The Rio Grande Foundation spent a day in the Roundhouse this week discussing pension reform with New Mexico policymakers. But, when you get in the halls of the Roundhouse you find out about a number of issues and where things stand. Here’s what we’re hearing on a few of the big issues we’re looking at this session:

1. The Foundation’s top priority, GRT reform (an issue discussed by Speaker Egolf prior to the session), is not going to happen.
2. It is looking like a real uphill battle for Social Security tax reduction/elimination. Gov. Lujan Grisham didn’t include it in her budget and there just doesn’t seem to be much momentum among the Democrats for returning money to the taxpayers.
3. Pension reform is likely the best opportunity for bi-partisan reform although plenty of lawmakers are nervous about doing this in an election year.
4. “Free” college will be an opportunity for the somewhat more conservative Senate Democrats to exert some influence. Will they give in to the Gov.’s plans to offer this new “entitlement” or will they demand the money be used more wisely or not be spent at all? The Governor’s plan started out at $35 million, but according to the LFC the  cost of the plan will be $49 million (an increase of 40%) and the session is just getting started.

On this week’s interview podcast Paul talks to New Mexico Rep. Larry Scott. Scott lives in Hobbs and represents Lea County in the Legislature. He is also in the oil and gas industry. In the first part of the show Paul and Larry discuss the 2020 New Mexico legislative session and what might happen in terms of both good and bad economic policies.

And, since Larry has a front row seat for the oil boom in the Permian Basin, Paul and Larry discuss the boom, it’s impact on the region, and its impact on New Mexico as a whole. Will the boom continue? Is the Legislature’s spending unsustainable? Where are things heading for the future of New Mexico’s most important industry?

In any New Mexico legislative session you THINK you know what to expect during the session based on the agenda laid out by the Gov. But then you actually get into the session and you realize that any number of bills, often under the radar, could have a major, usually negative, impact if adopted.

The first candidate for this “honor” in 2020 is Sen. Mimi Stewart’s SB 110 which would totally revamp the operations of government employee unions in New Mexico. Stewart is best known as a shill for what we at the Foundation often describe as the “Education Blob.”   The “blob” is basically the status quo in K-12 education, but with more money.

SB 110 would give government unions a great deal more power in New Mexico if adopted. Here are a few of the big changes in the bill:

While the Rio Grande Foundation will be working on a lot of issues in the 2020 Legislature that are at odds with Gov. Lujan Grisham and majority Democrats, one potential area for free market conservatives and Democrats to come to an agreement is on pension reform.

To her credit, Gov. Lujan Grisham has put PERA reform on the agenda during the 2020 session. SB 72 introduced by Sen. Munoz is the reform legislation, but our analysis of the legislation which was done by the experts at Reason Foundation can be found here. 

While the reforms are not perfect, they are far better than inaction. The Rio Grande Foundation has also produced an “explainer” video on the pension reform issue that can be found below:

The following article appeared in the 2020 legislative preview edition of New Mexico Indepth.  You can read the full paper online or by picking up a copy at the Roundhouse in Santa Fe.

In economic policy terms New Mexico’s 2019 Session was a disaster. Massive expansion of film subsidies, new mandates on electricity generation, a higher minimum wage mandate, tax hikes, and 12 percent spending growth were the lowlights.

Of course, with fast-growing oil production and a strong national economy, New Mexico’s economy remains strong and surplus revenue will again be available when the Legislature convenes in January.

At the Rio Grande Foundation, we see numerous opportunities for bipartisan reform, but 2020 could also result in another spending binge that does nothing to address the systemic policy problems facing our State.

The most obvious opportunity is gross receipts tax reform. This must involve lowering rates and elimination of taxes of services provided by contractors and other business inputs. These taxes can be avoided by purchasing services (like bookkeeping and web hosting) from out-of-state providers in order to avoid the GRT which is applied at rates above 7.5% in most New Mexico communities.

