre-K is going to work wonders for New Mexico students.

HB 173 which would massively increase New Mexico’s gas tax moves forward.

SB 110 which is a massive giveaway of power to government employee labor unions passes Senate Public Affairs Committee. Is this the unions’ a quid pro quo for pension reform?

A federal judge has ruled against the Rio Grande Foundation in its suit over donor disclosure in the battle over Santa Fe’s soda tax saying that we didn’t prove we were harmed. The Foundation has already appealed.

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Donor Privacy: Santa Fe Litigation Update

Last week on January 29, after 18 months of waiting for a decision, we lost our case (at least temporarily).

As you recall, the Rio Grande Foundation was engaged with the City of Santa Fe in litigation over donor privacy, stemming from Mayor Javier Gonzales’ push for the now-infamous soda tax.

We lost the first round of litigation at District Court because we could not demonstrate actual threats of reprisals against the Foundation and our donors. That’s because the Rio Grande Foundation was never threatened. What we alleged is that the law would chill our speech because we were reasonably afraid of reprisals against our donors.

Typically, the threats come after the disclosure, and by then the horse has left the proverbial barn. Under the First Amendment, you don’t have to be threatened before your speech is chilled. A reasonable fear is generally sufficient. Indeed, we did show that similar groups have suffered similar threats, which is what the Tenth Circuit has required in other cases. The judge attempts to characterize her decision as being in accordance with Tenth Circuit precedent, but it’s clear she’s worried about it.

Our trial judge in this case never held oral argument, then sat on any decision for over a year-and-a-half. Neither the Foundation nor our legal counsel ever even met her, which is extremely uncommon in a case that reaches a decision on the merits.

No need to fear: the Rio Grande Foundation is moving forward in appealing the decision to a higher court. We’re not giving up the fight for donor privacy.

So, onward to the Tenth Circuit, where we ought to have better odds. We will keep you updated on our progress!

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Gas tax hikes and electric vehicle tax credits: both are bad policy

Rep. Matthew McQueen has introduced HB 173 (which passed its first committee) in the 2020 Legislature. According to the analysis linked to above, would more nearly triple the New Mexico gas tax between now and 2026. It would raise taxes on motorists by more than $300 million annually.

The gas tax is now 17 cents per gallon. Under the plan it would rise to 47 cents per gallon AND be indexed to increase with inflation every year after that.

This terrible piece of legislation was opposed in its first committee by all Republicans who should universally oppose this massive cash grab. Of course, we at the Rio Grande Foundation  spoke out in opposition to raising the gas tax way back in November of 2019. You can read the full article including numerous ideas for improving New Mexico roads here.

As if a massive tax hike isn’t enough, with the other hand the Legislature and Gov. Lujan Grisham are pushing for SB 2 which would provide tax credits for owners of electric vehicles.  SB 2 does have a Republican co-sponsor, but the bill is a top priority of the Gov. and many Democrats.

Electric vehicle subsidies are disproportionately beneficial to the rich. In fact, according to this study, about 90% of federal EV tax credits went to the top 20% of income earners.  Gov. Lujan Grisham and the Democrats pushing this idea need to be exposed for pushing this giveaway to the rich.

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Tipping Point New Mexico Episode 167 Kenneth Costello – New Mexico Utility Regulation

On this week’s discussion Paul interviews Kenneth Costello. Costello analyzes New Mexico’s rapidly changing utility regulatory structure for the Rio Grande Foundation. He has conducted extensive research and written on a wide variety of topics related to the energy industries and public utility regulation.

Ken and Paul discuss what makes utility regulation unique and some of the history of regulation in New Mexico including the flirtation with deregulation and what ultimately killed it. Paul and Ken of course discuss current trends in utility regulation including the Energy Transition Act and what will happen next in electricity in the State.

You can read one of Ken’s recent articles which took on the Energy Transition Act here.

