Most New Mexicans are abundantly aware that the Rio Rancho Star Center has quickly turned into a white elephant. The City of Rio Rancho recently took over management of the facility, in part because the Center has lost an astounding $580,000 since it opened in 2006 (this does not include the $36 million in bonds floated to finance the arena). Not to be outdone, Albuquerque Mayor Marty Chavez wants Albuquerque to build an arena of its own and is looking for a handout from Washington to do it.
As if to symbolize the waste that often results from investment in sports arenas and stadiums, it was reported today that the famous “Bird’s Nest” stadium where the Olympics were held is being abandoned and turned into a shopping complex. So much for China as a role model! Rather than wasting taxpayer money on centrally-planned boondoggles, arenas, like most other projects, should be built by the private sector when there is adequate demand. Otherwise, our governments will waste massive amounts of our tax money ($450 million in the case of the Bird’s Nest)
A few days ago I discussed the generous incentives that have been used to attract filmmakers to New Mexico. I’ve had several questions about which study I believe to be more accurate and unequivocally I say the Arrowhead Center Study which was done at the request of the Legislative Finance Committee, not the Ernst and Young study, is closer to the truth. But, we have been talking about these subsidies for the film industry for a long time (see this entry from 2004) saying that they are bad public policy and should be eliminated.
But what about an objective, outside opinion on the studies’ relative merits. Here is an interesting analysis from “The Contrarian.” A couple of choice quotes from the posting indicate the reasons to be skeptical of the Ernst & Young study:
It’s hard to explain the discrepancy without culling through footnotes and looking at the methodology and data used. But the study commissioned by the governor’s office might be slightly more suspect, given the political and economic capital Richardson has invested in the issue. Even the pro-subsidy report concedes that the direct economic benefits don’t make up for the foregone tax revenue, dollar for dollar. But it manages to find a net benefit by estimating the present and future impact of “film tourism.”
Does anyone really choose New Mexico as a vacation destination because some scene in an Indiana Jones movie was shot there? Possibly. But this seems a slender thread on which to hang a program that has handed out an estimated $67 million in tax breaks since 2003. And does Steven Spielberg really need the handout? I think not.
Something I blogged about at the start of November and included in our “2008 Piglet Book” has finally been picked up by the Associated Press.
The story, which was reported in the Albuquerque Journal on Sunday is that New Mexico’s film Incentives hurt our economy rather than helping it. While the fact that that New Mexico’s generous film incentives are economically dubious has been known for some time, I say “better late than never.” And the story includes some good reporting including the following:
More than 40 states have film incentives and they have been scrambling to out-do one another, said Frank Hamsher, a public policy consultant from St. Louis. Michigan offers a production rebate of a whopping 42 percent.
“It’s like poker. They see the last bid and they up it a bit,” said Hamsher, who spoke on the subject at a recent meeting in San Diego sponsored by the Western States Arts Federation.
Fickle filmmakers, meanwhile, are chasing the next best deal, he added.
Most states haven’t taken a hard look at what’s being spent, what taxpayers are getting in return, and how sustainable it is, Hamsher said.
We’ll see if the Legislature decides that overly generous film incentives will face reductions in tougher economic times with the state facing a massive budget deficit.
As I wrote on this site a few days ago, Albuquerque Mayor Marty Chavez is asking incoming President Barack Obama for a $1.6 billion bailout. Obama has already pledged to “invest” in infrastructure, so Mayor Marty is just getting his, right?
Unfortunately, as Kristina Rasmussen of the National Taxpayers Union points out in a recent article by columnist Cal Thomas: “Total cost of the wish list is $73,163,299,303. They claim this will create an estimated 847,641 jobs in 2009 and 2010. Divide that out, and you get a cost to taxpayers of $86,314 per job. Not exactly a great deal.” It seems like the plan simply shuffles the deck chairs on the Titanic rather than providing any “stimulus.”
As Mayor Marty has figured out, much of this spending represents nothing but pork and other projects, like the Albuquerque streetcar, that would not otherwise receive funding if the issue was left to local politicians and voters. Once Santa Clause (the feds) agree to pay, all restraint is abandoned.
As if to summarize the wrongheaded economic thinking associated with this money grab, Forbes recently named Albuquerque one of 5 “Obama Boomtowns” that are expected to benefit from the “stimulus.” Perhaps Forbes will raise a more important question next time “Which taxpayers and small businesses will lose out the most as massive amounts of their money is wasted on these boondoggles?” Unfortunately, I have a feeling this group includes all of us.
On Sunday there was an interesting article in the Albuquerque Journal explaining that legislators have found $173 million worth of unspent funds that could be re-allocated for other uses. While the opportunity to re-allocate unspent funds that would have otherwise been wasted on a $22.3 million equestrian center would seem like a good thing, Ed Sandoval is skeptical. He is quoted in the article as saying “Capital outlay in essence drives the economy…we’ve got to be careful how we do this.”
