Two issues have bubbled to the surface in the local debate over economic development and the proper role of government. Those are:
1) Whether Bernalillo County should impose fees up to 3% on utilities that use right of way owned by the County;

On the this issue, we need to ask questions including the following:

How was the 3% number arrived at?
Do utilities impose costs on the County relating to its “right of way” for example in terms of moving wires or equipment that are not covered in the existing system?
Is a 3% fee going to cover such costs or result in excess revenues?
If so, what will those revenues be used for? Will they benefit utilities or their customers?
Who pays for rights-of-way currently?
How is this 3% fee different from a simple tax increase?

2) This issue relates to the ongoing discussion of Whether the City of Albuquerque and Bernalillo County should subsidize a grocery store downtown. Advocates explain their position in the initial article while I have written about the issue here;

If there is really a market for a second grocery store downtown, why isn’t one located there already?
Is it really in the best interests of taxpayers from all over the city and county to subsidize one part of Albuquerque?
If benefits are available for one business in one part of town, why not make these same benefits available for other businesses in other parts of town?
If there IS a market for another supermarket downtown, but the issue is one of public policy, what can the City and County do to mitigate of solve the issue?

Winthrop Quigley, business journalist at the Albuquerque Journal, had another economically-confused column on New Mexico economic policies and our potential for economic growth. Quigley questions efforts to lower New Mexico’s tax burden and make the state more attractive to businesses.

As Quigley notes, “our state’s corporate income tax changes were designed to signal…that New Mexico is open for business…competing with the rest of the country on the basis of price.”

Well, I’m not sure it is quite so simple. True, our state has relatively low wages and that can be a selling point, but this is an information economy. Quigley is right about that and the fact that we need an educated, entrepreneurial work force. But that doesn’t mean that you can’t be competitive on taxes and economic policy.

Ultimately, businesses and individuals want to work where they can keep a higher percentage of their incomes (low income taxes, both corporate and income) and control who they hire and fire with fewer hoops to jump through (Right to Work) to name just two policies that impact where businesses locate.

New Mexico has not been “in the game” when it comes to being economically competitive for much of its history. That can change, but even if it does, it will take time to transform and improve New Mexico’s economy. The flip side is that New York and California do very little well when it comes to economic policy. They are high-tax states with heavy regulatory burdens. They also have some specific industries that have developed there over the decades.

However, the reality is that people are leaving economically-unfree states like New York and California and moving to economically-free states like Texas. The reality is that New Mexico can be a destination for highly-skilled workers and jobs, but we need public policies in place that give people a reason to set up shop here.

For the first time ever, during the 2013 legislative session, the Rio Grande Foundation created a tool called “Freedom Index” which allowed legislators and constituents alike to see how our representatives voted on freedom issues on the floor of the Legislature.

We have created infographics for each house and each region of the state to allow users to compare their legislators against each other within the same region. Check out the following documents:

Eastern New Mexico
Western New Mexico
Southern New Mexico
Northern New Mexico
Santa Fe area
Albuquerque area
Statewide

Rob Nikolewski over at Capitol Report has done a great bit of reporting/research on our state’s exploding “disability” population. Between 2003 and 2011, the population rose by an astonishing 58.7%. Given that, it is no surprise that our state’s work force participation rate is among the lowest in the nation and the lowest in our region (see chart below):

SSDI (disability) is ripe for reform and even liberals like Joe Klein writing over at Time “get it.” Problem is that it is politically-tough to end government programs that encourage dependency.

Rep. Yvette Herrell had an excellent opinion piece in the Albuquerque Journal on Sunday that speaks to the merits of local decision making on a wide variety of issues. One that she did not mention was education which was discussed in an article that ran in today’s paper.

The gist of the story from today’s paper is that during the worst of the recent economic downturn, New Mexico policymakers had to reduce spending, including education spending. These reductions may have caused the state to spend too little under a federal formula that may cost New Mexico $34 million in special education funding. Interestingly, despite reduced funding, the education system has cannibalized funding for the broader system in order to preserve funding for special ed lest the state again fall below the federal thresh hold.

