The title of Santa Fe New Mexican’s Aug 20 piece,”New Mexico can’t let this windfall go to waste” got it right. This is a generational opportunity to address a litany of critical needs that have been ignored due to cost and the lack of the funds needed to cover those costs and to take advantage of some opportunities that could make NM far more resilient, and much less reliant upon gas & oil revenues. Today we examine the surplus and offer suggestions for how it could most profitably be invested. This is a huge deal. There will be forces eager to cut taxes rather than to invest in future of NM.
Before we get started, I want to acknowledge that Roxanne is in CA with our daughter for a needed and well-earned mom-daughter vacation. I do not want her to have to spend an hour fixing typos, run-on sentences and too convoluted thoughts. So I am going to do my best to fix them myself. But please be kind when you encounter something I missed. But let me know at email@example.com or in a comment below (better). Thanks.
A Better Idea for Our Surplus than Tax Cuts: Invest in Our Future and Begin our Climb from 45-50th in All Things Good
$2.45 billion in new money is projected to be coming for the budget year starting in July 2023. Add to this the current budget surplus of about $3.76 billion and you have over $6B in surplus revenue available for investment. New Mexico can’t let this windfall go to waste, especially when you also consider the $25.8 billion sitting in our Permanent Fund. This fund offers the state both fiscal security while generating 7% of the fund balance every year to early childhood. Income for the fund hovers around 11%, so even while distributing 7% of the fund each year, the fund balance continues to grow. Factor in a robust Tax Severance Permanent Fund large enough to produce over $230M annually and you can clearly see that while NM’s children are poor, their state is not. Indeed, NM’s coffers are overflowing.
What we do with this surplus is not just a fiscal issue, it is a moral one. We live in a wealthy state with too many desperately poor residents. To fail to use surplus revenues to alleviate suffering and address the conditions that contribute to that suffering is not just poor economics, it is a reflection of a flawed moral compass. It is time to put those funds to work. Some suggestions:
- First, in Nov., we need voters to pass the constitutional amendment: New Mexico Land Grant Permanent Fund Distribution for Early Childhood. A “yes” vote supports allocating 1.25% of the five-year average of year-end market values of the money in the Land Grant Permanent Fund (LGPF) to early childhood education and the public school permanent fund and providing that the allocation would not occur if the average year-end market value for the preceding five years of the LGPF fund balance was below $17 billion. So the proposed amendment has a sunset clause triggered by a precipitous decline in the fund balance. We are not squandering our savings. They are safe. But while the balance remains healthy, the state will be boosting funding for early childhood every year. Investing in early childhood is one of the wisest fiscal investments the state can make. Passing this constitutional amendment will have no impact upon our surplus.
- Fix the tax system. This does NOT mean doling out our surplus to taxpayers in the form of tax giveaways, but it could mean fixing the highly dysfunctional GRT system to address the problem of tax pyramiding where related transactions are taxed separately, compounding tax on the total cost of a product or service. Cities and counties also charge GRTs, so in some areas such as Santa Fe the combined rate is above 8 percent. That’s a hefty addition to the cost of goods and services. Lowering it will be good for both individuals and businesses. But lowering it comes at a steep cost in revenue and the overall fix of the tax system should be revenue neutral, so each fix to the GRT that reduces GRT revenue must be accompanied by a commensurate tax increase elsewhere. Bottom line: talk from Rep. Patty Lundstrom about eliminating the state personal income tax should be rebuffed swiftly.
- Fix roads and dams. Bottom line, this can has been kicked down the heavily rutted road for far too long, a reason NM is ranked 45th in the nation in infrastructure. The state has long known that its infrastructure is threadbare. Yet, some 18 months after the U.S. Army Corps of Engineers rated 200 NM dams as being in “poor” condition, dam experts told members of a legislative committee things haven’t improved much. When have you heard this before? dire report on most anything with recommended fix and price tag, followed by inaction. This surplus is NM’s opportunity to rectify the condition of our roads and dams.
