Currently, the primary focus of our elected officials remains on addressing the viral outbreak that continues to infect people and shut down large swaths of our economy. Soon, however, a special session of the Legislature will be called to address the situation. When it happens will depend on the dynamics of the current outbreak and any number of political decisions made in both Washington and Santa Fe.
We know the State budget is going to be deeply affected by the decline in oil and gas prices. But, when they do meet to address the budget New Mexico’s legislators MUST cut spending BEFORE even considering tax hikes.
With Coronavirus grinding travel and much of society to a halt and oil prices having crashed, there is little chance the budget passed during the 2020 Legislature will survive the year without some major revisions.
Even prior to the session ending Senate Finance Committee Chairman John Arthur Smith said, “I don’t think any of us can walk away from here and say the spending was controlled, we’re skating on very thin ice from a spending standpoint.” It’s hard to argue with that considering that Governor Lujan Grisham and the Legislature grew government by 20% (from $6.3 billion to $7.6 billion in just two years)
They should have seen this coming. Even as the Legislature met the price of a barrel of oil was dropping. On January 6, 2020 oil was $63.27 a barrel. It dropped to $42 a barrel before the Russians and Saudis announced their price war which further reduced oil prices to about $30 a barrel. Since oil and gas comprise 40 percent of New Mexico’s budget a sustained price war makes a special session very likely.
The Legislature didn’t learn their lesson of the last decade during which New Mexico experienced stagnant economic growth due to declining oil prices. Price dropped from over $100 a barrel to less than $50 a barrel over a few short weeks in late 2014. And, despite Gov. Susana Martinez’s efforts to address systemic problems in New Mexico’s economy, the Democrat-controlled Legislature opposed her at every turn. New Mexico typically underperforms its neighbors economically, but that situation grew far more apparent as New Mexico’s oil dependency was exposed.
By the time Michelle Lujan Grisham and a new band of more “progressive” Democrats took over at the start of 2018 New Mexico was suddenly awash in revenue thanks to new discoveries in the Permian Basin. But, did we get policy reforms designed to diversify New Mexico’s economy? Not at all.
While they talked a lot about “diversifying” New Mexico’s economy the Legislature did nothing of the sort. Instead they enacted numerous tax hikes and regulations that make New Mexico even less friendly to business. We are more dependent on the volatile oil and gas industry than before.
In 2019 the Legislature adopted HB 6, the largest tax hike in New Mexico history. Among many economically-harmful provisions, that law increased personal income taxes which disproportionately impacts small business. Excise taxes on new cars were also increased by 33%.
The controversial Energy Transition Act is also going to make it harder to attract energy-intensive manufacturing operations. The Act is already impacting the Four Corners economy directly with the shutdown of San Juan Generating Station coming soon, but the cost of shifting from coal to “renewables” is going to be substantial for all PNM rate payers. Businesses will avoid uncertainty and set up shop where electricity prices are not as expensive or likely to rise in the future.
The biggest problem of the past two years was that no pro-business tax relief was passed and no reforms were made to the onerous and problematic gross receipts tax. And, rather than embracing needed reforms like “Right to Work” or “Davis Bacon” prevailing wage laws, the Legislature and Governor teamed up in this year’s 30 day session to allow more time consuming and costly complaints to be levied at construction businesses (SB 98) and for local governments to face higher labor costs and labor forces that are harder to work with (HB 364).
Will we suffer the same economic stagnation if prices remain depressed? It is hard to say for sure. This is a volume-driven boom and is not as price-dependent as prior booms. But, if prices remain too low, the Permian Basin producers will reduce activities or pull out completely. That means fewer jobs and tax dollars.
What happens next is anyone’s guess, but we do know all 112 members of the Legislature are up for election in November.
Gessing is president of New Mexico’s free market think tank, Rio Grande Foundation
On this week’s episode, Paul interviews David Young who describes himself as a speaker, performance coach, and community leader. David is originally from Columbus, OH, but lives in New Mexico now and runs a consulting business called Being Wholehearted.
A young man, David lived in China a few years back and the two discuss Chinese culture and politics fairly extensively including aspects of the current Coronavirus outbreak.
Then, Paul and David discuss the power of virtual learning and how that tool can be used effectively not just in times of pandemic crisis, but also as a time-saving but effective learning tool.
Imagine being THIS Governor. Just a few weeks ago she was touting all manner of new government programs as part of a downright Orwellian “cradle to career” proposals. Today this same Gov. Lujan Grisham canceled one of the supposedly core functions of state government (provision of an “adequate education” is in the State of New Mexico Constitution) for the rest of the year.