See the problem here? Washington is using our own money to hold our state representatives hostage in order for the state to receive even more of our money. And, while special ed is held relatively harmless, the rest of our kids suffer thanks to Washington’s arbitrary and inflexible formulas.

Education should be funded and administered as close to the people as possible, not by bureaucrats in Washington (I prefer total school choice, but at least state politicians are a bit more accountable to local control). If there is one federal agency that has completely failed and should be gotten rid of, it is the Department of Education.

I found this article from Albuquerque Business First at once fascinating and terrifying. The idea that any one entity employs 1 of every 14 workers and accounts for $7.8 billion in economic impact is shocking. The fact that this is just the DOE and DoD impact on our local economy is all the more astonishing.

To call Albuquerque itself a “one horse town” when it comes to its economy would be an understatement. Of course, the flip side is that I shudder to think what would happen to the local economy were Kirtland to ever close or even face significant cutbacks. RGF has been sounding the warning bell about the need to diversify New Mexico’s economy.

And, while the tax deal in the last legislative session may have a positive impact, there is much to do to reform the regulatory, tax, and education systems that hold us back from true prosperity.

Our friends at the Manhattan Institute have a new report, written by Senior Fellow Mark P. Mills, which drives home many of the points we’ve made about the positive economic impacts for New Mexico of exporting Liquefied Natural Gas (LNG).

According to the report, the US could eliminate its trade deficit and stimulate the economy to the tune of $600 billion annually through greater exports of energy. What can/should the government do to seize this opportunity?

Executive actions that would lead quickly to major economic benefits and send the right signals to domestic and world markets include:

Approving the application of any and all qualified entities seeking to export natural gas;
Approving the Keystone XL pipeline; and
Directing the Department of Commerce to approve any application to export crude oil.

In the near term, the administration and Congress should work together to:

Encourage private investment in hydrocarbon production.
Direct all relevant federal agencies to identify and resolve unintentional impediments to increased development of refineries, pipelines, and oil and gas production on private lands and, collaterally, avoid imposition of any proposed new rules or regulations on any industries and practices that are already heavily regulated at the state and federal level.
Open up greater access to hydrocarbon resources on federal lands.

Modern technology makes such development safe and environmentally responsible. The federal government controls and restricts access to 50 percent of all onshore hydrocarbon-bearing territory and 100 percent of the offshore territory, wherein 80 percent of that territory is off-limits to exploration or development.

Help the Bureau of Land Management (BLM) set administrative and budget priorities.
The BLM recently announced that it was postponing oil and gas lease auctions on land that it controls in California because of demands on its resources to deal with environmental litigation and because it is “concentrating its limited resources on … other priorities, such as granting renewable energy permits.”[24] Thus, the BLM is giving priority to projects that require federal subsidies resulting in purchases of Chinese solar technology rather than facilitating oil and gas development that is subsidy-free and results in exports to China and other nations.

New Mexico is by no means the worst state when it comes to indebtedness, but 21st from the top isn’t that great either. Per the usual, New Mexico performs worse than its neighbors including:

Texas – 46th;
Arizona – 42nd;
Utah – 34th;
Oklahoma – 32nd;
Colorado – 29th;

The heaviest state debt burdens are concentrated in the Northeast.

There has been a lot going on recently relating to the ObamaCare health care law. From the IRS scandals and the fact that the IRS will play an integral role in implementing the law to the Obama Administration looking for “donations” from major insurance and drug companies to assist with the law, the signs of disaster are becoming more prevalent as the law’s full implementation approaches.

I recently spoke to Mike Jaxson (see interview link) with Pecos Valley Radio about the health care law and some of the most important issues surrounding it.

From Investopedia: Regulatory Risk: The risk that a change in laws and regulations will materially impact a security, business, sector or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape.

What does this mean? Quite simply, while governments often attempt to regulate on behalf of consumers or the environment, the reality is that government regulators are often arbitrary, captured by special interests, and make decisions based on misinformation or biases.

Check out this story from Dan Mayfield at Albuquerque Business First in which the author discusses the downgrade of the stock of the company looking to purchase the New Mexico Gas Company. The analyst who downgraded the stock notes that the deal “adds ratebase in a less-favorable regulatory jurisdiction … the deal clearly adds to TECO’s overall regulatory risk and could widen the company’s discount.”

