Elementary economics for Legislators

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By Sherry Robinson

We should have a mandatory economics class for legislators – not the inputs and outputs I slogged through at UNM but a nuts-and-bolts class on how local and state economies work.  

This legislative session I tried to call attention to economic engines – golden geese – because when revenues drop and budget cutters look for targets, they can hinder economic recovery if they’re not careful or stoke those engines that create the jobs we need.

The geese in previous columns were tourism promotion, the Ruidoso Downs Racetrack, the film industry and economic development incentives.

In December, Tourism Secretary Mike Cerletti proposed a tax of one quarter of 1 percent on restaurant food that would provide about $6 million a year to promote tourism in the state. This would cost you 2.5 cents for every $10 you spend in restaurants. And the industry can demonstrate that every $1 spent on advertising produces a $40 return in tourism spending.

What happened? Not only did this minuscule tax go down in flames, but the Legislative Finance Committee wanted to slash the Tourism Department’s budget by $1.6 million; the marketing budget would be $1 million. Neighboring states spend many times that amount.

This is like eating your seed corn, folks.

Ruidoso and Ruidoso Downs had better luck. After three tries to get a tax break that would keep their racetrack and casino in place and foil a move to Las Cruces, supporters proposed a local increase in the gross receipts tax to help offset the racino’s tax bill. These economic-development taxes have worked in other places – most recently to help support the Rail Runner and the spaceport – and in this case it allows tourists to shoulder some of the cost.

As for film incentives, Roswell Republican Rep. Dennis Kintigh made his usual stab at killing them.

Kintigh, a prime candidate for that economics class, asks how else the state might spend the $80 million. Here’s a lesson: In one year, the film industry spent $320 million here, which filtered down through the economy to 3,000 salaries of people who pay taxes and buy stuff and to several hundred film-related businesses that pay taxes and hire people. Add to this: car rentals, hotel stays, restaurant meals, supplies, warehouse leases and home purchases.

The state rebated $80 million. Kintigh assumes the $80 million is just sort of magically there, but it wouldn’t exist without the industry spending.

Kill the rebate, kill the industry. He doesn’t say how he’d fill that hole.  

Senate Finance Committee Chairman John Arthur Smith, a Deming Democrat, would cap rebates but admits his bill was just a message. Obviously, we need more discussion. We also need a new cost-benefit study.

But, Sen. Smith, instead of blasting random proposals across front pages that scare business away, how about sitting down with the film people to learn how their industry works? They understand that in times like this everybody has to give a little. Can’t both sides work together to save money without starving this goose?

A few lawmakers have questioned the use of this and other economic development incentives. Sen. Tim Keller, an Albuquerque Democrat, pointed out that New Mexico offers 47 exemptions, credits, deductions and rebates and we don’t know whether they’re effective.

We’ve been down that road many times, and the result is the same: Mess with the incentives and you send prospective employers to other states, say economic developers. Ask for more information of those who receive incentives, and the goose squawks.

In the mid-1990s I covered a tax-reform study committee. The idea was to do away with all the gimmes and have one nice, low tax rate. Special interests – everyone from manufacturers to the Girl Scouts – massed to protect their breaks.  

Do we have the political will for a real study and real reform? I doubt it.

© New Mexico News Services 2010