Sadly, in 2019 the Legislature eagerly imposed GRT on several businesses, consumers, and industries. These included non-profit managers of Los Alamos National Lab, non-profit hospitals, and purchases made over the Internet.

But, the GRT remained unchanged in any systemic way. Rates remain high and the problem of taxing business inputs and “pyramiding” remains unchanged. With a billion dollar surplus available and both Gov. Lujan Grisham and Speaker Egolf making noise about tax reform, now is the time to act. And, while details may vary, the general model outlined in bipartisan legislation introduced by Rep. Jason Harper (R) and Sen. John Arthur-Smith (D) remains the logical framework for reform.

Another bipartisan reform opportunity should include public employee pensions (specifically PERA and ERB). Gov. Lujan Grisham should be applauded for naming a task force to take a serious look at PERA which covers public workers NOT employed in the education system (and thus covered by ERB). Given its weaker financial position and importance to public education budgets, ERB deserves a similar look.

Both systems are seriously underfunded, a situation which must be addressed. Also, both need to be updated to better serve the 21st Century work force. Colorado and other states have successfully done this. New public employees in New Mexico should be offered more portable benefit options outside of the traditional pension system, which rewards longevity as opposed to those who may want to “give back” for a few years and then move on to other career goals as younger workers wish to do these days. Both types of employees should have retirement options that work for them.

Finally, there is the issue of occupational licensure reform. Bipartisan legislation (SB 385) made its way to the Governor’s desk in 2019 only to be vetoed. We hope to make another push to address the unnecessary obstacles licensing often puts in the way of willing workers and willing customers/employers.

While there is potential common ground for economic reform in 2020, there are numerous serious issues, particularly with the Gov’s proposal for “free” college. Here are two:

• • While the oil boom as perked up the State economy in recent years, job opportunities are still more diverse, plentiful, and generally better-paying in neighboring states. Absent economic reforms (see GRT discussion above) how can we be sure that “free” college will actually benefit New Mexico’s economy?

• • New Mexico’s biggest education challenge is the performance of its K-12 system. Absent much more ambitious reforms than those currently being discussed to raise student outcomes “free” college won’t do much good.

While this oil boom is driven by production as opposed to prices, all good things eventually come to an end. What happens when oil prices or production decline due to environmental concerns, the global economy, technological advances, or some other unforeseen change?

This 30 day session will go a long way to determining New Mexico’s economic future.

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

On this week’s discussion podcast Wally and Paul discuss the fact that Rep. Rod Montoya has introduced Taxpayers Bill of Rights legislation (an important policy goal of the Rio Grande Foundation) in the New Mexico Legislature.

Notably, according to data known as the Gini Coefficient which tracks inequality, “progressive” New Mexico is not only poorer than Colorado and our other neighbors, it is also more unequal.

RGF shares its perspective on MLG budget in a recent Channel 7 story.

The New Mexico Oil and Gas Association has released further data on just how big the oil and gas boom is and how much it is benefiting New Mexico’s economy. Paul and Wally discuss.

Paul and Wally have looked through the list of pre-filed bills and discuss some of the really bad and some of the good bills to be considered in the 2020 session.

Gov. Michelle Lujan Grisham is proposing “free” college in the 2020 Legislative session. But what does college really get you? Does it actually teach students important skills or is it more useful as a “signal” to potential employers? What about students who are better off NOT going to college?

The following video and article from Reason explain why the push for “free” college really doesn’t make any sense.

As the 2020 New Mexico Legislature kicks off, it is a good time to ponder the State’s long history of partisan Democrat control. As the chart below shows (going back to 1931) New Mexico’s levers of power have overwhelmingly been controlled by Democrats for the last 90 years. In fact, 2/3rds of the past 90 years have seen complete control of the House, Senate, and Governor’s Mansion by Democrats.

