NM can balance budget without hurting economy

No politician relishes the job facing New Mexico’s leadership in the months ahead. Facing massive budget deficits and the prospect of an election-year special session in an unpredictable and unsettled political season is no elected official’s anyone’s idea of fun.

Like most problems, New Mexico’s budget woes did not sneak up on us overnight. Decades of over-spending combined with tax and regulatory environments that make our State relatively unattractive as a place for doing business caused undue reliance on federal spending and extractive industries like oil and gas.

Economic realities have recently impacted both areas, exposing this.

The current situation could have been avoided with the enactment of pro-growth economic policies, but that didn’t happen. The task now is to balance the budget while minimizing the harm to our future economic prospects. Once the budget is balanced, perhaps the Legislature, especially the Senate, will embrace pro-growth policies.

The good news is that Gov. Martinez has made it clear that she won’t raise taxes. The last thing our businesses and hard-working New Mexicans need is higher taxes. According to the Kaiser Family Foundation in FY 2014 New Mexico spent $7,767 per-person. Among our neighbors, Colorado was the next-highest at $5,853. Texas spent $4,086 or just over half the amount spent by New Mexico. Clearly there is room in the budget to cut.

The other good news is that Rio Grande Foundation has pored over the budget and found enough cuts for policymakers to avoid tax hikes without harming its economic future.

The bad news is that some are already digging in to protect their preferred programs. Senate Democrats have already put education spending – 57 percent of the general fund budget – “off the table.” For their part, several leaders of the business community have urged the preservation of “economic development” spending.

The truth is that closing the budget gap will require compromise. Here are a few of the potential cuts laid out in the new RGF report:

• LEDA: $55 million; LEDA is classic “corporate welfare.” Worse, it is ineffective. Earlier this year, the Legislative Finance Committee (LFC) reported that “the state does not receive sufficient reporting from businesses using … LEDA … funds to properly evaluate” the program. Thus, “it is impossible to determine relative effectiveness and cost-efficiency” of it. Other dubious “corporate welfare” programs could add to the savings.

• Film subsidies: $50 million; There has never been a justification for spending $50 million annually to subsidize Hollywood studios. Massive deficits should mean massive cuts or elimination. Recently, Alaska and Michigan killed their programs while Louisiana downsized dramatically.

• Higher education: $30 million; Student populations are down by more than 8 percent, but the number of branch campuses continues rising. Reducing their number is an easy starting point. Cutting back on taxpayer subsidies for athletic programs (more than $4 million at UNM alone) must be considered as well.

• Personnel: $165 million; a 2014 study by the American Enterprise Institute found a 24 percent advantage for New Mexico government employees when total compensation, including the value of job security, was scrutinized. A 10 percent reduction in the total cost of state-employee compensation is a reasonable goal. This could be achieved by reducing the size of the workforce, by reducing compensation packages, or both.

• K-12: $252 million; at $9,012, New Mexico spends more on K-12 per-student than Utah ($6,555), Arizona, ($7,208), Oklahoma ($7,672), Texas ($8,299), and Colorado ($8,647).

The most promising tactic for immediate savings to is to renegotiate the collective-bargaining agreements that excessively compensate teachers and administrators, especially through an unfair and broken pension system that incentivizes longevity over quality. Expanding school choice is another way to save money and cut costs.

Absent a “miracle” rebound in oil and natural gas prices, New Mexico’s budget faces long-term “structural” deficits. Gimmicks and tax hikes will not solve the problem. We’d all like to see a thriving private sector and voters will decide this November between two very different visions of New Mexico. In the meantime, we need to do some substantial pruning of the budget in order to avoid raising taxes that further make New Mexico uncompetitive with her neighbors.

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