Certainly, care is important whenever legislators are dealing with millions of taxpayer dollars, but the idea that the capital outlay process “drives” the economy is truly a joke. The private sector drives the economy and people like Sandoval (politicians) suck off of our productive activity and re-distribute it to others, often with highly unproductive results. Does anyone really believe that they couldn’t spent $22.3 million more effectively than the state has plans to do for this equestrian center?
In the best of times Sandoval’s economic ignorance should be of concern. In today’s economic situation, Sandoval’s ideas are truly dangerous.
Having been out of state for much of this week, it has been tougher to follow the action locally, here in New Mexico, but I did see this great article from the Wall Street Journal from Wednesday. The authors’ essential argument is that while we expect Congress and corporations to behave badly, we have seen an unfortunate abandonment of principle from many economists relating to the spate of bailouts and the role of government in having created the current economic malaise.
As the authors conclude:
Our desire for a principled approach to this crisis does not arise from an academic need for intellectual coherence. Without principles, policy makers inevitably make mistakes and succumb to lobbying pressure. This is what happened with the Bush administration. The Obama administration can do better.
Principle, especially relating to limited government, is more important than ever these days. Usually economists are among the most principled members of society, but supporters of bailouts and arbitrary, massive government spending have debased the field.
While all these bailouts are economically dubious from a policy standpoint, Charles Krauthammer points out that their real danger is in shifting the emphasis of business from economic success and innovation and to political lobbying. What he doesn’t state explicitly is that President Bush is largely responsible for the shift. He does point out that it will be up to Obama and the Democrats to further these changes or return to the market.
Despite tough economic times and plummeting oil and gas prices, Texas maintains an $11 billion surplus (without forcing its citizens to pay an income tax). As this article points out, despite the surplus, politicians in the Lone Star State are not calling a special session to spend the money, unlike the Governor of a neighbor of Texas. According to the article, in Texas “new spending by lawmakers will be capped at about 9.1 percent over the current two-year budget.” New Mexico grew spending by this much in one year during the recent oil and gas boom.
Perhaps that is why the average Texan makes more than $5,000 more than the average New Mexican annually???
It looks like the endgame may finally be near for Albuquerque-based Eclipse Aviation. According to KOB TV, Eclipse employees found out that they won’t be receiving paychecks from their past two weeks of work. With no money to pay employees, it would seem doubtful that the company can go on much longer — how long would you keep showing up for work if you weren’t being paid?
As Jim Scarantino has pointed out, if/when Eclipse goes under, taxpayers will be out $20 million. Nonetheless, I sincerely hope that Governor Richardson and our “economic development” gurus don’t decide to double-down on this taxpayer loss by bailing out the failing company.
While it is sad that so many people will likely lose their jobs and New Mexico’s economy will take another body blow, the lesson learned must be that government’s role in economic development should be to create an economically-viable and equitable tax structure rather than attempting to pick and choose “winners” of government largesse. Those “winners,” like Eclipse, often are engaged in risky businesses that would otherwise not attract private investment and when times are tough, they are unable to survive.
Perhaps Eclipse will pull through on its own. It would be great if it does. Unfortunately, it is not looking good right now.
Regardless of what happens on Election Day, New Mexico is facing a tougher economic climate than it has faced in quite some time. We will be front and center with solutions to reduce the budget and ensure that economically-devastating tax hikes are not foisted on already reeling New Mexico taxpayers.
To this end, we have been critical of the state’s giveaways to the film industry. More articles and analysis are available on our website and blog. Recently, I found an analysis from the Arrowhead Center which is the economic research arm of New Mexico State University. Unlike so many other economic “analyses” done in this state, the Arrowhead Center takes a clear and unbiased look at the New Mexico film industry.
Some of its findings are not pretty and, not surprisingly went unreported in the media. Regarding the state’s 25% film production rebate (filmmakers receive 25% of their taxable expenses back as a rebate from taxpayers), meaning if you take your film crew out to dinner after a shoot and spend $1,000, New Mexico taxpayers pick up 25% of the tab. According to the study:
During fiscal year 2008 the NM government granted $38.195 million in rebates. The resulting increase in economic activity generated $5.518 million in revenues. The implied return is 14.44 cents on the dollar. This means that for every one dollar in rebate, the state only received 14.44 cents in return.
14 cents on the dollar? Even if you are not good at math, it is clear that the film industry tax credit is nowhere close to paying. Rather than wasting money on film subsidies, we should have been cutting taxes on all New Mexicans. With a fiscal crisis in the making, the least the Legislature can do is cut this program back significantly.