The order doesn’t impact virtual charters schools like New Mexico Connections Academy (full disclosure, I’m on the board of that school), but I have two kids in traditional public schools, so my wife and I are about to become full-fledged teachers.
In fact, this shut-down exposes the reality that, while we pay a great deal of money (more than $18,000 annually for APS) the reality is that (no matter their education levels) parents are ultimately responsible for their child’s learning. The good news is that there are more options for students than ever before. Schools are supposed to provide resources, but Khan Academy is great. There are numerous other options here.
If you live in an area that doesn’t have great Internet service, that can be a challenge. Hopefully you have books and other reading materials and textbooks. These are not easy times. It would be great to see a more diverse, market based education system ultimately operating outside of state control that could come up with innovative solutions to these challenges. But, for now, we are all home schoolers.
The FY 2021 budget begins on July 1. The budget passed in the 2020 legislative session which wrapped up in February. Total spending contained in the budget amounted to $7.6 billion. Gov. Lujan Grisham vetoed $50 million worth of infrastructure spending as concerns mounted over the budget mounted, but a combination of low oil prices and drastically slowing economic growth will lead to spending at far lower levels than those in place today.
In an effort to put forth some real, specific ideas to address New Mexico’s looming budget shortfall, here are some ideas for legislators and Gov. Lujan Grisham to consider in a special session dealing with the FY 2021 budget.
For starters, the focus needs to be on spending cuts. Tax hikes during this time of economic crisis are simply unacceptable.
Film subsidies as expanded in SB 2 in 2019 could cost New Mexico up to $110 million annually. The cost to New Mexicans of these subsidies should be eliminated or at least reduced.
Infrastructure is a core function of government. $50 million in badly-needed infrastructure spending was vetoed by the Gov. due to budget concerns from this session. It is time to eliminate or rework New Mexico’s Davis-Bacon prevailing wage law to get more bang for our infrastructure bucks and put more New Mexicans back to work in the trades.
According to the Legislative Finance Committee operating the New Mexico Rail Runner costs $33 million annually. The train has been shut down due to the virus. Shutting it down permanently or at least for the duration of this crisis would save scarce resources.
Businesses are allowed plastic bags for their customers, City will suspend enforcement of the plastic bag ban.
This afternoon Albuquerque Mayor Tim Keller released an announcement that for the next 30 days, businesses will be allowed to use any type of plastic bag for their customers and the City will suspend enforcement of the plastic bag ban.
This announcement comes hot on the heels of the Rio Grande Foundation’s fact-based recommendations to eliminate plastic bag bans, at least for the duration of the Coronavirus and COVID-19 outbreak.
Earlier this month, Albuquerque City Councilor Pat Davis’s made comments on expanding the city’s ban on plastic bags. These comments are completely out of touch, especially in this time of Coronavirus.
Instead of pushing to make the plastic bag ban even more onerous and aggressive, the Rio Grande Foundation recommended that Councilor Davis, Mayor Keller, and the Bernalillo County Commission should ALL reconsider their bag bans… at least for the duration of this public health emergency.
I could not be more pleased to announce that we were successful. We thank Mayor Keller for recognizing the problem and working with our recommendations to cease the bag ban.
These are good solutions, and coming together just like this will help us beat and soundly defeat the Coronavirus and COVID-19. New Mexico is coming together against this common enemy.
And, while covering the issue the New York Times lived down to its reputation for left-wing hackery by covering our efforts, but of course spending all their time talking about the Koch Brothers who to our knowledge have no interest in plastic bags and certainly haven’t funded our work on the issue.
New Mexico faces unprecedented budgetary challenges in light of both the Coronavirus outbreak and dramatic restrictions on business and travel activities as well as the dramatic declines in the price of a barrel of oil. We have previously listed some ideas for dealing with the crisis here.
The suggestions here deal with the budget year that we are currently operating under. until the end of June. It was passed in 2019. Very quickly, New Mexico has gone from having massive budget surpluses to facing big cuts and relative “austerity” in the years ahead.
The good news is that oil and gas revenues were strong most of that fiscal year. The Gov. and relevant agencies should be able to pull back on funds that have not been spent from the past fiscal year including from shut down government including the K-12 system and support for the higher ed system (not including staff pay) because their operations have been shut down. Those are pretty simple cuts, but they likely won’t be enough.
We are ALL facing challenges right now, surely generous government employee pay raises passed in fat economic times should be considered for elimination. While laying off government employees is not ideal at this time it IS definitely worth reconsidering big pay raises passed in better economic times.
Unspent subsidies for the Rail Runner and film (both of which are shut down) as well as capital outlay dollars should be considered as pools of money to draw from in the current fiscal year.
