Alicia Keyes, New Mexico’s cabinet secretary for economic development, in a Journal op-ed published Jan. 8 wrote about the need to focus on rebuilding industry and jobs in the wake of the COVID pandemic – in a state she points out had only barely recovered from the Great Recession of 2008 in terms of employment.
She is correct of course, and many of the things the administration wants to do make sense. Pushing economic development projects through the state Local Economic Development Act (LEDA), funding the JTIP worker training program at aggressive levels and expediting aid to businesses hammered by COVID shutdowns and other restrictions lead that list.
Others want to grow STEM jobs and try to get remote workers from other states to relocate here. Nothing wrong with that.
But the challenges are daunting – a point hammered home this week by a WalletHub report listing New Mexico as the worst state in the nation for families based on metrics like education, crime, poverty and family stability.
Those rankings are caused by or exacerbated by the lack of prosperity and opportunity in New Mexico. So the Lujan Grisham administration and New Mexico lawmakers need to think hard about how to grow an economy the way our neighbors Arizona, Colorado and Texas have. And it’s not going to happen if the formula is based on higher taxes and more social services.
To change the dynamic, we also need to designate certain key areas such as water, infrastructure, tax policy, Public Private Partnerships to build things (35 states have them now) and education (provided we insist that results accompany investment.) And we need to encourage entrepreneurship that fuels economic development.
Don Debelak is a business startup and marketing expert who retired in Albuquerque four years ago to be near his grandchildren. He was Entrepreneur Magazine’s “Bright Idea” columnist for seven years and has authored 15 books on invention and marketing.
In an op-ed published in the Journal on Jan. 4, Debelak weighed in on the anchor that tax pyramiding is on economic development in New Mexico, arguing that it stifles growth in manufacturing new products (we have a lot of smart R&D people here, but when a product is ready to move to market, that tends to happen elsewhere) because gross receipts taxes are levied at every level.
This drives up the cost and makes us less competitive.
Rep. Jason Harper, R-Rio Rancho and one of the Legislature’s tax gurus, says New Mexico has made good progress on pyramiding in construction and some in manufacturing. But the current system, he says, is brutal on small business that has to contract out services such as accounting, payroll, HR and legal – meaning you pay GRT on all those professional services.
“We are not serious about improving our economy until we tackle GRT tax pyramiding,” Harper said. “It can raise the effective tax rate to 17% and we wonder why that product is so much cheaper in Texas. It’s because of the hidden taxation.”
“We’ve talked it to death. Legislators on both sides of the aisle know it’s a problem. Until we address it, I don’t think we can move in the right direction.”
Harper puts the cost of fixing the problem at about $100 million in a state budget of $7 billion-plus.
Debelak’s arguments about tax pyramiding aside, his op-ed included some other eye-popping numbers. He said Arizona has 33 public companies with market capitalization of $50 million or more. The Bloomberg Colorado Index lists 60 major stocks, and Utah has 17 listed companies.
New Mexico, he wrote, has one publicly traded company based here: PNM. And it’s not a manufacturer.
It’s one more page in a tale of New Mexico lagging its neighbors, reinforcing a Duquesne University professor’s comparison between Arizona and New Mexico using 1963 as a baseline.
At that time, Arizona’s economy was 1.45 times larger than New Mexico’s. By 2008 it was 3.11 times the size of ours. Arizona’s economy grew at a 5.3% annual rate from 1963 to 2008. We grew at 3.5% a year.
“Neither economy had a natural advantage to grow over the other,” researcher Matt E. Ryan wrote. In 1963, Arizona was the nation’s 33rd largest economy at $24.7 billion (in 2008) dollars while we were 36th at $17 billion. By 2008, Arizona had moved up to 20th with a GSP of $216.5 billion while we had slipped to 37th at $66 billion.
And that was before the Great Recession of 2008, which Secretary Keyes correctly points out took an exceptionally heavy toll on New Mexico. The gap continues with Arizona’s GSP more than three times the size of New Mexico’s.
Asked why he thought New Mexico and Arizona had diverged so wildly, Ryan basically concluded Arizona relied on private markets to generate wealth and New Mexico relied on public spending.
“Entrepreneurship … is simply the creativity to make yourself better off,” he told the Journal for a story published in 2016. That translates into new products, new businesses, doing things better “and what we call productive entrepreneurship since the economy as a whole grows with this activity.”
By contrast, he said public sector activity requires unproductive entrepreneurship and causes an economy to shrink.
It’s easier said than done, but if New Mexico is to create prosperity and opportunity for its people, the state must create the right atmosphere and get out of the way to the extent possible. Programs for health, education and welfare are important, but they won’t drive the economy.
It’s worth noting that even our touted success with the film industry is fueled by tax credits – which means oil and gas has in effect been picking up the tab.
Democrats control the House, Senate and Governor’s Office. Social programs are near and dear to their hearts. But if they are serious about creating jobs and improving lives, they also will look at how that’s been done elsewhere – and ask seriously about why it hasn’t happened in New Mexico.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.