We are told by the Santa Fe New Mexican that Santa Fe’s public school district is expecting a “budget shortfall between $9 million and $13 million for fiscal year 2024.”

The article readily notes that this is the result of a falling student population and even notes that the District expects a decline of 250 students year-over-year. So, while there ARE certain fixed costs there are obviously other costs that can be reduced as student populations decline (as they have for years).

What is really notable is that the article notes the expected student population is 10,946 and the District’s budget is approximately $320 million.  Simple division gets us per-pupil spending of a robust $29,234 PER STUDENT. The number is up from the $25,000 per-pupil that Santa Fe schools were spending back in 2019/2020.

If you can’t educate children at over $29,000 per student you’re doing something wrong. Of course, it isn’t just Santa Fe. As the chart below highlights New Mexico public schools in general are losing students even while spending continues to grow. Perhaps they ALL are doing something wrong.

The Albuquerque Journal editorial today has a interesting discussion of Gov. Lujan Grisham’s line item vetoes of numerous provisions in the Legislature-passed tax bill. Numerous (leftists) from Sen. Heinrich to numerous letter-writers expressed various forms of “outrage” over the vetoes.

The editorial essentially answers its own question about the Gov.’s “right” to veto parts of the package as much of the bill was spending and had nothing to do with tax policy. Of the four provisions in the final package both the film subsidies and child tax credit are spending. So, under the law MLG could veto them.

The more interesting issue is the idea that Democrats in the Legislature and environmental groups suddenly claim to care about the Gov. potentially abusing her powers. This is nothing new as in 2021 MLG took it upon herself to spend COVID relief dollars resulting in a lawsuit by then Sen. Jacob Candelaria (a Democrat).

Of course, at the Rio Grande Foundation we have been pushing for three sessions in a row to simply give the Legislature a seat at the table in emergency declarations. Sadly, few Democrats in the Legislature were willing to cross the Gov. on such a basic issue of governance.

All of this only reinforces the somewhat cynical view that many on the left care only about getting their payoff out of Santa Fe. Process and principle are sadly lacking.

Few New Mexico politicians wish to recognize publicly just how much New Mexico taxpayers must pay in order to bring Hollywood film companies to the State. Few even admit that the subsidies represent spending of our tax dollars.

But, budgets have a way of clarifying the situation. The following is data taken directly from Gov. Lujan Grisham’s FY 2024 proposed budget. We will remain in FY 2023 until July 1 when the ADDITIONAL film subsidies passed in the recent legislative session kick in. While the Legislature’s Fiscal Impact Report claims the recent tax bill will have a “minimal, but negative” impact in FY 2024 (see below) the cost to taxpayers of those increased film subsidies will increase by an ADDITIONAL $61.5 million in FY 2025,  $75.9 million in FY 2026, and another $87.3 million by FY 2027.

With New Mexico’s corporate income tax revenue collections (before deducting film subsidies) hovering at $400 million or so annually, the Legislature could easily eliminate the corporate income tax (while making other needed tax reforms). Sadly, before the Gov.’s vetoes corporate income taxes were set to go up. Nonetheless, we get more than $100 million in subsidies for one chosen industry.

On the latest Tipping Point discussion Wally and Paul take on a number of fiscal issues:

Contrary to the views of NM politicians, lower taxes CAN result in higher revenues.

According to the latest Rich States Poor States report New Mexico sticks out relative to its neighbors (in a bad way). New Mexico’s economy isn’t in great shape, but according to a report from Pew the government has seen more tax revenues than any other state since January of 2020. Based on the recently passed budget in Santa Fe Paul put together a chart to illustrate just how quickly spending has grown.

New Mexico’s capital outlay process has always been corrupt, but the $10 million for an abortion clinic added to this year’s bill only highlighted the corruption.

Insanely Germany has shuttered its last 3 power plants (resulting in more coal and wood being burnt). Meanwhile the

Biden Administration is planning to force EV’s on Americans whether they want them or not.

Paul had a chance to talk to KOAT Channel 7 about the ongoing cost of the DOJ consent decree.  Folks in ABQ’s “International District” want a grocery store now that Wal Mart has closed but they vote for people who won’t get serious about crime.

The 9th Circuit Federal court of appeals gave supporters of gas stoves a victory when it ruled that cities like Berkley cannot impose their own bans. The opinion found the “Energy Policy and Conservation Act  expressly preempts State and local regulations concerning the energy use of many natural gas appliances, including those used in household and restaurant kitchens.”

