Steve Fischmann
The January legislative session is fast approaching and it’s time for both the governor and the Legislature to step up to the budget crisis. Temporary federal aid, gauze and Band Aids have gotten us this far, but the first aid kit is now empty.
Projected general fund revenues for fiscal 2010 have declined over 25 percent (from $6.4 billion to $4.7 billion) with no sign of significant revenue growth in sight. Little has been done to address the long-term structural problems we face. The tough decision-making still lies ahead.
It’s no mystery how we got here: Big increases in state spending, $700 million in tax cuts since 2002 (largely to the highest income earners), “economic development” perks of dubious public benefit, and questionable deals made in a “pay-to-play” political culture. All of this was financed by a bubble in natural gas severance tax revenue that is unlikely to return, and financial market shenanigans that fueled a bloated economy.
Tired posturing about indispensable government programs or no new taxes will not solve our problems. A combination of immediate measures and long-term policy shifts can. Successful businesses use tough times to reinvent themselves. That is exactly what New Mexico state government needs to do. It’s painful, but it sure beats the alternative. Let’s not waste this crisis.
Here are some ideas for moving forward this next legislative session.
Reducing government spending
It’s human nature to get sloppy about spending when there’s lots of money around. The first step back to financial stability is controlling spending. The governor has created a citizen panel to review potential tax increases; we should do the same to address potential budget cuts.
There has been much discussion about “across-the-board” cuts to “share the pain.” This will only result in across-the-board mediocrity. Large bureaucracies tend to create new programs to solve each newly identified problem. Real solutions often lie in better delivery of core services rather than layers of new initiatives. Marginal and underfunded programs should be dropped as we refocus on more effective delivery of basic services.
Our public school classrooms are a perfect microcosm of this phenomenon. Between overcooked federal and state testing mandates, documentation-heavy programs to help struggling students, and a bevy of “flavor-of-the-month” programs, it is widely acknowledged that teachers no longer have enough time to actually teach. By streamlining and eliminating mandates while maintaining accountability, we can improve instruction and save money at the same time.
Policy adjustments can also significantly reduce spending. It costs upward of $30,000 annually to house a prisoner in a state corrections institution. Taxpayers are punished as much as criminals every time we send someone to jail. Though we call them corrections institutions, the overwhelming evidence is that prisons are far more adept at teaching criminal behavior than correcting it.
Do we really benefit by sending non-violent, first time offenders to jail? Alternative forms of punishment not only save money, but promise fewer career criminals in our future.
Now might also be a good time to review the state procurement code. Many complain that it often adds significantly to cost. I don’t pretend to know one way or the other, but given the claimed level of waste, review and possible adjustment of the procurement code seems reasonable.
Restructuring taxes
Legislators face many proposals for tax breaks for narrow interest groups every year. Far too many are approved and never reviewed again. More taxes are exempted in tax credits and deductions than is actually collected in state income and gross receipt taxes each year. The result is a tax system where tax break losers subsidize tax break winners.
We do not need to raise tax rates to increase revenues. We need only eliminate tax breaks that serve no broad public purpose.
Is it really appropriate that New Mexico auto sales excise taxes are only about half as much as gross receipt taxes on other products? Other states don’t give this tax break.
Forty eight states have implemented “consolidated reporting” policies to prevent national corporations from avoiding local state taxes through accounting tricks. New Mexico has not. Correcting just these two inequities would increase revenues an estimated $60 to $100 million annually.
Legislation that requires annual review of tax breaks, and that imposes sunset clauses on all narrow tax and economic incentives, deserves our support.
Curtailing pay to play
The impact of pay to play is much bigger than the criminal violations we regularly see in the news. Technically legal transactions that violate the public trust probably cost us far more than illegal activity. Giveaway deals by the State Land Office, subsidies that give (not loan) hundreds of thousands of dollars to private speculators for every acre of private lots they create, and film incentives that give a cash rebate of $.25 for every dollar production companies spend in New Mexico will cost well over $100 million this year. Total costs are much higher and are impossible to measure.
If we abhor pay to play as much as we let on, we should change the laws that encourage it. Contractors working for the state, and companies seeking publicly funded subsidies or tax breaks, should be prohibited from making political contributions. There is no hope of curtailing corruption if we’re too faint hearted to make it illegal.
Legislation that addresses these “ethics” issues may well save taxpayers more money over the long term than any other change we implement.
Fischmann, a Democrat, is the state senator for District 37 and a retired Fortune 500 corporate executive.