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Tax relief…maybe next year

A number of bi-partisan bills have been introduced in the New Mexico Legislature to reduce or eliminate taxes on Social Security. As the folks at Think New Mexico note, New Mexico is one of 13 states that tax benefits provided under the program. And, while reform to New Mexico’s gross receipts tax remains the Rio Grande Foundation’s top economic policy priority, we strongly believe that taxpayers should participate in the current budgetary largess.

As this Albuquerque Journal article notes, the initiative is “gaining momentum,” but unlikely to happen this year according to Speaker Egolf because all of the surplus money has been “spoken for” by the various agencies.

I t has always been the view of the Rio Grande Foundation that when it comes to receiving the benefit of good economic and budgetary times that taxpayers tend to come last. This is just the first public and clear acknowledgement of that from the folks in charge.

The General Fund is set to grow from $6.3 billion to $7.8 billion since Susana Martinez left office. And what are taxpayers getting? They got a tax hike last year and not even crumbs this year. If they lived in Colorado where they have strict spending and taxation limits in place, taxpayers would come first, not last.

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NM’s (nearly) 10,000 PERA pension millionaires

The Rio Grande strongly supports pension reforms in the form of SB 72 in the 2020 Legislature.  But, there are serious issues with the pension system including the level of benefits provided by the PERA system.

The following chart which is from PERA itself shows that 9,744 former New Mexico public employees will receive lifetime payouts in excess of $1 million. It is one thing for former government employees to be comfortable in retirement, but nearly 10,000 beneficiaries receiving over $1 million in lifetime benefits seems excessive.

Also, as the following document from PERA notes, there is a big problem with NOT acting right now to address the issues with the pension plan. We agree with their conclusion, SB 72 is a reasonable compromise.

The Brookings pension report cited above can be found here.


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Pre-K just won’t improve education like its proponents say it will

Supporters of “early childhood” programs (with the largest portion dedicated to Pre-K) would love to have New Mexicans believe that their plan HJR 1 will solve all of our State’s problems.

The reality is far different once you actually study the data and talk to experts. Take Grover “Russ”Whitehurst of the center/left Brookings Institute. He studied pension reforms for decades and wrote the following in “Does Pre-K Improve Children’s Achievement” a paper released in July of 2018.

The strongest evidence on elementary school impacts of state pre-K would come in the form of randomized trials of scaled-up state pre-K programs with follow-up of children in the treatment and controls groups as they progress through elementary school. There is only one such study: Children of parents seeking enrollment of their children in the Tennessee Voluntary Pre-K Program (TVPK) were randomly assigned to be admitted to the program or not. Outcomes have been tracked through third grade. The

findings as described by the authors in their peer-reviewed report of the study are that:

  • positive achievement effects at the end of pre-K reversed and began favoring the control children by 2nd and 3rd grade;

  • TVPK participants had more disciplinary infractions and special education placements by 3rd grade than control children; and

  • no effects of VPK were found on attendance or retention in the later grades.

Whitehurst concludes his paper with the following quote, “Putting nearly all our eggs in the same basket — enhancing access to state pre-K for four-year-olds – shows little evidence to date of having a substantive payoff in later school achievement. It is time for enthusiasts for increased investments in state pre-K to confront the evidence that it does not enhance student achievement meaningfully. They need to temper their enthusiasm for more of the same and, instead, support testing of other approaches that appear promising.”

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Tipping Point New Mexico Episode 166: How RGF’s Legislative Priorities are Faring in Santa Fe

Paul was up in Santa Fe last week talking pension reform along with Len Gilroy, a pension expert with Reason Foundation (episode 121). Unfortunately there are a number of RGF priorities already being pushed aside.

SB 110 is an early candidate for worst bill of 2020.

Taxpayers Bill of Rights Bill introduced as HJR 5 by Rep. Rod Montoya. How is it different or similar to what Colorado has?  Rep. Javier Martinez is now the co-chair and heir apparent as chair of the powerful House Tax and Revenue Committee. What does this mean for New Mexico tax and economic policy moving forward?