The battle over “stove freedom” is hardly over of course. While local bans may not be constitutional, the Biden Administration (including but by no means limited to the US Department of Energy) continues to work to find ways to regulate and limit use of gas stoves. To that end the Rio Grande Foundation signed a national letter commenting (against) the DOE’s efforts to impose additional regulations on gas stoves.

You can read the entire comment and find out who else signed on here.

Susana Martinez’ last budget was $6.3 billion. Over the next five budgets (fueled in large part by growth in New Mexico’s oil and gas industry) state general fund spending rose an astonishing 52.38% to $9.6 billion. That comes to average spending growth of nearly 10.5%.

Do you feel that your own personal slice of New Mexico’s economy is benefiting from all that spending? Do you feel that average New Mexicans should see broad-based tax relief rather than bigger government?

Every year for the past 16 the “Rich States, Poor States” report has carefully examined s slew of economic data from all 50 states. This is a meaty report with lots of interesting data and even more can be found here.

A particularly notable chart (2nd below) from the report shows just how badly New Mexico lags its more free market oriented neighbors: Utah, Arizona, Colorado, and Texas. New Mexico (ranked 42nd overall) sticks out like a sore thumb.

New Mexico’s economic performance (as seen below) is propped up by the incredible growth of oil and gas in recent years.

We’re number 1! Is it good news or bad news? According to a new report from the Pew Center on the States New Mexico has led the nation in tax revenue growth since the start of 2020 just before the COVID pandemic hit the US.

The reason for New Mexico’s revenue growth is the massive boom in oil and gas revenues. The fact that government has spent a vast majority of the money (as opposed to cutting taxes) is certainly another factor. You can see for yourself which states have seen the strongest growth in tax collections.

Rio Grande Foundation president Paul Gessing sat down with TJ Wilham of KOAT Channel 7 recently to discuss the lack of progress in getting the City out from under the Department of Justice consent decree and the high cost of paying independent monitor James Ginger.

Full story here and you can click below:

Every New Mexico legislative session there is talk of reforming the State’s inherently corrupt capital outlay system. With Gov. Lujan Grisham’s $10 million for an abortion clinic (explicitly to “serve” Texas customers) the capital outlay bill generated more opposition and debate than usual, but it passed easily nonetheless.

RGF’s president spoke at length to The Built Environment about the State’s awful capital outlay process. Click here or below to find the full article

The following is from an email from the Committee to Unleash Prosperity. A number of great economic names including Art Laffer and Stephen Moore are involved in that organization, but the chart below specifically addresses federal tax rates and revenues for “The 1%” when the Trump tax cuts took effect.

It highlights how reducing federal tax rates for the very highest earners can actually result in higher revenues. This implies that for simple revenue maximization (Laffer Curve) the federal government should probably reduce tax rates for the highest earners.

It also highlights how short-sighted New Mexico policymakers are (both Gov. Lujan Grisham AND the Democrats who control the Legislature. While not all tax reductions will result in MORE taxes paid, the fact is that reducing taxes can spur economic growth and diversification. We don’t need to look too hard for examples of that in New Mexico. The Richardson tax cuts were a home grown pro-growth success story, just ask Jennifer Rubin.

On this week’s interview Paul sits down with the Foundation’s luncheon speaker Todd Myers. Todd was in Albuquerque discussing his new book, “Time to Think Small: How Nimble Environmental Technologies Can Solve the Planet’s Biggest Problems” in which he outlined ways in which the free market and individuals can actually do a much better job of environmental stewardship than big government. Check out this informative conversation!

As usual, Albuquerque Journal cartoonist John Trever summarizes the situation perfectly with his cartoon from Sunday, April 19, 2023.

Here are a few notes about the final tax bill as line-item vetoed by Gov. Lujan Grisham. New Mexico had a $3.6 billion surplus going into the session. The Legislature originally allocated $1.1 billion for “tax cuts.” $1.2 billion of that $3.6 billion was for new spending. That means over $1 billion would have been set aside for the future. The point is that (contrary to MLG’s veto statements about having anxiety over future revenues) plenty of money was available.

To her credit, MLG vetoed all the tax hikes in the bill (corporate, capital gains, alcohol, and tobacco), not just the tax cuts.