In other words, New Mexico’s PRC is a highly-volatile organization fraught with regulatory risk. Doing business with it may be harmful to your bottom line…Beware.

And with people like Karen Montoya residing on the PRC (having previously exempted convicted felon Manny Aragon’s house from property taxes), wouldn’t YOU feel a little leery doing business in New Mexico?

The following letter to the editor ran in Saturday’s Albuquerque Journal west side edition relating to the finances of the Santa Ana Star Center in Rio Rancho.

The fact is that arenas — even when they have full-time sports teams as tenants — are notorious for losing money. Fortunately (as an Albuquerque taxpayer) Albuquerque did not build an arena. Unfortunately, Rio Rancho cannot go back on its bad decision. The best that we can do is learn from our mistakes.

The articles that appeared recently discussing the Santa Ana Star Center’s ongoing struggles, highlights problems that are by no means unique to Rio Rancho. Around the country and locally, government officials have big dreams of using taxpayer dollars to spur development. These dreams are often shattered when they hit reality, but elected officials are at worst booted out by voters while taxpayers are left paying the bills.

The Star Center was a costly mistake that will never pay for itself, even if the so-called “multipler” of benefits to local businesses is taken into account. According to stadium expert Andrew Zimbalist of Smith College, “the independent economic research that’s been done on the question of whether such facilities have an economic impact on an area has uniformly found that there is no positive impact.”

And this is for cities that have major league sports franchises filling the venue dozens of times per year. The Star Center has struggled to find regular, full-time occupants.

This is not to beat up on the Star Center or even the Rio Rancho officials who brought us this mess, but to spur the public – both in Rio Rancho and in Albuquerque – to recognize that spending 6.5 percent of your annual budget on a sports arena or events center is a bad idea.

Government should take care of the basics while leaving costly amenities like arenas and events centers to the private sector.

Paul J. Gessing
President
Rio Grande Foundation

Which sources of electricity are responsible for generating a majority of the electricity in the United States and which receive a majority of the subsidies? The following charts illustrate the issue nicely:

Notably, in terms of generation, solar doesn’t even generate enough electricity to be broken out (although it does under subsidies). The best ratio in terms of most electricity generated relative to subsidies is natural gas. Nuclear, which many free market advocates strongly support, receives a relatively high rate of subsidies, but nowhere near the immense quantities of taxpayer dollars given to wind.

There is no doubt that increased inequality of incomes is a reality in modern American society. To many economic conservatives and adherents to free market ideas like Rio Grande Foundation president Paul Gessing, this inequality is an inevitable result of broad societal changes, many of which are beyond the scope of government redress.

To left-liberals like Nick Estes, formerly of New Mexico Voices for Children, inequality is a serious problem undermining the very foundation of democracy and demanding an immediate and meaningful response from policymakers.

Who’s right? You be the judge. Gessing and Estes will face off in a debate over inequality in America. Attendance is free.

• When:  The debate will be held from 6:30 to 8:00PM on Wednesday, June 12, 2013.
• Where:  Room 2401 at the University of New Mexico Law School. The Law School is located at: 1117 Stanford NE, Albuquerque, NM  87131.
• Who:  Paul Gessing, president of New Mexico’s free market think tank and Nick Estes, formerly of the progressive think tank and advocacy organization Voices for Children. The panel will be moderated by Dennis Domrzalski a reporter with Albuquerque Business First. Questions will be taken from the audience.

Come by for an interesting discussion and see if we all can’t learn something.

Not just in New Mexico — it happens everywhere:

My son and I were watching a TV show and at the end there was a blurb about it being made in Georgia.  I said to him “I guarantee that “filmed in Georgia” translates to “subsidized by Georgia.”  He did not believe me, and could not understand why anyone would subsidize film production.  After all, we can argue about whether any government subsidized jobs make sense or just cannibalize investment in other areas, but film jobs are the most temporary and fleeting of all jobs.

Turns out I was right.