Paul discusses serious concerns with the proposed Route 66 Visitors Center in Albuquerque and how the finances just don’t add up.

Finally, oil prices are down significantly since early January. We don’t know if they are destined to go lower or if this will be a sustained drop, but the change in oil prices could have a big impact on New Mexico.

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Stars have aligned for needed pension reform

The following appeared in the Santa Fe New Mexican on Saturday, January 25, 2020.

Over the last few weeks leading up to the 2020 legislative session, an all too rare alignment has occurred in New Mexico—the Governor, legislators from both parties, labor and taxpayer representatives, plan managers and other stakeholders in Santa Fe all agree that it is time to reform the state’s largest public pension system.

New Mexico’s Public Employees Retirement Association (PERA) has amassed over $6 billion in unfunded pension liabilities and has become vulnerable to volatile investment markets. The Governor’s PERA Solvency Task Force recognized the growing unfunded liability problem and acknowledged the need to fully pay for state promises by making PERA a fully funded system within 25 years a top priority. The resulting task force recommendations mainly increase contributions and address a broken cost-of-living-adjustment policy that served more as annual pension bonuses than it did a protection against inflation.

The proposed reforms are a great first step towards addressing the debt currently looming over the state budget. However, there remains more work to do, as the current legislation would do little to address the systemic assumptions and policies that led to debt accumulating in the first place, mainly a lack of protections against market volatility, overly optimistic actuarial assumptions, and letting the political process—not actuarial math—determine annual pension contribution rates.

Consider that while passing the proposed legislation would generate a one-time reduction in unfunded liabilities by an estimated $700 million, in fiscal year 2019 alone the unfunded liability increased by $600 million due mostly to underperforming investments and insufficient contributions.

While the legislature continues to reject plan actuary recommendations and rely on bureaucratic statutes to determine its contribution to PERA, assets will continue to depend on high market returns to make up for subtle dips and losses. The debt is also still likely to grow due to PERA maintaining market assumptions that even PERA forecast only give a 60% chance of coming to fruition. Some more long-term market forecast view PERA’s chances at less than 50/50.

If there’s a future where market returns may not be as rosy in the past, we need to plan for it now by saving more and adopting more conservative assumptions. Otherwise, PERA will continue to accrue unfunded liabilities to be borne by tomorrow’s taxpayers and public employees since both are ultimately responsible for making the contributions needed to ensure that accrued benefits are fully paid to retirees. If contributions are not increased today, even higher increases will be required tomorrow.

It’s no wonder why public employers are struggling to attract top talent away from the private sector. New Mexico promises retirement benefits at the end of a full career then neglects to fund those benefits at adequate levels to where unfunded liabilities grow. This trend can produce rising debt payments and stagnant wages as limited state budget resources are reallocated to meet immediate needs.

The proposed reform aims to prevent that dynamic from persisting, or at least start the process. As important of a first step towards shoring up PERA’s long-term solvency the proposal is, to avoid growing state pension debt in the future will require both PERA and Educational Retirement Board (ERB) stakeholders to work towards adopting more conservative actuarial assumptions, pay down pension debt faster, and create attractive retirement plans for what is likely to be an increasingly professionally-mobile future workforce.

Reforming a broken cost-of-living-adjustment and increasing contributions are great ways to begin addressing the PERA unfunded liability. The legislature can also harness this rare bi-partisan cooperation to strengthen the task force recommendations by also addressing the systemic risk associated with high investment expectations and statutory contribution policies that will continue to generate unfunded liability unless reformed.  The Governor, legislative leaders and numerous stakeholders are all right, the time to reform PERA is now.

Gessing is president of New Mexico’s free market think tank, Rio Grande Foundation and Gilroy is vice president for government reform at Reason Foundation, a think tank focusing on free minds and free markets

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