Here are the so-called “tax cut” provisions approved by the Gov. in the final bill (we used the 2027 fiscal impact for the tax/spending bills):

• Film subsidies: $87 million by FY 2027. This is NOT a tax reduction. It is new spending;
• Health practitioner deductible/copay: $38.5 million (this is the one ACTUAL tax cut passed and signed);
• The Child Tax Credit: $111 million; While a small portion of this will indeed represent a tax cut, this is a very “progressive” and “refundable” credit (it is given whether you make money or not). We estimate $100 million of this is spending and only $11 million is an actual “tax cut.”
• $500 or $1000 tax rebates: The one-time “cost” of these rebates is $667 million.

So, here are the tallies for what happened to New Mexico’s $3.6 billion surplus:

1) $1.2 billion or 33% was spent (adding in film subsidies and refundable child tax credit as spending;

2) $667 million or 18.5 percent of the surplus was returned in the form of one-time “rebates.”

3) $50 million or 1.4 percent comes in the form of “recurring” tax cuts.

The tax package that had managed to get through the New Mexico Legislature was dramatically altered (yet again), this time by Gov. Lujan Grisham. We haven’t seen the actual signing statement but according to Dan Boyd of the Albuquerque Journal, the Gov. eliminated the tax hikes on alcohol and eliminated subsidies for electric vehicles (we applaud her for those).

On the other hand she eliminated income tax rate reductions at lower income levels and also killed a phase in GRT cut of 0.5%. Both of these are unfortunate moves and from a revenue perspective the GRT reductions were the most impactful provisions in the Legislature-passed bill.

More generous film subsidies as well as tax hikes on tobacco, corporate income, and capital gains will make their way into law. Indexing of capital gains to inflation and elimination of GRT on deductibles and co-pays also made it through.

The Gov. cited concerns about the sustainability of enacting tax cuts, but showed no such concern about film subsidies OR the 14 percent budget increase she just signed.

We are looking forward to this free event! You can sign up here.

Apparently (but not surprisingly to us) Gov. Lujan Grisham is having some heartburn about HB 547, the big tax “omnibus” bill the Legislature passed this session. Veto it! 

Then, she should bring the Legislature back (possibly for a special session) and do two simple (and consistent) things that would boost New Mexico’s economy and reduce the harm of the gross receipts tax which is a “regressive” tax. Thus, addressing it would be “progressive” public policy.

There are two things to note: 1) the Legislature set aside $1.1 billion for tax reductions. The Gov. says she is having heartburn about making tax reductions that large. 2) The deadline to sign or veto is Friday, April 7, so MLG doesn’t have much time to act.

Here’s what SHOULD be in the tax bill:

1. End pyramiding of business services. According to the Legislature’s own analysis this will reduce State revenues by $118 million annually by FY 27. In other words, this can easily be done. If cities need to be temporarily have some revenues made available due to the relatively small amount of revenue lost, that could be done. Local government concerns should not block much-needed tax reform.
2. Immediately and permanently reduce GRT rates. According to the Legislature’s analysis each .5% reduction in the GRT reduces state revenue by about $500 million annually. So, realistically the top rate could come down by .75% immediately.

This is based on ideas that have been analyzed and vetted during the 2023 legislative session. Since the GRT is a “regressive” tax as left-wing Voices for Children points out reducing it is inherently “progressive.”

Will this happen? It’s extremely doubtful. The New Mexico Legislature traditionally exists not to pass good public policy that would help all New Mexicans, but to redistribute oil and gas money to other special interests.

Another Wallethub report, this one says New Mexicans bear relatively heavy tax burdens (despite massive oil/gas revenues).

New Mexico, land of unlimited film subsidies.

The New Mexico United and their push for a new stadium are in the news.

Policy debate: energy issues in the wake of the war in Ukraine. 

New PED secretary give details on new social studies standards.

These are the senators with the best scores on the Freedom index.

The Gov. has until April 7 to sign bills. She has not acted on the big tax bill yet.

After Gov. Lujan Grisham single-handedly reduced Rail Runner fares (from $9 for a day pass to $2.50) a year ago, many people thought they’d never go back up. Shockingly, they recently DID go back up to the normal price (which, of course, comes nowhere near paying even for the train’s operations, but it’s something).

