Fission for Economic Development?

urenco_nm

In 1999, New Mexico enacted a law that allowed receipts “from selling uranium hexafluoride and from providing the service of enriching uranium” to be deducted from the gross-receipts tax.

Was the perk a wise “public investment” in “economic development”? The truth is, we don’t know. Counterfactuals are tough. Perhaps URENCO, the European uranium-enrichment company that benefited from the break, would have come to New Mexico without it — site-selection decisions are complicated. But in 2016, whatever its past “benefits,” the deduction is looking iffier and iffier.

Case in point: Exelon. On Thursday, the utility announced plans to close two of its nuclear plants. According to the Chicago Tribune, the “company, the parent of … utilities provider ComEd, said the Clinton Power Station would close June 1, 2017, and the Quad Cities Generating Station in Cordova would close June 1, 2018. The plants have lost a combined $800 million in the past seven years.”

Love them or hate them, nuclear plants are closing in the U.S. And the much-touted renaissance of domestic atomic power, predicted by many a decade ago, is fizzling. In URENCO’s 2015 annual report, the company disclosed that in North America, “historically low prices of fuel used for electricity generation, for example natural gas, combined with a decline or minimal growth in electricity demand continue to challenge the economics of both existing and proposed nuclear power projects.”

Enrichment customers can be found all over the world, of course, but for how much longer? Europe is denuclearizing. Sweden is speeding up the closing of its two reactors, from 2020 to 2018. Germany is planning to be fission-free by 2022. The developing world offers an opportunity, but China is ramping up its own enrichment capabilities, and globally, URENCO faces fierce competition from Russia.

In 1999, were the elected officials who approved URENCO’s GRT deduction “visionary”? It’s getting tougher and tougher to believe so. The freebie is another example of legislators and governors lacking the ability to predict which businesses and industries pose the greatest opportunities to build a vibrant private sector here.

New Mexico doesn’t need economic-development trickery. (And the kinda-sorta corruption that comes with it.) It needs to focus on the basics — low and simple taxes, reasonable regulations, appropriate infrastructure, meaningful school reforms — to turn around a state in dire need of job and wage growth.

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4 Replies to “Fission for Economic Development?”

  1. URENCO USA, the only commercial provider for enrichment services in N. America, was and is a good deal for NM. However, gross-receipts tax (GRT) exemptions and deductions are an inefficient way to promote economic development. Now is the time for comprehensive tax reform in NM.

      1. Why doesn’t the RGF provide such research / analysis? I would be shocked if anyone else has.

        While hardly qualifying as research, the URENCO facility alone cost $3-4B to build (local jobs and materials) and they employ roughly 200 people in a rural area…not trivial numbers for SE NM – even amongst the oil fields.

        I’m in agreement regarding the abuse of the GRT system and the general decline of nuclear power – but in the SE part of the state URENCO is a welcome addition!

        1. It is very tough to research the “one-off” counterfactual. We KNOW for sure that individual GRT breaks are inefficient and economically-damaging tax policy. The question that is impossible to answer, of course, is whether an individual project like URENCO would come to SE New Mexico absent these breaks. Impossible to know that. Also, it must be asked whether overall tax rates would be lower absent the special-interest exemptions. One believes so, but it is difficult to understand how that would look in the end.

          The reality is that there are limits on the research. We KNOW what we SHOULD be doing and moving towards. In the real world, I think we need to keep beating the drum for simplicity and fairness and at least making the point that these breaks are sub-optimal policy at best.

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