When it comes to the depth of that partisan control, Democrats have generally had large majorities, but, in what perhaps might be the only significant sign of hope for the State’s beleaguered GOP, the partisan makeup of the Senate remains relatively balanced whereas the 2018 election saw dramatic gains back to historic levels for Democrats in the House.

In the wake of 2019’s disastrous legislative session, 2020’s 30-day session has the potential to be a return to sanity. But, as this KOAT Channel 7 story notes, Gov. Lujan Grisham has outlined an ambitious agenda. The Foundation was given an opportunity to respond to various aspects of the Gov.’s program for the news story.

There are some elements of agreement (like pension reform), but overall the Foundation has big concerns about the amount of spending she is proposing as well as the prospects for “free college” and using marijuana legalization as a cash cow. Check out the full story by clicking here or the picture below:

On this week’s interview, Paul sits down with Michael Kare. Michael is the newest member of the Rio Grande Foundation’s board. He brings his unique perspective of being both the son of immigrants and of Palestinian decent to the Foundation’s board. Also, Michael personally sees the special opportunities that the United States and its freedom offer and we discuss that.

Michael is in the insurance business. He and Paul discuss the insurance business in New Mexico and some of the issues (like crime and careless/reckless motorists) have on both individuals and businesses and why those issues harm our economic prosperity.

For many politicians on the left “equality” is more important than “prosperity.” The view is that the rich shouldn’t be too rich regardless of whether taxing the rich actually hurts the overall economy. 

The problem is that New Mexico, a State that has largely been dominated by the left for its modern history, has not only been poorer than its neighbors and a vast majority of US states, it is also more unequal. See the chart below from the website Statista which ranks states based on the Gini coefficient measure of income inequality.

Of special note is that four of the top 5 states in terms of inequality (New York, Connecticut, California, and New Mexico) are “deep blue” states while a majority of the least unequal states (with the exceptions of Hawaii and Vermont) are red states.

Find more statistics at Statista

The following appeared in the Ruidoso News on January 14, 2020.

Gov. Lujan Grisham recently released her budget to be considered by the Legislature in the upcoming 30 day session. As expected, there is a lot of new spending thanks to the continued growth of oil and gas production in the Permian Basin.

After a 12 percent boost in General Fund spending last year, the Gov. is requesting yet another big increase. This year she’s asking for 8.4 percent.

According to news reports, the nearly $7.7 billion spending plan includes a proposed 4% salary increase for New Mexico teachers and more money for school districts with a large number of “at risk” students.”

The budget would provide for “free” college and expand funding for child-care assistance and pre-Kindergarten programs statewide. “Another $320 million would be spent to set up a new early childhood endowment fund.”

All of this spending seems destined to please, but New Mexico is a poor state. Many of its social ills are the result of poverty. We at the Rio Grande Foundation believe that the best anti-poverty program is a job.

That’s why when it comes to government spending we look at Colorado as a model. That State which continues to see strong growth (albeit minus the “boom” in oil and gas) is giving taxpayers a break in 2020. As reported by Fox 31 Denver, Colorado’s income tax rate will be dropping from 4.63% to 4.5% this year (thanks to that State’s Taxpayers Bill of Rights which was recently affirmed at the ballot box).

With the passage of HB 6 last year in New Mexico, our top income tax rate will soon rise to 5.9 percent while Colorado’s drops to 4.5 percent. This may not seem to be a big difference but it is one of the big reasons that Colorado is one of the fastest growing states in the entire country.

In fact, over the last decade, according to Census data released at the end of 2019, Colorado was the 3rd-fastest growing state in terms of population at 12.7 percent. Only Utah and Texas which also neighbor New Mexico grew faster. And where did New Mexico rank in population growth between 2010 and 2019? The answer is 38th-fastest at 1.8 percent, a bit faster than Ohio, but not quite as fast as Kansas.

