New Mexico faces tough economic decisions

The following appeared in the Santa Fe New Mexican on March 27, 2020.

We don’t know when the virus that has so dramatically changed our lives will begin to recede, but when it does, New Mexicans will face a changed state.

It is not a matter of whether we’ll have a special session, but when. Under Gov. Michelle Lujan Grisham, New Mexico’s General Fund budget grew by more than 20 percent over the last two years from $6.3 billion to $7.6 billion. This rapid growth was recognized by many, including Senate Finance Committee Chairman John Arthur Smith and nearly all Republicans, as too much, too fast.

The collapse in oil prices alone would likely cause a special session. In mid-January, oil was in the mid-$60s per barrel. Now it is in the low $20s. With approximately 40 percent of New Mexico’s budget dependent on the oil and gas industry, the situation is serious. Of course the added economic disruptions caused by the virus only amplify the economic challenge.

New Mexico has some reserves to fall back on, and federal dollars will be pumped into our state economy. But low oil prices are both a short- and long-term problem. Even when economic activity (and thus oil and gas demand) returns to normal, too much oil is on the market. We have no idea how long oil prices will be depressed, but there is nothing on the horizon that suggests a dramatic price increase.

To address the budget situation, plans for “free” college and the $320 million contribution to the state’s new early childhood fund are low-hanging spending programs that need to be reconsidered. Film subsidies have been in place longer, but must be reconsidered as they are a net drain on the state’s economy.

Finally, we know New Mexico’s unemployment rate is going to skyrocket, and the private sector/small business is going to bear the brunt of the pain. Government employees (including teachers) received generous raises over the last few years. Those may have to be negated due to budgetary reality.

Hopefully this crisis finally spurs long overdue efforts to diversify New Mexico’s economy. The Rio Grande Foundation and others have long pleaded for the state’s Democratic-dominated Legislature to enact economic reforms to diversify the economy beyond oil and gas. That has not happened. We are going to pay a steep price for that.

In recent years, there has been a push to reform New Mexico’s economically problematic gross receipts tax in a revenue-neutral manner. It results in taxes being paid on top of taxes and it also makes small businesses operating in our state less competitive by requiring them to pay taxes at rates approaching 8 percent for various services and business inputs that are not taxed in other states. Efforts to reform this tax have had bipartisan support but have gone nowhere in the Legislature.

Occupational licensing reform is another bipartisan idea the Legislature has not acted on. Licensing laws unnecessarily place barriers between workers and employers. For (at very least) the duration of the crisis the governor should:

  • Allow full licensing reciprocity for qualified medical personnel from other states.
  • Relax occupational licensing rules and regulations so people can work. Giving haircuts in one’s home for money shouldn’t be a crime.
  • Suspend business licensing rules that interfere with solo or very small startups.

In the 2019 and 2020 legislative sessions, bipartisan legislation was introduced to remove licensing barriers for those previously convicted of crimes. The bill was vetoed in 2019 and died for lack of time in the 2020 session. This crisis and its economic aftermath offer an opportunity for Lujan Grisham to get serious about tax and licensing reform.

Rarely have economic times shifted so dramatically so quickly. Even the 9/11 terrorist attacks saw a slow, steady economic recovery after the initial shock. Shared sacrifice is a necessity, but so are innovative solutions. We’re all in this together.

Paul J. Gessing is the president of New Mexico’s Rio Grande Foundation, an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.