Unfair subsidies to businesses won’t help New Mexico’s economy recover

There is no question that New Mexico faces significant economic challenges. Our overreliance on Washington’s largesse combined with business-unfriendly tax and regulatory structures have finally caught up with us. This has led to New Mexico bleeding jobs and people to other states, particularly our economically freer neighbors.

This has led to desperation among some quarters. Democrat Sens. Tim Keller and Jacob Candelaria seem to have even proposed a special legislative session for the sole purpose of offering subsidies and incentives to the Tesla car company. The hope is to attract a proposed battery factory to the state despite no concrete indicators from Tesla as to where they wish to locate said factory or what their criterion are.

Unfortunately, these Democrat legislators are not the only ones willing to engage in bad economic policies for a short-term political benefit in the form of “jobs.” The Doña Ana County Commission recently voted 5-0 to grant an industrial revenue bond (IRB) to a Turkish wire company to encourage the company to come to Santa Teresa. While this financing mechanism is somewhat complicated as a means of giving special advantages to recipients, the basic effect of an IRB is that it exempts the recipient, for up to 30 years, from property taxes on land, buildings, the useful life of equipment purchased with bond proceeds and an exemption from applicable gross receipts taxes on the purchase of project equipment.

While we at the Rio Grande Foundation prefer fair, free, and open economic policies, the kicker is that the subsidized Turkish firm is planning to open their door across the street from the International Wire Group, an existing player in the same market. It goes without saying that an unequal playing field inevitably favors one company over another and could allow the new entrant to undercut its cross-street rival on price or use its advantage to hire workers away from the existing company.

So, the very justification for issuing these bonds to the Turkish wire company — job creation — will likely backfire as the new company uses its government-favored position to squeeze its competition. Unfortunately, it does not seem to have occurred to the Commission that their policies may backfire in this way.

Whatever the reason they have for issuing this bond, it is nevertheless illegal. According to section 4-59-15 of the New Mexico State Board of Finance review provision: “The bonds in connection with such project shall not be issued until the State Board of Finance has determined that the proposed project will not directly or substantially compete with an existing business or enterprise located within the boundaries of the county or within five miles of the proposed project.”

Approval of this subsidy package, unlike any potential deal for Tesla, would appear to be in direct violation of the state’s own laws/regulations. On those grounds alone, the Board should reject the proposed subsidies out of hand.

While we certainly understand the desire on the part of policymakers to act quickly to attract businesses to the state, policymakers need to first and foremost respect those businesses that are already here in our communities providing jobs and tax revenue for our communities and the state. The worst thing that can be done is to offer generous subsidies — at taxpayer expense — to attract competition for existing New Mexico businesses.

The term “pro-business” is often a catch-all used to describe government policies that may, unfortunately, be abused for the benefit of some businesses at the expense of other businesses and taxpayers at large. New Mexico should instead strive for free-market policies that provide reasonable taxes and regulations across the board. When that challenge is undertaken in Santa Fe, New Mexico will finally rise from the bottom of so many bad lists.

Monnheimer is a policy analyst with New Mexico’s Rio Grande Foundation, 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.

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4 Replies to “Unfair subsidies to businesses won’t help New Mexico’s economy recover”

  1. Senator Tim Keller was on Bob Clark’s show about 10 days ago. Bob put this question directly to Mr. Keller:” If Tesla said that it would not come to N.M. because it is NOT a right to work state, would you be in favor of passing right to work legislation in N.M.?” Senator Keller did a tap dance and refused to answer the question.

    Of the 4 states in the running for Tesla, 2 have no state income tax (NV & TX) and all other than N.M. is a right to work state. From Senator Keller’s response, it sounds as though the Dems are not willing to pass right to work legislation here in N.M.

    1. Thanks for the information Charles. It is no surprise. Keller is one of the most intelligent and open-minded Democrats in the Legislature, but he is still a politician who can’t afford to piss off one of the pillars of the Democratic party no matter what the negative repercussions are for New Mexico’s economy.

  2. Just curious…. has anyone ever proposed a right-to-work law that would exempt government employees? Since union representation in New Mexico is primarily among government workers, limiting right-to-work to the private sector may have a chance as a job creation measure if our politicians are desperate enough.

    1. This reform has been discussed and I think it is a talking point worth discussing, but right to work is such a hot-button issue that the unions will unite in opposing the effort. I think the politics are pretty obvious. If right to work is shown to be effective, then there will be an inevitable push to extend the law to new sectors of the economy. Their view is: Why give an inch?

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