Colorado and New Mexico both have little in the way of rivers and surface water, they have good weather although New Mexico’s is much better, and New Mexico is in the midst of an unprecedented oil and gas boom. They also both happen to be “blue” states.

Colorado’s “secret sauce” is that it strictly limits spending growth and taxation. As a percentage of GDP (the overall state economy) Colorado state and local governments spend 14.8 percent. New Mexico spends 23.39 percent. Of the states surrounding New Mexico, “blue” Colorado has the smallest government while New Mexico has by far the largest.

What does this mean? Simply put it means that the tax hikes (HB 6) passed last year were totally uncalled for and unnecessary. It means that in the upcoming 30 day session, we the voters of New Mexico need to hold the Legislature accountable. Rather than growing the government even more, we need real reforms to the State’s broken and regressive gross receipts tax. We need to eliminate taxation of Social Security. And finally, the Legislature simply needs to stop the accumulation of new government spending programs that may not survive the next economic downturn or the next decline in oil and gas prices.

Colorado’s is not the only economic model worth following. People are moving in large numbers to Utah and Texas (the fastest and 2nd fastest growing states) as well as Arizona (the 7th). New Mexico can learn lessons from each of them, but the simple truth is that new government spending is not the way to make New Mexico (or any other state) more economically attractive.

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

Paul talks with Peter Mandelstam, Chief Operating Officer, of Enchant Energy about the company’s plans to add carbon capture technology to San Juan Generating Station. Enchant Energy is working with the City of Farmington to acquire a 95% interest in the plant which is currently operated by PNM.

Paul visits with Peter about the progress Enchant Energy has made to date, as well as the challenges ahead that must be overcome if the project is to raise the capital to add the carbon capture technology that would allow San Juan Generating Station to continue to operate past the 2022 date that PNM is seeking for closure. Issues discussed include the jobs and tax revenue that would be maintained by keeping the plant open, the federal tax credits that will be used in financing the carbon capture technology, and how the retrofitted plant would comply with New Mexico’s Energy Transition Act.

At the end of 2019 the US Census Bureau published population change data for each state and the nation as a whole. The data are from April 2010 to July 2019, so just under a decade. As most demographers are well-aware, the US population continues to move south and west, but the shift is uneven.

To better understand where New Mexico stacks up, check out the chart below. As you can see, neighboring Utah, Texas, and Colorado are the three fastest-growing states. Arizona is 7th-fastest growing. Even Oklahoma saw robust population growth over the past decade.

Where does New Mexico’s population growth stand? We grew just a bit slower than Kansas and a little faster than Ohio to put us in 38th place overall. It’s obviously not the weather or the sheer beauty of our State that holds us back, rather it is the bad public policy that comes out of Santa Fe and the Legislature. Can 2020 help move the needle in the right direction? We’ll see.

Click the picture below to see a larger version of the image.

Also, Paul was a guest on the ABQ Connect Radio show with Jim Williams. In that recent show which you can listen to below he discussed the upcoming legislative session.

Paul Gessing

As a non-profit ourselves and an organization that takes a fairly skeptical approach to much of what government does, we at the Rio Grande Foundation were admittedly intrigued by the launch of the “One Albuquerque Fund.”  Although the link to the group’s website was not working as of this writing, the Fund is meant to provide private support to the City’s efforts in areas such as “police recruitment and housing vouchers for the homeless” (according to the Albuquerque Journal.

The idea seems to be that if the City does not have the resources for a particular project, then private sector funders will step up.  As long as the process is transparent (and they say it will be), we at the Rio Grande Foundation have no problem with this approach, in fact we’d applaud it.

But, as usual, we have questions:

1. Albuquerque just passed a massive budget increase in 2019, why is that not enough? Might the issue be priorities, not a lack of money?
2. If this model proves successful, then perhaps more areas of government should be funded voluntarily rather than by force?
3. If the model fails to generate significant donations, then what does that say about the lack of interest in funding government when they won’t be put in jail for NOT funding it?