Unfortunately, the City of Albuquerque seems hellbent on keeping “free” fares on the city buses despite the manifest problems caused by this policy. As we have discussed previously, Albuquerque’s bus ridership has been in a long-term decline that precedes the COVID pandemic. The number of people riding the bus DID increase slightly under the new fare regime of 2022, but the end of the pandemic and other economic forces may have played just as significant a role (or free fares MAY have even decreased ridership due to security concerns).

The following questions regarding New Mexico’s new social studies standards were posed by an elected official to Dr. Arsenio Romero Secretary of New Mexico’s Public Education Department. We believe the responses are of interest to school boards and parents who may be concerned about what is being taught to their children.

• Does our school district have to adopt from the approved PED suggested social studies curriculum list?

High-quality instructional materials (HQIM) and professional development for teachers to be able to use those HQIM matter for students and provide equitable access to grade level instruction no matter what level they are starting from.  The legislature made an appropriation this legislative session (2023) for instructional materials as part of the State Equalization Guarantee (SEG) as well as a special appropriation for instructional materials.  Given these appropriations, school districts may select instructional materials that are not included on the adopted multiple list.  If your district does not select instructional materials that have been reviewed and adopted by PED, then we encourage you to have a rigorous review and selection process at the local level using a research-based rubric(s).  You can learn more about the state instructional material review process  here.

• When is the deadline to adopt?

Although there isn’t a deadline to adopt new instructional materials, the NM adoption cycle recommends LEA’s purchase social studies and fine arts instructional materials for use in SY23/24. There is a cycle to assure that materials are considered for refresh on a continual basis.  LEA’s may adopt new instructional materials based on their local needs.

• When will the new materials be implemented?

Districts can make their own local decisions about when to implement new materials; however, they should be implementing the new social studies standards in SY23/24.  If districts don’t purchase new instructional materials that are aligned with the revised social studies standards and the fine arts standards then teachers may need support with supplementing their current materials to ensure students are receiving instruction based on all the grade-level standards.

• Does the school district have to attend all PED offered DEI trainings?

The Acronym “DEI” is unfamiliar, so the following answer is regarding the professional development modules PED has made available for free to all districts to support the implementation of the new Social Studies Standards.  The following table provides a summary of the modules.  The state-wide Implementation Plan offers a suggested timeline for effective implementation and was provided to districts in early 2022.

• Do we have to read the free profession development books PED sends us?

No

• Can the parents and community have the opportunity to review the schools district’s top choices before the school board adopts?

Yes, per statute 22-15-8-B, parents and community members are required to be notified about the adoption process and parents are to be invited to be involved in the adoption process at the district level.  See below.

“Local school boards shall give written notice to parents and other community members and shall invite parental involvement in the adoption process at the district level.  Local school boards shall also give public notice, which notice may include publication in a newspaper of general circulation in the school district.”

• Can the district choose to pick curriculum that meets the standards but is not recommended by PED

Although districts may select instructional materials that are not on the NM adopted multiple list as either “recommended” or “recommended with reservations,” we highly encourage districts to begin their selection process with the adopted multiple list and our “HQIM Reviews” webpage.   Please see the LEA Support for Social Studies Instructional Materials one-page  for additional guidance.

Talk of where a possible stadium for the New Mexico United is in the news again. For starters, we are pleased that in the wake of their defeat over a ballot measure for a taxpayer-financed stadium, that the team is (largely)  going the private financing route this time.

However, just because a stadium is constructed using private $$ doesn’t mean no tax dollars or resources are at stake. The team’s owner Peter Trevisani strongly implied recently that the possible location would be Balloon Fiesta Park. As KRQE notes, the undeveloped land around Balloon Fiesta Park, is either owned by the City of Albuquerque, the county, or Sandia Pueblo.

That is prime real estate in a city that doesn’t have much available land for big projects. Pueblo land would need to be purchased or swapped. And it would also seem that a soccer stadium is not a great place to land hot air balloons. In the event a stadium is built “privately” at Balloon Fiesta Park, it still seems like this could be a costly option.

We remain of the opinion that some kind of working relationship with either UNM football at University Stadium (football used 6 or so games a year) or further expansion of UNM’s 6,200 seat soccer-only facility located in the same area would be the most logical and cost-effective places for the United to play.

When Russia invaded Ukraine over a year ago energy prices leaped higher. Since then there has been continued argument between advocates on both sides as to what kinds of policies should be put in place in the wake of this crisis.

RGF president Paul Gessing was asked to debate the issue in a short series of  articles by Divided We Fall. Needless to say, we at the Rio Grande Foundation emphasized the critical need for free market approaches and traditional energy sources while his opponent pushed in the opposite direction.  Read the short series of articles here. 