Professor Caplan wonders about the value of job security when comparing government vs private sector pay. Certainly government workers face lower risk of being laid off. RGF’s estimate of the government-private sector pay disparity would be even greater if the value of that risk differential could have been included.

I love this story about a doctor from Maine.  Rather than putting up with all of the ADDITIONAL rules and regulations of ObamaCare, he is essentially “opting out” of the health care system entirely.

According to the article:

The family physician stopped accepting all forms of health insurance. In early 2013, Ciampi sent a letter to his patients informing them that he would no longer accept any kind of health coverage, both private and government-sponsored. Given that he was now asking patients to pay for his services out of pocket, he posted his prices on the practice’s website.

The doctor explained that he can actually do business as he sees fit under the new paradigm:

“I’m freed up to do what I think is right for the patients,” Ciampi said. “If I’m providing them a service that they value, they can pay me, and we cut the insurance out as the middleman and cut out a lot of the expense.”

To me, this is the real-world way that people will “Go Galt” as outlined in Ayn Rand’s classic Atlas Shrugged. After all, it is not the entire society that must be abandoned, but the constricting and inefficient government rules and mandates that hinder humans from acting in their own rational self-interest. While I suspect many MD’s nearing the end of their careers will simply retire due to the new health care law, I hope that younger doctors like this one from Maine will simply “opt-out.”

Any examples of New Mexico MD’s doing the same? I’d love to compile a list of physicians who plan to operate outside ObamaCare’s parameters.

HT: Paul Jacob

Last Thursday former Governor Richardson praised the Endangered Species Act for the way that “best available science” has informed decisions (and his role in them) based on the Act.

While I agree that species conservation is important to all of us, the former Guv overstates the Act’s effectiveness and includes nary a word about its cost. He cites three species (Gila trout, Aplomado falcons and Mexican gray wolves) that have benefited from the act. To that I ask, “compared to what?” Would they be extinct absent the Act or some other form of the Act?

He also says “the Act has prevented the extinction of 99 percent of the more than 1,400 species placed under its care.” Really? Without the Act (or some other form of the Act) more than 1,390 listed species would now be extinct!?

Professor Jonathan Adler’s scholarship suggests that the Act could be made more effective and its costs reduced. His testimony before congress is here. His reasons:

Private land owners have incentives that are counterproductive to the the Act’s stated intent. “the Act effectively penalizes the owners of land upon which endangered species depend.” Moreover, “regulatory provisions of the act can discourage the discovery and collection of needed scientific information about potentially imperiled species” by private land owners.

Decisions are often the result interest group conflicts, making them more politically based than scientifically based:

The listing of individual species, the designation of critical habitat and the implementation of conservation measures often prompt fierce legal and political battles. Sound science is often a casualty in these conflicts as the combatants twist and manipulate the available scientific evidence to support predetermined policy preferences. Activists on all sides claim that “sound science” supports their respective positions, and scoff at the “junk science” relied upon by the other side. In actual fact, what often divides the respective camps is not a devotion to science, but sharply divergent policy preferences dressed up in scientific garb.

Once a scientifically based prognosis is given for an endangered specie, we still need to determine what, if anything, to do about it. Science itself should play a pivotal role but it should not dictate policy. We need to estimate the costs (tradeoffs) involved. Are they worth it? That is the question we should answer for policy.

Only 22 species of the approximately 2000 listed as endangered or threatened since 1973 have been categorized as having recovered. The Endangered Species Act has met only one percent of its goal in 40 years — a far cry from Governor Richardson’s hyperbole.

The Endangered Species Act has ignored the incentives of those reacting to it. Shouldn’t an examination of those incentives be part of the science needed to improve the Act?

Charles Murray is unhappy with Frederick County Maryland’s interference with parents’ attempt to implement their new charter school (a school designed to emphasize a “classical curriculum”).