Gov. Lujan Grisham has released her budget to be considered by the Legislature in the upcoming 30 day session.

According to the Albuquerque Journal, “The nearly $7.7 billion spending plan includes a proposed 4% salary increase for New Mexico teachers and more money for school districts with a large number of “at risk” students.”

The budget would provide for “free” college and expand funding for child-care assistance and pre-Kindergarten programs statewide. “In addition, some of the state’s budgetary windfall would be spent on one-time expenditures, including $320 million to set up a new early childhood endowment fund.”

By contrast, in Colorado which continues to see strong economic growth (albeit minus the “boom” in oil and gas) taxpayers are getting a break in 2020. As reported by Fox 31 Denver, Colorado’s income tax rate will be dropping from 4.63% to 4.5% this year (thanks to that State’s Taxpayers Bill of Rights which was recently affirmed at the ballot box).

As seen below, Colorado has seen an influx of people since adopting TABOR. Perhaps New Mexico would see the same if,  rather than massive spending growth, we saw restraint combined with tax relief?

The 2020 session is “only” 30 days long, but as we saw in 2019, a lot of damage can be done in a relatively short time. Considering the “progressive” makeup of the Legislature, there are issues (like Right to Work and Davis/Bacon reform) that simply will not be put forth, but there are plenty of opportunities for bi-partisan economic reform in 2020. We’ll be working to make them happen while also recognizing that there are plenty of bad ideas that could be adopted in 2020.

Below is a list of some of the top issues that RGF will be working on in 2020. Further data and background is available at the links:

1) GRT Reform: The gist of what may happen is for business to business contractors to have most taxes eliminated. This is especially important for service contractors (everything from bookkeepers to lawyers). Tax rates (which have risen dramatically in recent years) would also be reduced slightly.

2) Pension reform: New Mexico has two public employee pension systems: Education Retirement Board (ERB) and Public Employee Retirement Administration (PERA). Both are tremendously underfunded and in need of reform. Earlier this year Gov. Lujan Grisham named a task force to address PERA’s solvency by eliminating over $6 billion in unfunded liabilities over the next 25 years. The changes are significant and positive steps for PERA, but still leave some systemic challenges—namely actuarial methods and assumptions—unaddressed. We will push for further reform while acknowledging that doing something is better than doing nothing.

3) Calling “free” college into question: There so many issues with this concept including New Mexico’s “inadequate” K-12 system, the relative lack of jobs, and the likelihood of price inflation. This proposal has many problems.

4) Questioning the creation of a new “permanent fund” in New Mexico dedicated to “early childhood” education. Permanent funds are nothing but deferred spending and early childhood education (especially pre-K) is of dubious effectiveness. Pre-K programs are also questionable in their effectiveness.

5) Returning surplus money back to New Mexicans: Colorado (a “blue” state like New Mexico) is an economic juggernaut. The key to Colorado’s success is its Taxpayers Bill of Rights (TABOR) which strictly limits government spending and taxation. Colorado just reduced its income tax due to savings from TABOR while New Mexico is likely to spend its surplus. New Mexico politicians should consider returning a significant portion of the oil and gas surplus to the taxpayers.

6) Occupational licensing reform: SB 385 was a bipartisan effort to address occupational licensing problems for those convicted of certain crimes in New Mexico. It was vetoed by the Governor in 2019 after passing both houses. We will continue to support this and other needed (and broader) reforms to New Mexico’s occupational licensing laws in 2020.

Bills are being pre-filed now. To track how bills are moving in Santa Fe and how your legislators are voting (or how they voted in 2019), check out the Rio Grande Foundation’s Freedom Index. 

RGF president Paul Gessing recently gave a webinar (lasting 20 minutes with 30 minutes left for questions) for the Freedom Hub Working group. The discussion centered around comparing New Mexico and Colorado from the perspective of government spending. To make it simple, New Mexico spends a great deal more as a percentage of its economy relative to Colorado.