- Fund a state 50-year water plan to better understand how best to conserve and protect that resource and fund subsequent plan recommendations
- Fund creation of waste water treatment facilities in major metropolitan areas so that ‘waste’ water could be processed into grey water and used for landscaping and agricultural use. I saw this suggested in an online discussion of tax policy, but have not researched the viability of this investment. But water is our life blood and we squander it as if it were a limitless resource.
- Grow broadband across the state by making one-time targeted investments. It is shameless that so many rural kids had to have their parents take them to the library or McDonald’s parking lots to access wifi hotspots to do homework. Any wonder low-income NM children lag behind their wealthier peers? The lack of rural internet is also an important barrier to rural economic development. What 21st Century business wants to locate in a community without reliable internet. For that matter, what 21st Century young adult wants to live in a community without reliable internet. Wonder why so many of our youth go off to college and don’t return?
- Invest significantly in the NM Housing Trust Fund to support development of low-income housing, both rental stock and single family developments affordable for low-income NM families.
- Fund a State Public Bank, which once established, can partner with community banks and credit unions to vastly expand capital available to invest in small and rural business development, putting thousands of New Mexicans to work, enriching small local communities, and expanding state and local tax revenues.
- Invest in Renewable Energy Generation and Transmission. NM has more than just a robust assembly of reserves and surpluses, it has a largely untapped wealth of wind and solar which currently is being used to generate large profits for mega energy corps like Pattern Energy. Yes, NM derives both leasing revenue and tax revenue from Pattern, but the profits go to Wall St, as laid out in our July 23 post, The Answer, My Friend, Is Blowing in the Wind: We Just Need to Act which outlined just how much Pattern benefits and how litte NM does. Pattern has billions to invest in wind farms and transmission lines to generate massive profits for their shareholders. NM also has the billions needed to jumpstart our own energy generation and transmission enterprise. And this investment has the potential to generate significant, sustainable revenue for NM, while helping us ween ourselves of gas & oil dependence. Retake is working with a small group of renewable energy advocates and within a few short weeks, we will have a pro forma for exactly the level or investment required and the anticipated revenues to be achieved. But as a placeholder, let’s say $2B of our surplus being invested in renewable energy generation, storage and transmission. Based upon a presentation by Interwest Energy Alliance to the Economic Development & Policy Interim Committee, there is massive demand for renewable energy in the southwest and western U.S., estimated by Interwest to be in excess of 9 gigawattsof new renewable energy each year. We need to take advantage of this opportunity.
The investment in our state’s renewable energy would not only provide significant and sustainable revenue for the state it would accelerate our meeting the ETA goals for NM energy consumption, while also lowering rates for New Mexicans.
Each of the suggestions above would be wise investments that would improve living conditions and future prospects for all New Mexicans. I’m sure there are other worthwhile investments. Economic and climate disasters are certainly in our future due to climate change. With a massive budget surplus, it would be irresponsible not to invest those resources in building state and local resilience. If you have suggestions for other worthwhile investments, please share them with others in a comment below.
Republicans want to shrink government and so their plan for use of the surplus will be to significantly cut taxes and ship the surplus out to the taxpayers. But doing this leaves NM vulnerable when the inevitable “boom and bust” downturn in gas & oil revenues arrives. When that downturn comes and state revenues shrink, the state would need to increase taxes just to sustain even current levels of state funded programs. In this context, Republicans and Democrat fiscal conservatives will align to oppose tax increases, with Republicans only too happy to starve government of revenue to sustain programs (See Susana Martinez). But the calls for tax cuts will be loud and persistent.
It is important that those of us who believe in government become fully informed about how our taxes should be raised and used. Otherwise, Republicans and fiscally conservative Dems (Sen Muñoz and Rep. Lundstrom, for two) will hold sway and another NM opportunity will be squandered. Bdgets may be complex and difficult to fully understand, but as noted above budget decisions are moral issues and so it is incumbent upon us to be fully informed on the nuances of creating a state budget.
In solidarity & hope,
Paul & Roxanne in absentia