July 2016

New Mexico Taxes and Economic Development


Brian McDonald, Jim Peach, Lee Reynis, Chuck Wellborn


Employment levels in New Mexico are still not back to the levels achieved in 2007 before the Great Recession. The state has been hit hard by the federal sequestration, the bust in construction activity and now the decline in energy prices. Despite claims that recent job gains signal economic recovery, these new jobs continue to be largely healthcare jobs and are due not to state economic-development initiatives but to enactment of the federal Affordable Care Act and the resulting increase in medical care for state residents. Albuquerque Business First reported on April 29 that, although the South and West offer the best climates for small-business growth, Albuquerque ranks 93rd in business vitality out of 106 metro areas with a population of at least 500,000.


A three-step course of action is recommended.


First, fix the gross-receipts tax. Retain the gross-receipts tax breaks that make a demonstrated contribution to in-state economic-development efforts. But also conduct this overhaul in a way that will raise gross-receipts tax revenues modestly, so that New Mexico has the resources to invest in its future. And don’t let anyone tell you that a modest tax increase will kill our chances to attract new business activity to New Mexico.


Second, make a periodic review and refinement of the existing inducements that the state offers to job creators, including tax breaks, subsidies for job training and infrastructure and their effectiveness.


Third, rather than relying solely on these job-creation inducements, the state should implement strong measures to stimulate New Mexico’s economy, including meaningful fiscal stimulus.


Here are a few examples: The state could use increased tax revenues, capital-outlay money, severance tax and general obligation bonds to pay for state infrastructure projects that will materially improve the long-term health of the state’s economy, including roads, airports, Internet connections, innovation districts, university science and engineering laboratories, tenured faculty positions, plus equipment and facilities for public schools and other improvements to New Mexico’s education system that enhance educational and training opportunities for the state’s young people.


The City of Albuquerque has demonstrated ways to implement innovative infrastructure projects. The city recently built the new interchange at Paseo del Norte and I-25, not by waiting for federal spending to arrive someday, but instead by largely using city bond money to pay for it. The work created many construction jobs and improved the commuting life of citizens. The city is doing much the same thing with its Albuquerque Rapid Transit project, except that the federal government is providing tens of millions in funding. Similarly, the city, county and UNM are funding development at the Innovate ABQ project on Broadway and Central.


There will always be those who complain that the city or state is doing too little to address important challenges and then find fault with whatever action is taken. Yes, some will worry that improving roadways will lead to urban sprawl or more cars on the road. Some will not believe that the rapid-transit bus will lead to increased investment in properties along Central Avenue. Others will not be convinced that an innovation district will be a meaningful job creator. But isn’t decisive but thoughtful action better than doing nothing but wringing our hands over the state’s and city’s uncertain economic future?



Brian McDonald, Ph.D., an economist, has focused on New Mexico state and local tax policy analysis and was director of UNM’s Bureau of Business and Economic Research for 21 years.

Lee Reynis, Ph.D., has served as city economist for the City of Albuquerque, chief economist for the New Mexico Department of Finance and Administration and director of the UNM Bureau of Business and Economic Research.

Chuck Wellborn, an attorney, is chairman of the New Mexico Small Business Investment Company and former chairman of the Albuquerque Economic Forum.





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