The webinar shares some data illustrating the stark differences between the otherwise similar states.

The Albuquerque Public Schools budgets are always worth a close look. The District which failed to convince voters of the need for a big tax hike back in February was able to get its scaled back bond passed in November. But there are several points worth considering about New Mexico’s largest school district as we move forward to the 2020 legislative session and more discussion of education policy at the State and local levels.

1.  As explained on page 18 of the budget, APS plans to spend $1,475,755,646 during the 2019/2020 school year;
2. On page 27 we are told that APS expects to have 79,400 students that year.
3. Simple math gives us total annual spending of $18,586 per-student by APS.
4. To say the least APS is hemorrhaging students. Back in FY 2014 (six years ago), the district had 86,700 students. But spending continues to rise and the trend seems likely to continue for the foreseeable future.

Will APS reallocate resources by closing unneeded schools and getting rid of bureaucrats? The district shows no signs of this. And, with both a union-dominated board and Legislature (also flush with oil and gas cash), the District’s day of reckoning appears to be a few years away.

The following are a few of the critical charts taken directly from the APS budget document. 

As RGF research director Dowd Muska discussed last week, the case for New Mexico spending more money, especially at the behest of the judiciary (as a lawsuit would have happen) is nearly non-existent.

Since then, we have run across some fascinating analysis of state-by-state K-12 spending by the education site 74 Million. The most relevant chart has been posted below:

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A few salient points:

1. Between 2013 and 2015, New Mexico’s K-12 education spending per-pupil grew by 8.21 percent. That’s good for 11th-fastest among states;
2. In the NAEP test of 4th grade reading, New Mexico’s point score rose during that time frame by 1.48 points, but 8th grade math scores dropped by 1.864 points;
3. While per-pupil spending grew in nearly every state between 2013 and 2015, it is nearly impossible to uncover any correlation (let alone causation) between increasing K-12 spending and improved results on the NAEP.

After bottoming out, in the fracking era, at 359,000 barrels per day in December 2015, field production of petroleum in the Land of Enchantment rebounded to 439,000 barrels per day in March. The Permian Basin, primarily located in Texas but spilling across the border into southeast New Mexico, is booming. The Bakken is coming back. Nationally, rig counts are up. The Wall Street Journal reports that the “global oil glut is proving immune to the limits set by the Organization of the Petroleum Exporting Countries.” And last week, it must have stung for The New York Times to run a story headlined “Drivers Head Into Summer With a Gift at the Gas Pump.”

In other words, it’s a terrible time to be a peak oiler.

The assumption that global production of petroleum — or at least, affordable petroleum — would soon crest, and then collapse, has been eco-alarmist theology for decades. It’s always been nonsense, since its adherents are unable or unwilling to grasp that humanity is relentlessly finding new ways to extract and efficiently consume oil.

So Errors of Enchantment has question for New Mexico’s senior senator: Do you still believe in peak oil?

U.S. Sen. Tom Udall, while a member of the U.S. House of Representatives, was instrumental in forming the “Peak Oil Caucus.” In 2005, the group of towering ignoramuses decreed that “United States domestic production” had peaked in 1970 and would not recover, and that “the peak in the world’s oil production … is likely to occur in the next decade.” What was needed, of course, was “an energy project with the magnitude, creativity, and sense of urgency of the ‘Man on the Moon’ project to develop a comprehensive plan to address the challenges presented by Peak Oil.”

Almost a dozen years later, it’s more clear than ever that the hysterics were wildly off base. So is Udall willing to come clean with his constituents, and admit he was duped?

That’s probably asking too much from a fedpol who’s cozied up to the corporate-welfare-grabbing, politically savvy folks behind “green power.” But Udall’s junk science is something to remember the next time you hear him weigh in on energy and environmental issues. If he could be so spectacularly erroneous on such an important matter, what else is he getting wrong?