Funding woes could ‘cripple’ NM spaceport as other states invest in space race

The state has cut its annual funding for the spaceport. Excess tax money collected in Doña Ana and Sierra counties is shoring up the budget for now.

Spaceport America has operated for years with a tight budget hampered by a struggling economy, delays in Virgin Galactic’s planned launches and skepticism among many state officials.

The N.M. Spaceport Authority, the state agency that operates the facility, has shored up its annual operating budget since 2012 with excess money from taxes collected in Doña Ana and Sierra counties.

That’s been controversial. Officials pledged to voters who approved the tax increase a decade ago that three-fourths of the money would be used for construction of the facility that was to be built in the desert west of Truth or Consequences. The remaining one-fourth of the tax money was pledged to education programs in the two counties. Officials said the state would fund the spaceport’s operations.

But the local tax has generated several hundred thousand dollars each year that isn’t earmarked for education or to pay off construction bonds. That money has gone to spaceport operations, including salaries.

Also controversial is Spaceport America CEO Dan Hicks’ desire to continue the tax past the 20 years voters initially approved. During elections in Doña Ana County in 2007 and Sierra County in 2008, voters were told the 1/4 of 1 percent tax increase would be allowed to sunset in 2028. Since the tax was funding initial construction, it would no longer be necessary once the bonds were paid off, officials said.

Regardless, the language voters approved and the relevant state law allow spending on things beyond construction, such as planning and development. Using the money to fund operations has twice received approval from a local board that oversees the money and from the New Mexico Finance Authority (NMFA), most recently in June.

Officials will review the situation again next year and decide whether to continue allowing use of the tax money for operations. Hicks said the excess tax revenue is critical to the spaceport’s future.

“I would like to be able to compete on a national level,” he said at a June 2 meeting of the two-county board that oversees the tax revenue. Hicks noted that Virginia and Florida are spending millions of dollars in public money each year on their spaceports.

New Mexico is spending far less. The state appropriated about $389,000 to the Spaceport Authority in the current fiscal year – down from $944,000 two years ago.

“What makes sense to me today is to use this excess revenue to continue the growth and development of the spaceport,” Hicks told the tax board.

Not all agree. Former state Sen. Lee Cotter, R-Las Cruces, unsuccessfully sponsored legislation in 2014, 2015 and 2016 that would have required using the excess tax revenue to pay off bond debt. Doña Ana County Commissioner Ben Rawson, a member of the tax board, has proposed a middle ground – using the extra money for specific construction projects such as roads, runways and hangars, but not salaries and other operational budget items. The board has rejected Rawson’s proposal.

Hicks, who became the spaceport’s CEO in September, doesn’t consider either idea viable. The tax money has thus fair paid off almost $44 million in bond debt. The remaining $74 million is scheduled to be paid off through 2029. Hicks said bond payments must be made on a schedule and could be paid off only a year or two early. The excess money, Hicks said, can be used to “allow us to grow” or officials can “let it sit.”

The spaceport’s model is like an airport – publicly owned infrastructure that’s leased by private companies. Its operating budget for the current fiscal year, about $5.8 million, is primarily funded by money from private companies. The budget includes the $389,000 in state funding, $844,000 in excess tax revenue from the two counties, and an estimated $4.5 million from Virgin Galactic and other customers.

The agency’s budget increased $1.3 million this year, in spite of the state funding cut, because Virgin Galactic’s rent payments will spike in January from $1 million each year to approximately $3 million. Still, because of the state cut, Hicks has left three jobs vacant to save money. While the spaceport has identified massive infrastructure needs that the excess tax money could help fund, including additional runways and hangars, the spaceport is essentially using it now to promote the facilities’ existing infrastructure and try to secure new clients.

Not using the excess tax revenue for operations would force another budget cut that Hicks said “cripples” development of the spaceport.

Historical tension about funding

The debate about the excess tax revenue reveals the historical tension between state and local officials about how to fund the spaceport. Some state lawmakers want to eventually cut off all state funding to the spaceport. Sen. George Muñoz, D-Gallup, even sponsored unsuccessful legislation in 2015 to try to sell the spaceport, though he hasn’t brought the proposal back since.

Some local officials, on the other hand, want to see the state meet its pledge from a decade ago to fund spaceport operations without taxpayers in two counties carrying a disproportionate share of the burden.

A lot has changed in the decade since voters approved the tax increase. As other states have built spaceports, New Mexico has lost some of the competitive advantage it envisioned when it built the first facility on the planet designed for commercial spaceflight. The spaceport has faced skepticism from some lawmakers and the public. Gov. Susana Martinez took office in 2011 with suspicion about Spaceport America, which was championed by her predecessor Bill Richardson, though she eventually embraced the project.

Given Virgin Galactic’s delays in flying paying customers into space from southern New Mexico, the spaceport has more aggressively expanded its vision and worked to attract other prominent companies, thus far with mixed success.

Sierra County Commissioner Frances Luna, who chairs the two-county tax board, argued at the June 2 meeting that not allowing the Spaceport Authority to use the excess tax money for operations would send a message that the board is “not in favor of a spaceport that our voters approved.”