Prior to the 2023 New Mexico legislative session the state was known for having some of the most generous film subsidies in the nation with taxpayers reimbursing film production companies for anywhere from 25 to 35 percent of their expenses in New Mexico. 

During the recently-completed session the cap on film spending was increased and some films will be able to get up to 40% of their costs reimbursed through the addition of another 5% subsidy for filming outside of Albuquerque and Santa Fe.

Now, we have the announcement that Mayor Tim Keller has finally received funding for his dream of at least partially restoring the Rail Yards building. How? What else, more subsidies for the film industry (albeit somewhat indirectly). In this case $40 million was set aside during the 2022 session for a so-called New Mexico Media Academy in 2022.

Will the $20 million in capital outlay money be enough to get the Rail Yards building into shape as a school? We have no idea and fully expect more $$ to be allocated to that effect. And, of course there will be ongoing subsidies (like the other $20 million already allocated) for the ongoing operation of the new school.

Guest article by Glen Lyons

Glen applied and was a finalist for New Mexico’s reconstituted Public Regulation Commission, formerly with Texas’ ERCOT and ExxonMobil
He was a guest on Tipping Point New Mexico episode 491. 

You can find Glen’s profile at LinkedIn

Using the State’s Oil and Gas Revenues More Efficiently and Effectively, While Creating the Best Program to Alleviate Poverty. Ever.

New Mexico’s oil and gas industry is booming. Some New Mexicans are happy about it because they rely on it for their livelihood. Others simply appreciate what the industry does for them. Still others are not happy because they do not like the industry one bit. Even though there is a wide range of views out there, there is one thing that everyone can agree on: the industry is bringing in a lot of money to the state.

New Mexico’s state government is currently collecting roughly $5B a year from the oil and gas industry, if not more. That’s about $2,500 for every man, woman, and child who calls the state home. Moreover, that amount has been growing rapidly in recent years. Part of the growth is due to higher oil prices, although oil prices can go down as quickly as they go up. Part of the growth is due to rapidly increasing oil production. While no one can predict where the prices will go, the production will likely continue to increase for years to come. As a result, New Mexico is now the third largest oil producer in the U.S. after Texas and the Gulf of Mexico. New Mexico in fact is now a larger oil producer than the country of Mexico. And what will the state’s government do with all that wealth? I’m pretty sure that the answer is “spend it.”

All New Mexicans, no matter what their view of the oil and gas industry, should be concerned about how the state government uses that money because a large amount of money could be wasted and worse, it could trigger the “resource curse.” I’ll explain the resource curse below, but for the moment, consider why the government keeps and spends the money. What if instead of leaving the money with the government to manage, the state simply gave it to the citizens? Who couldn’t find a good use for an extra $2,500 a year? Or for a family of four, an extra $10,000 a year? After all, it isn’t the government’s money. It’s YOUR money.

Below I will explain the concept of the resource curse and explore this novel approach to avoiding it by giving the money directly to the citizens. This could not only avoid the resource curse but alleviate poverty quickly and directly and put the state on an economic growth trajectory that would be the envy of all other states.

The Resource Curse

Many countries have found their economies suddenly transformed by a large discovery of oil and gas. For some, the transformation is largely positive, as it provides a strong stimulus for new jobs and infrastructure and the development of other businesses and industries. For other countries, the transformation is not positive. The sudden influx of money is, at best, a weak stimulus, or worse, a hurt to the economy. The “resource curse” is the name given to the cases where the transformation is small or even negative. Venezuela is an example of a country with an abundance of oil and gas reserves that has suffered from the resource curse. Venezuela has the most oil reserves of any country in the world, more than Saudi Arabia and four times as much as the U.S. Yet Venezuela’s GDP per capita is around $15,000. GDP per capita for the U.S. is more than $70,000, or four and a half times higher than that of Venezuela, a country with four times as much oil!

This is counterintuitive. Shouldn’t a country with an abundance of resources become fabulously wealthy? They should, but they won’t if those resources are mismanaged. Typically, a large portion of the income from the sale of those resources flows into the government, and all too often, governments misuse those funds.

