What might have been for New Mexico

Have you ever wondered what New Mexico might be like had its state government not grown so fast? We can get some idea by looking to our neighbor to the north. Colorado has imposed tax and spending limitations by rule since 1992. These limitations are known by the acronym TABOR (Taxpayers’ Bill of Rights). State spending is limited by TABOR to the rate of inflation plus the rate of population growth. In essence TABOR holds real state spending per capita constant.
Suppose New Mexico had implemented a TABOR in 1992. What would now be the size of its general fund budget as constrained by the rates of growth of population and the price level? Population has grown by an annual average of 1.6 percent in the period from July 1992 to July 2003. The price level has grown by an annual average of 2.6 percent from February 1992 (index of 138.6) until February 2004 (index of 186.2) as measured by the consumer price index. A New Mexico TABOR would have limited general fund average annual growth to 4.1 percent (1.6% population growth plus 2.6% inflation).
Since the New Mexico general fund budget was $2,044.9 million in FY 1992, TABOR would have limited it to $3,447.8 million for FY05 (beginning July 1 2004). Contrast that with the actual FY05 budget of $4,380.6 million! TABOR would have saved the taxpayers $932.8 million. That works out to be $491 for every man, woman and child in New Mexico. According to our estimates such a saving would have permitted a gross receipts tax rate reduction of some two and one-half percent! The gross receipts tax we pay would be more in the neighborhood of four and three-quarters percent rather than six and one-quarter percent. Now that would promote economic development!
Some other observations based on the general fund budget over time: The budget has grown at a rate of 6.0 percent annually since 1992 (rather than at a TABOR constrained 4.1 percent). The Medicaid portion of the budget has grown at an annual average rate of 13.3 percent and it increased 16.3 percent for FY05. We predicted the Medicaid budget would be out of control without real reform. Governor Johnson was able to hold general fund spending to an average annual rate increase of 5.0 percent during his eight years in office (nice going, Governor J). He was able to hold Medicaid’s average annual increase to 11.2 percent.

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