From the beginning, the administrators of the Frederick County Public Schools (FCPS) were openly hostile to the idea of a classical curriculum and threw up one frivolous bureaucratic roadblock after another. Now, in the last months before the school is finally scheduled to open this fall, the FCPS has informed these parents that they can’t hire the nine teachers that they had selected after vetting 300 applications. Instead, under Maryland law, the school can be forced to accept teachers on the county’s “to be placed list”—in other words, teachers who the FCPS would otherwise let go. Furthermore, the parents running the school cannot even interview them—nor learn their names, nor have any other way to get an idea whether these teachers have any understanding of the classical curriculum or the ability or motivation to teach it. The FCPS can simply force placement of the teachers it can’t use in any of its other schools.

This is a perfect example of the problem of interest groups, this time the teachers’ union, receiving special privileges via political process. See my study of privilege-seeking in political process and how it affects prosperity along New Mexico’s border. By guaranteeing a monopoly “privilege to government’s resource providers,” “provision of core functions (are) more costly than they otherwise would be.” (p.7)

Murray concludes with an indictment of our loss of liberty that should wake us up. This example:

is representative of the kind of naked display of power that increasingly happens throughout government—in the schools, the regulatory agencies, the tax authorities, at the county, state and federal levels alike. Americans who are acting in ways our civic culture has traditionally celebrated—harming no one, just trying make a living or build a business or, in this case, collaborate to educate their children—find themselves balked, forbidden, and in some cases prosecuted, by bureaucracies that increasingly exist to protect themselves and their own interests, and have gathered unto themselves the power to do so. This is not a partisan issue. It represents a betrayal of what America is supposed to be about.

From Don Boudreaux at Cafe Hayek:

Free markets are extraordinarily – tightly – ceaselessly – impressively regulated.  And nearly all of this regulation is spontaneous; it’s the result of the competitive market order.  Unlike that species of regulation called “government regulation,” the kind of regulation that remains dominant in markets is not designed by government officials; it doesn’t amplify collective manias; it doesn’t treat consumers, workers, or business people as morons; and it’s not able to be captured and corrupted by special-interest groups.

Don’s post includes a link to his opinion piece in Pittsburgh Tribune-Review.

The unceasing rivalry that produces spontaneous regulation is not “perfect.” Untoward outcomes will go unanticipated. But once they occur they become anticipated, and market rivals react quickly to preserve their reputations.

My study of how prosperity is reduced when privilege-seeking interest groups gain ever greater footholds via political process is here. Assuming we want to prosper, it is process of competition, not politics, that is the regulator we can trust.

The always perceptive Sheldon Richman weighs in on the Bangladesh tragedies. He starts by summarizing the status of the resulting debate over whether or not international standards on building safety should be enforced against Bangladeshi manufacturers:

“Proponents of standards argue that the costs would be small and the benefits great,” and “Opponents of government regulation argue that artificially raising the costs of manufacturing in poor countries would harm intended beneficiaries by destroying jobs.”

Then he identifies the real problem:

Unfortunately, the debate is unnecessarily narrow. What needs discussing — and radical changing — is the country’s political-economic system, which benefits elites while keeping the mass of people down. The economists are correct that under the status quo, imposing safety standards would raise costs, cause unemployment, and aggravate poverty. But we can’t leave the matter there. We must go on to examine how the political-economic system constricts people’s employment opportunities, including self-employment, and otherwise stifles their efforts to improve their lives. Thus, a debate over whether garment factories should be subject to safety regulations, while the status quo goes largely undisturbed, misses the point.

What Bangladesh needs is much more economic freedom. A system now controlled by landed elites stifles opportunity for the masses. Fix the problem of successful predation by privileged elites and Bangladesh would prosper quickly, including making voluntary improvements in building safety.

For evidence of how successful privilege-seeking reduces prosperity along New Mexico’s border look here.

From the constantly observant Mark Perry:

New Mexico and its neighbors have begun to enjoy the shale oil boom.

EIA attributed the production increase to the application of horizontal drilling and hydraulic fracturing technology to low-permeability rocks to the growth in U.S. oil production. Enhanced oil recovery techniques such as carbon dioxide injection also are boosting production from conventional reservoirs.

So, what is it, peak oil or peak idiocy? Take your pick.