Why would a government mismanage the income? I’ll offer a few reasons. First, as the amount of money grows, the temptation for corruption grows. Second, even if corruption doesn’t grow, the ability of any government to wisely spend the money, given the disparate and changing needs and interests of its many citizens, is severely limited. Third, any attempts by a government to wisely spend the money will be interfered with by political maneuvering as various interest groups lobby to direct more of the funds their way. Fourth, and perhaps worst of all, the new wealth becomes a distraction, resulting in lost focus and a degradation in quality of the basic services of government.

One terrific way that the government could use the money is to provide school children with free lunches. We can all agree that childhood hunger is a serious problem, and it must be addressed. The question that we should all ask ourselves then is how best to address it? If we rely on a government program, it will suffer from at least some of the problems that are common to all government programs that I mentioned above. A government program can’t provide for all the varied tastes and dietary needs of all children. A government program can’t match the daily supply of food to the daily demand without wasting a lot of food. The administrators may fall prey to prospective food suppliers, all offering good arguments as to why their offering is unique and should be selected above all others.  Moreover, the state would have to pay for layer of administration as well as oversight to ensure that there isn’t any misuse of the money.

Alternatively, if the state simply gave the money to the citizens, parents could use the money directly to buy meals for their children. A parent would choose meals that better match their child’s tastes and dietary needs. A parent will know what their child will eat, and what their child won’t eat thereby reducing waste. Now some will argue that we can’t trust parents to spend the money wisely. I completely reject that argument. Every parent I’ve ever known has deeply wanted the best for their children.

Childhood hunger is just one issue that government could attempt to tackle with the money. There are many other issues that are in desperate need of attention, from improving education itself to reducing crime to improving health care, to name just a few. The number of potential uses of the money can quickly become dizzying. Each program that government to tackle one of the issues will suffer the same challenges that I mentioned above.

The continued growth of oil and gas revenues will cause the government to quickly create many new programs because they see many needs. Yet doing so risks losing focus and thereby unintentionally undermining the quality of current government programs. They must stay focused to be at their best.

Avoiding the Resource Curse

The most cited examples of an approach to avoiding the resource curse are countries that have created a “wealth fund.” Norway is one such example. It created the Government Pension Fund Global, aka the Oil Fund, to capture surplus revenues from the oil industry. The Norwegian government spends some of the oil revenues while saving the rest to be used later. That still leaves the government in control of the savings because they think they know best how to manage and use the money. I strongly disagree with all such notions and see that as the weakness in Norway’s Oil Fund. First, the government will always be tempted to tap into the fund. So far Norway has avoided such temptations, but the Oil Fund is valued at more than $1T and growing so, yeah, that’s quite a temptation. Second, and more importantly, individuals know how best to use money for the benefit of themselves and their families. No one else could ever know that.

Key to avoiding the resource curse is to get the money into the hands of the people. The only reason that’s not the default is because the money is initially paid to the government, making it difficult for them to see it as anything but a windfall to their “business.” However, the government doesn’t own the resource or the revenue coming from it. The government exists to protect the resource and the revenues for its citizens. Both belong to the citizens. The citizens should get the revenues. YOU should get that money.

Not only should you get that money, but you will do a better job of managing it. You know your needs and interests and those of your family. Maybe you will spend some of it. Maybe you will spend all of it. Maybe you will put it all into savings or pay down a debt. Maybe you will buy a home. Maybe you will use it to open a business or start a college savings account. Whatever you would choose, that is the best outcome for you, much better than any government program.

Getting the funds directly is not only best for you in the short-term, but it will also lead to the greatest economic growth for all in the long-term. Why is that? Because the growth will be in goods and services that the people of New Mexico need and want, as “voted” by their individual spending decisions. That’s how real growth happens, organically through individual decisions which reflect each person’s greatest needs. Government spending, in comparison, is based on guesswork as to needs and can’t be targeted, making it less effective and less efficient.

A Better Solution

My solution to avoiding the resource curse then is very simple – give the money to the people. It is their money, only they know how they could best use it, and, as a side benefit, they will become more engaged with the state government’s oversight of the oil and gas industry. It seems like a no-brainer.

If I’m correct why aren’t we seeing this elsewhere? In most cases, governments of even the best people will see endless need for government spending. They perceive many societal issues as being beyond the ability of individuals. Those issues therefore need government programs in their opinion. At the end of the day though, I’m confident that the citizens will do a better job of allocating the money than the government. Individuals know their individual needs. The government does not.

