Use Oil Surplus For Real Reform, Not Subsidies

Dear Editor,

Gov. Lujan Grisham and Mayor Tim Keller are touting the deal with NBC/Universal as a big economic success. Under the agreement, the company is going to have a studio here. We are told that this will create jobs and economic development in our community.

New Mexico is paying dearly for the film industry and NBC/Universal. Before we even address the film subsidies, it is worth noting that the State and City are shelling out $10.7 million in LEDA funds. Those are our tax dollars and they’ll be used to pay the $1.17 million annual lease on the studio. In other words, New Mexico taxpayers are paying for more than 9 years of lease payments.

That is only a tiny fraction of the largesse we are offering the film industry. The film subsidy is incredibly-generous and, as the Legislative Finance Committee noted in a recent report, the film credit “returns 40 cents on the dollar.” And, “film credit changes (are) estimated to cost over $500 million to the General Fund over the next five years (in addition to the $250 million that would have been paid out under the existing cap). 

In other words, we are spending a $750 million over the next five years to bring Hollywood film companies here. And, as stated clearly in the City of Albuquerque’s agreement with NBC/Universal, the company will leave if the subsidies dry up or the rates go down. 

Considering that these are multi-billion dollar corporations, it is shocking that New Mexico’s so-called “progressives” remain silent in the face of such corporate welfare, but we know Hollywood shares their values on abortion and other issues, so perhaps their silence has more to do with politics than they let on? 

To give readers an idea of just how generous our State is being with film, we could exempt numerous business from our onerous gross receipts tax and the cost would be zero. No tax money would be expended. In fact, the business would still be paying taxes in other ways that earn money for the State. Film subsidies, as the LFC notes, are money-losers despite the “economic impact” data supporters use in their attempts to justify the spending.

Special tax exemptions for any corporation or industry are NOT the Foundation’s preferred means of economic development. Rather, New Mexico’s elected officials have a golden opportunity right now due to the State’s unprecedented oil windfall to truly make New Mexico a prosperous and successful state. 

The obvious starting point is to reform and reduce the gross receipts tax (GRT) which kills businesses in our State. Revenue neutral reforms have been proposed in the past and those should be a starting point. Unfortunately some of the “low-hanging fruit” that could have been used to reform the gross receipts tax in a revenue-neutral way have already been used. 

Despite the massive surplus, the Legislature and Gov. imposed taxes on non-profit hospitals and managers of Los Alamos National Lab during the 2019. They also applied taxes on Internet sales as another means of generating additional revenues. This makes it more difficult to reform the GRT in a revenue-neutral manner, but reform of this harmful tax is too important to worry about a small short term revenue loss when another billion dollar oil surplus is looming in 2020. 

Lowering the GRT could be used to truly make New Mexico competitive with its more successful neighbors. 

We are in a new paradigm in terms of oil production in New Mexico. The discovery of vast new formations has caused production to triple since 2012 and it is likely to double again by 2021. That said, a decision by the Saudis to flood the oil market or a widespread shift to electric vehicles as some tout could cause it all to come crashing down. 

New Mexico policymakers know we need to diversify our economy. This is a golden opportunity. We can’t let it slip away. 

Patrick Brenner
Rio Rancho

Patrick Brenner is the Director of Giving and Policy Analyst at New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.