“I would hate to cripple you,” she told Hicks.

At that meeting, Hatch Valley Chamber of Commerce President Rob Spence, who operates a transportation and tour company tied to the spaceport, and T or C City Manager Juan Fuentes spoke in support of using the tax money for operations.

“The city as a whole, the community as a whole, support the Spaceport Authority,” Fuentes said.

Not all in T or C agree. Some believe the spaceport will primarily benefit the Las Cruces area. Local activist Ron Fenn, who voted against Sierra County’s tax increase in 2008, complained that T or C “is the appendix in this whole matter. We are left out of the loop.”

At that June 2 meeting, the tax board voted 3-2 against letting the Spaceport Authority use the funds for operations. But Sierra County Commissioner Kenneth Lyon changed his vote at a second meeting in Elephant Butte later in June, and the board approved using the money for operations on a vote of 3-2.

Essentially, Sierra County officials voted to approve the operational funding, while officials from Doña Ana County opposed it. In Fiscal Year 2015, the tax generated more than $7.8 million in Doña Ana County and about $488,000 in Sierra County.

The NMFA, the state agency that manages the money, also had to give the OK. Rather than approving operational funding in perpetuity, that board gave approval in June for one additional year only. So there’s no certainty the spaceport will be allowed to continue using excess tax money for operations after June 30, 2018.

“My hopes and desires run strongly in your favor but, as someone with a financial responsibility here, there are certain unanswered questions,” NMFA Chairman John McDermott was quoted by The Santa Fe New Mexican as saying at the June 21 meeting in Albuquerque.

The NMFA board made clear it wants to see economic progress and a clean financial bill of health following a pending Internal Revenue Service audit before revisiting the issue next year.

Investment needed, officials say

The spaceport needs additional state funding and the local tax revenue to succeed, some say. State Rep. Bealquin Bill Gomez, D-La Mesa, is among them. At the June 2 tax board meeting he pledged to fight for additional state funding for the spaceport but also urged approval of using excess tax revenue for operations.

“Let’s go forward with this funding, because I want this to work,” Gomez said.

Lt. Gov. John Sanchez, a non-voting member of the Spaceport Authority’s governing board and chair of the national Aerospace States Association, told NMPolitics.net the excess tax revenue should be used for spaceport operations. The Republican also said the state is “probably not” funding the spaceport at the level needed “based on today’s competitive environment.”

“Other states are throwing in millions of dollars just for commercial space business development,” Sanchez said. “If we grow too slowly, we risk being overtaken by other states.”

Florida’s space agency, for example, has an annual operating budget that’s currently twice New Mexico’s – about $12.5 million, according to Dale Ketcham, Space Florida’s chief of strategic alliances. On top of that, Florida has a $7 million financing fund to incentivize investments from others including NASA and the U.S. Department of Defense.

And Florida’s Department of Transportation has a fund for building space-related infrastructure that is currently at $20 million each year, Ketcham said.

In New Mexico, it took years to cobble together $14 million to improve a 24-mile dirt road from Doña Ana County to the spaceport, which is currently impassable at times without four-wheel drive because of weather. An improved road would substantially cut travel time from Las Cruces. A chunk of the money has already been spent on planning and design. Officials are accepting bids for construction of the road this fall.

Hicks and Sanchez both noted that state government funds airports, highways and other transportation projects. “Those are designed to develop commerce and to develop economic engines throughout the state. Spaceport America is no different,” Hicks said.

Sanchez said the spaceport creates an important opportunity to diversify the state’s economy, which is largely dependent on the oil and gas industry.

“I know of no other industry with this potential economic impact for our state,” he said.

Officials: Continuing tax should be up to voters

Hicks is looking for every dollar he can get to sustain staffing, build new infrastructure and recruit companies. He said he hopes that will include continuing the tax in Doña Ana and Sierra counties after 2028.

State Rep. Bill McCamley, D-Las Cruces, was among those who pledged to voters a decade ago that the local tax money would be used for initial construction of the spaceport and would sunset after 20 years. At the time, McCamley was a Doña Ana County commissioner and co-chaired the political action committee promoting approval of the tax.

McCamley sat in the back of the room listening as Hicks made his case for using the excess tax revenue for operations at this year’s June 2 tax board meeting. When Hicks told the board he believed the tax was intended to be perpetual, not sunset in 2028, McCamley sat back in his chair, laughed and shook his head.

In an interview, McCamley took no position on using the excess tax money for operations, saying that is up to the tax board. And he said a decision on whether to continue the tax beyond 2028 must come from an open discussion with voters.

Whether voters will agree to continue the tax, he predicted, will depend on the spaceport’s status at that time.

“The understanding is that [the tax] goes away,” McCamley said. “If the spaceport is a roaring success and people see all these jobs being created, maybe people will say this is worth continuing.”

Sanchez said he hopes the tax will continue past the initial 20 years, but he also believes it should be up to voters to decide.

“As we approach 2028, I expect that Spaceport America has earned a solid reputation with the voters of New Mexico as a job creator and industry leader we can all be proud of,” Sanchez said.