There is a precedent for this approach in Alaska. In 1976 Alaska created the Alaska Permanent Fund (“Fund”) to capture the state’s oil revenues, mostly provided by the production of oil from Alaska’s North Slope. The main use of the fund has been to pay out the Permanent Fund Dividend (“Dividend”), that is, giving the money to the people. Part of the fund is saved to be used after the oil production has run out. One thing about Alaska’s program that can’t be questioned is its popularity. During one period of very low oil prices ($9/barrel) the government put a vote to the people asking for permission to spend part of the Fund for government purposes. Despite the support of the governor, many others in government, and campaign money, the public voted against it by nearly 84%.

I propose that New Mexico one-up Alaska by adopting a program which is even better for its citizens. The improvements would be as follows:

• Pay out ALL the funds. That puts all the money in the hands of citizens where it’s needed and where it’s best used. Governments will always be tempted to try to access the funds as they did in Alaska.
• Rather than simply paying out money, give citizens ownership in the state’s oversight of the industry.Set up a corporate-like structure where citizens and only citizens of New Mexico are given shares. Just like with a corporation, the shareholders will get dividends, vote annually on key policies, and have influence over the direction of oil and gas development.
• Allow trading of the shares (and hence, the associated dividends) among citizens. Allowing this will recognize the different positions and interests of New Mexicans. Some might value more money now and so wish to sell their shares. Buyers for those shares might place a higher value on the future dividends to secure income. Still others might place a premium on the ability to influence the industry’s direction and so have an interest in acquiring the shares of others. There are no doubt many other reasons why citizens would want to buy and sell shares.
• Pay the money out as frequently as possible. Getting the money into the hands of the people quickly is the right thing to do, but the more frequently it comes in, the better they will be at managing it and anticipating changes in the amount. An annual amount, alternatively, can seem like either a great gift to be celebrated, or a great shock when it’s substantially lower than the prior year.

Such a program will not only be politically popular but will be far more effective at growing the economy than any government programs because the spending of the money will go into everyone’s needed goods and services rather than goods and services needed by only some.

The Politics

I have no doubt that many in government will quickly dismiss this idea for a variety of reasons. Let’s take some of those likely reasons head on.

• This will create opportunities for exploitation. Won’t wealthier citizens take advantage of the low-income citizens by buying up their shares at a low price? To the contrary, if there is a market for the sale of shares among lower income citizens, then interested buyers will have to compete to buy shares, thereby bidding up the price. Low-income citizens who place a very high value on more money today would be able to take advantage of the interest of prospective buyers.
• Not all the money will be put to best use. No doubt some citizens will spend their dividend in ways that don’t make sense to others. It’s always difficult to understand the decisions of others and second-guessing is most often misguided. Most citizens will use their dividend for goods and services, including things like savings, that make the most sense in their lives. No government program could ever hope to approximate that.
• Citizens may vote their share to undermine the oil and gas industry. Shareholders in corporations do get to vote their interests freely. That puts pressure on corporations to engage with shareholders and listen to their concerns. The same thing would happen in this case, the oil and gas companies would listen to the thoughts of the citizens more closely than they do today and try to incorporate those thoughts into the ways that they do business. The citizens would have greater ability to influence the industry. Voting does of course mean that some citizens can simply cast their votes to oppose the industry at every opportunity. That’s how voting works.
• Citizens may vote their share to favor the oil and gas industry. What if citizens like the dividend so much that they want to increase oil and gas drilling or want to reduce the legislative and regulatory oversight of the industry? Again, that’s how voting works. Likely, some citizens will be very supportive of the industry while others will staunchly oppose it.
• This is just populism. Yes and no. Yes, as Alaska has shown us, a New Mexican oil dividend program would have very strong appeal to many voters. Call it populism or call it democracy. The difference is in the eye of the beholder. If I were an ambitious politician, I would seize upon this policy proposal when running for office. More importantly, creating an oil dividend program would be the best thing for the citizens of New Mexico, today and in the future. That’s what’s so great about this idea – it would be wildly popular and the right thing.

Conclusion

Governments composed of only the best people can do just so much. The more they take on and the more quickly they do it – the more spending and the more programs – the less efficient and effective they will be. The citizens of New Mexico can use the state’s oil and gas abundance much more efficiently and effectively. That more efficient and effective use will result in the most organic and lasting economic growth. That kind of growth will have people across the world studying New Mexico’s approach to avoiding the resource curse and will maximize the resource blessing that nature has provided the state.