In our next post we’ll look at the FY 2021 budget which starts on July 1. That is where the real budgetary action and decision making is going to be.
On this week’s episode, Paul and Wally provide a Coronavirus update. Which states have quarantines active? Where are things heading with the stock market and oil prices? What about New Mexico Republicans pushing for a special session?
The Lujan Grisham Administration supported the Yazzie v. Martinez suit as long as there was plenty of money available to spend on K-12. Now it looks like New Mexico is heading into a budget shortfall. It is asking the courts to drop Yazzie v. Martinez. Why now? Is this simply a nod to budgetary reality?
Based on its own ideas as well as some crowdsourced thoughts, the Rio Grande Foundation has a few ideas for Gov. Lujan Grisham to consider in this time of crisis.
RGF files a lawsuit against the City of Albuquerque arguing that city councilors violated open meeting laws.
We’re living the “Green New Deal” right now Wally and Paul discuss why.
Despite plenty of evidence (and news from both Maine and New York which have put their bans on hold) neither the City of Albuquerque nor Bernalillo County are acting to suspend or repeal their plastic bag bans.
In New Hampshire the governor issued an emergency order banning reusable bags, requiring stores to use plastic or paper instead,
The NM Grocers Association wants temporary repeal of bag ban.
With the economic challenge facing New Mexico in this crisis, here are a few small ideas for getting back to work and prioritizing what matters in these challenging times. The Rio Grande Foundation produced its original list of specific ideas and then reached out to the public online for additional ideas.
The full list which is being sent to Gov. Lujan Grisham is below.
Waive increases in unemployment insurance costs under the State’s formula. Consider rescinding the 4% raise given to public employees and used for that purpose.
Request a Section 1135 Medicaid waiver to eliminate burdensome rules with regard to Medicaid (Florida was just approved fort the first one in this emergency);
Allow full licensing reciprocity for qualified medical personnel from other states;
Relax occupational licensing rules and regulations so people can work. Giving haircuts in your home for money shouldn’t be a crime;
Suspend business licensing rules that interfere with solo or very small startups;
Re-purpose money from film subsidies (the industry, like most, has shut down in the State for now) and Rail Runner operations (the train is shut down as well) to health related initiatives;
Give state tax breaks to businesses that are able to continue to pay employees through shutdowns;
Instead of landlords shouldering the burden of unpaid rent, let the tenants pay with a form that provides the necessary documentation then allow the landlord to fully deduct that amount from his/her property taxes in the future. Government could even reimburse directly then deal with the back payments itself if it requires back payments.
Delay collection of property taxes since many are going to lose jobs or lose salaries for awhile.
Facilitate the transfer of workers being laid of from restaurants to be transferred, temporarily, to help out the food chain, like grocery stores stocking shelves, and unloading trucks for example. The State could facilitate with leaders in the food sector to make it happen and to compensate for wage differences.
State government should place a moratorium on any new State regulations at least for the duration of the crisis.
The governor, should immediately eliminate the SS tax on seniors
Businesses which have been forced to close should not be required to pay ANY expenses including loan payments, utilities, rent and vendor invoices. Those payments should be absorbed by the state. The Land Grant Permanent Fund should be considered as a means of helping the State “backstop” these efforts.
Schools are closed for at least three weeks and may be closed for the rest of the school season. Funds devoted to that period of time should be diverted to relieve businesses that have been shut down by the State.
The Gov. and PED should work with virtual education providers to increase and improve education options for students in traditional public schools.
With the Four Corners already struggling and natural gas prices (a main economic driver of the area falling from already-depressed levels) the State of New Mexico must give Enchant Energy a chance to see if its carbon sequestration plans to keep San Juan Generating Station open (and people working at the Plant and mine) will work.
The Rail Runner is shut down. Now is the time to consider whether continuing this money-losing service is necessary.
New Mexico already spends “adequately” (more per-student than any of its neighbors) but our education outcomes remain among the worst in the nation. So there are serious questions about the “adequacy” of our education system, but how much money is enough? What measurable outcomes would cause our system to be considered “adequate” by the courts? Perhaps, given the precipitous decline in oil prices (and likely the State budget) the Gov. is simply preparing for fiscal reality in future K-12 budgets.
At the Rio Grande Foundation we have long supported broader school choice including improving our charter school law and allowing parents to direct education funding to private schools via tax credits or vouchers. Those are NOT among Gov. Lujan Grisham’s solutions.
So, should Yazzie be dismissed? Probably. Is New Mexico’s K-12 system “adequate?” Not really. But, the tools needed to make the system adequate really don’t require more money and we see no sign that this union-friendly Gov. will embrace choice as a means of making our system “adequate.”