Under the guise of “public awareness” the Center for Civic Policy has been calling legislators to complain about their support of the recent “tax package:”

A New Mexico nonprofit has launched a “public awareness” campaign highlighting the votes of state lawmakers on a massive tax package approved on the final day of this year’s 60-day legislative session.

They’re correct to criticize the haste and secrecy with which the “tax package” (the main feature of which was to reduce the corporate income tax rate from 7.6% to 5.9%) was put together at the end of the session. But did anyone happen to see if they made similar criticism of the way the (Un)Affordable Care Act was put together with the similar haste and secrecy? It would be nice if political process was open, careful and informative. But, unfortunately politicians, having incentives like the rest of us, act like politicians. It’s time we all recognized that as a fact of life.

Let’s clear up some of the Center’s economic confusion by briefly summarizing some basics of taxation related to NM’s corporate income tax:

Corporations may be legal entities responsible for the corporate income tax. But corporations don’t actually pay the tax, only people pay taxes. The actual tax is borne by the owners of the corporation and its customers.

Corporations are a source of prosperity in that they make up a potential supply side of voluntary exchanges between them and their customers. Those exchanges, voluntarily entered into, would not take place unless both parties to each exchange benefited. Onerous tax policies like NM’s corporate income tax reduce voluntary exchanges and prosperity.

New Mexico has the worst (or close to it) corporate income tax regime in the country. While the rate may now be a bit lower, its formula for determining the amount of income subject to the tax puts New Mexico corporations at a huge disadvantage compared to other states.

Since the corporate income tax is so awful, it’s quite possible that the reduction in its rate will actually increase revenue. That would certainly be the case with even lower rates and a more reasonable definition of income subject to the tax.

Further exacerbating the bleak tax picture for corporations is NM’s gross receipts tax. Since they pay gross receipts tax on many services that are inputs to production, they are at a disadvantage relative to other states where services are not taxed.

New Mexico needs further tax reductions by making the corporate income tax and gross receipts tax less onerous. But if the Center is really concerned about tax revenue (I’m not — government has already overreached), then they should be concerned about actually having someone to tax.

The following comment from one Hazel Meade appeared at Marginal Revolution today re problems with the (Un)Affordable Care Act:

The banning of catastrophic-only plans infuriates me the most. Those are the only plans that are actually financially sensible for a healthy individual to purchase. Everything else on the market is a perverse by-product of the employer-based insurance system.

Worst case scenario with a catastrophic-only plan is you end up with $10,000 in debt. That’s a debt load many times smaller than what the Federal government thinks students should take out to get a college degree. We’ll let you borrow $100,000 to get a sociology degree but, we think that $10,000 is an unconscionable amount to pay for medical expenses? So unconscionable that we have to FORCE YOU to buy a plan with more extensive coverage?

Of course, we all know the real reason for this. it’s meant to force healthy young people to subsidize healthcare for older sicker people. Just force them to pay more for insurance than they ought to, and force them to buy more extensive coverage than is rational.

I’m a nice guy and I’m getting up in years (at least that’s what my wife tells me). Yes, Hazel’s birth control pills and treatment of tennis elbow may cost a bit more as part of her “insurance” premiums; but she should feel rewarded rather than infuriated! She’s helping fund my health care.

Aren’t you sure that the wise folks who passed and are implementing the (Un)Affordable Care Act understand the trade offs involved? They understand that younger folks like Hazel need a little nudge (okay, a shove) to provide for us nice old folks. And they truly understand that now we will get all the health care we need.

Oh, and a good many of us nice old folks forget to say this, thank you, Hazel.

I spoke to the Farmington-based Tri-City Tribune recently on the issue of LNG exports. That article can be found here.

The Wall Street Journal had this extremely favorable editorial this week on LNG exports but criticized the Obama Administration for “regulatory indecision” that is threatening to cost US producers of natural gas in the battle to supply the fuel to customers around the globe.

Also, columnist James K. Glassman has a column explaining how, while President Obama may have had a tough hand when he entered office, he has (or could have been) the beneficiary of some significant, positive developments in the energy sector that would have the US economy humming into recovery rather than sputtering along.

Lastly, yet another study on fracking (this one from Arkansas) has found no groundwater contamination resulting from the drilling technique.