Professor: Virus reshaping NM economy - Albuquerque Journal

Professor: Virus reshaping NM economy

Jim Peach, professor emeritus, New Mexico State University (Source: NMSU)

Copyright © 2020 Albuquerque Journal

SANTA FE – A top economics professor warned state legislators Friday that the coronavirus pandemic will produce lasting changes to New Mexico’s economy and that oil revenue isn’t likely to save the day.

In an online presentation to the Legislative Finance Committee, professor emeritus Jim Peach of New Mexico State University said the pandemic’s disruption of the economy is shifting business activity to large corporations – a worrisome sign for a state that isn’t home to the headquarters of major corporations.

Demand for oil – a critical source of state revenue – may not bounce back as commuters opt to work from home more often and big companies cut back on air travel.

“It’s going to take a long time for us to get out of this mess,” said Peach, who retired in 2018 but is regularly called on to testify before legislators. “There’s no way to do it instantly.”

His presentation comes as lawmakers face uncertainty over how much revenue will be available to support government spending. They are set to craft a new state budget in a 60-day session beginning Jan. 19.

At least some good news surfaced this week. Economists for the legislative and executive branches of government said revenue came in stronger than expected in the first half of 2020, pushing state reserve levels to about $2 billion, or 29% of spending on July 1, the beginning of this fiscal year.

But Peach urged legislators not to count on beating expectations again. The federal stimulus package – including expanded unemployment benefits and checks to taxpayers – was a key factor in this year’s economic activity, he said.

“New Mexico’s economy is being propped up by massive injections of federal funds,” Peach said. “The state has relied heavily on federal expenditures since the 1940s, but we’ve never seen anything like this.”

What to do about it is less clear. Peach suggested substantial investments in education, workforce training and recreational amenities would strengthen New Mexico for the future.

“We’re going to have to raise taxes,” he said. “I hate to say that.”

The state hasn’t increased its 17 cents per gallon tax on gasoline since 1993, Peach said, and property taxes are low compared to other states. Income taxes could also be raised, he said, and a tax could be enacted on plastic bottles.

Lawmakers reacted with skepticism.

Sen. George Muñoz, a Gallup Democrat and vice chairman of the Senate Finance Committee, said employers will simply leave the state if they face higher taxes.

“We have done a horrible job in New Mexico with economic recovery and helping business,” he said.

Rep. Rebecca Dow, R-Truth or Consequences, said the state needs less taxation, not more. She suggested cutting taxes on Social Security benefits to better compete with other states for retirees.

Coronavirus surge

The Legislative Finance Committee met Friday as New Mexico endures a surge in new coronavirus cases and patients who require hospitalization.

State health officials reported 341 new coronavirus cases Friday as infections reached their highest daily total since late July.

The state’s seven-day rolling average of cases now stands at 216 – or roughly 2.5 times as high as the average just 20 days ago, according to a Journal analysis.

New Mexico also reported five more deaths, growing the total to 887 fatalities since March. The new victims ranged in age from their 60s to their 90s, and all had an underlying condition of some kind, a risk factor for the disease.

Common underlying conditions include heart disease, diabetes, high blood pressure and obesity.

The increase was fueled, in part, by 99 new infections in Bernalillo County, the state’s most populous area. Doña Ana County in southern New Mexico was next with 45 cases, followed by Chaves County in the southeastern part of the state at 32 cases.

Gov. Michelle Lujan Grisham this week urged New Mexicans to recommit to wearing masks, limiting trips outside the house and avoiding gatherings of more than 10 people.

“It is absolutely critical that New Mexicans take immediate action to slow the spread of COVID-19 across the state – lives and livelihoods depend on it,” she said in a Tweet on Friday.

A public health order in effect through Oct. 16 limits the operating capacity of most businesses and requires masks in public settings. Lujan Grisham didn’t say this week whether she anticipates making any changes to the restrictions.

Economic analysis

Peach, for his part, didn’t directly object to the business restrictions and public health measures enacted by the Lujan Grisham administration to limit disease transmission.

But he said the state should be analyzing the economic consequences of its reopening and closure decisions and making the analysis public.

“I see little evidence of economic analysis in the decision-making,” Peach said.

On the other hand, he said, the state has an “excellent record” at suppressing the virus compared to other states and that “stopping the virus is the best path to reopening.”

Rep. Gail Armstrong, R-Magdalena, said local businesses, especially in rural areas, need help and deserve to have their survival taken into account as New Mexico weighs when and how to relax restrictions.

“I have grown men that I run into in Walmart or my little local grocery store,” she said, “and they’re begging me to do something.”

The state budget this year authorizes about $7.2 billion in spending through next summer. For the year after that, state economists project $6.8 billion to $7.6 billion in revenue.

How much more federal aid will be available is unclear.

The state’s congressional delegation jointly announced Friday that New Mexico was awarded a $1.5 million federal grant to help develop a statewide economic recovery plan.

The “funding will help New Mexico chart an economic path forward,” Democratic Sen. Tom Udall said, “and I am continuing to work hard every day in Washington to extend assistance to state and local governments across the country that are providing essential services during the pandemic.”

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