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NM governor’s budget proposal includes $50M for ‘closing fund’

By   /   January 13, 2015  /   News  /   No Comments

Photo by Brigette Russell

NEW MEXICO BUDGET NUMBERS: Sen. John Arthur Smith (D-Deming, right) and Rep. Larry Larranaga (R-Albuquerque) announce budget with half as much new money as anticipated.

By Brigette Russell │ Watchdog.org

SANTA FE, N.M. — Gov. Susana Martinez’s proposed budget for fiscal year 2016 includes $50 million for the Local Economic Development Act “closing fund” to offer incentives to businesses that bring new jobs to New Mexico.

Economic Development Department spokeswoman Angela Heisel provided a list of 16 companies that have either expanded or relocated to New Mexico with the assistance of incentives provided by LEDA.

“We were competing with other states for most of these projects and LEDA was an important tool for closing these deals,” Heisel said.

The Jobs Council, a legislative interim committee, recommended that amount in late 2014, more than triple the $15 million appropriated in FY15. The Legislative Finance Committee budget recommendation released Friday contained $30 million for LEDA.

The $50 million for business incentives is dwarfed by the Texas Enterprise Fund, which has spent more than half a billion dollars luring business to Texas over the past decade. That fund has come under fire from the Texas auditor for weak oversight.

A state audit of Pennsylvania’s incentive fund showed that $93 million was paid to firms that missed their job projections.

The New Mexico LEDA statute requires only that audits of fund recipients be filed with local government bodies and doesn’t require oversight by the state auditor. Sunalei Stewart, chief of staff for State Auditor Tim Keller, told Watchdog that office is looking into how it would provide oversight.

The LFC and the governor’s budget both contain $6.3 billion in general fund dollars, a $141 million increase from the previous year. As recently as August, the LFC was forecasting a $285 million increase. That new money has been slashed by more than half  because of falling oil prices and New Mexico’s dependence on oil revenues.

Rep. Larry Larranaga, R-Albuquerque, the ranking Republican on LFC, told Watchdog it’s New Mexico’s vulnerability to swings in oil prices that makes the closing fund essential. “We’ve been dependent on a few industries and the federal government. How do we cushion ourselves? We need to diversify.”

Larranaga also emphasized the need for a “clawback” provision that would allow the state to recover incentive payments from companies that fail to deliver on promised new jobs. “We need to make sure companies don’t take the money and run.”

Paul Gessing, president of the free-market Rio Grande Foundation, argues that using taxpayer dollars to give incentives to businesses isn’t the way to diversify. “Our view is that taxing productive economic activity and transferring it to some new player is inherently unfair,” Gessing told Watchdog.

The free-market Texas Public Policy foundation calls incentives corporate welfare.

Think New Mexico, a think tank with a bipartisan board of directors, made the case in 2013 that Utah’s approach to economic development is more effective than using tax dollars to incentivize businesses up front. Utah’s strategy is post-performance incentives, with companies that create high paying jobs receiving rebates on sales taxes, corporate income taxes and withholding taxes.

Sen. John Arthur Smith, D-Deming, LFC vice chairman and Senate Finance Committee chairman, emphasized at the LFC press conference Friday the $141 million increase is only a projection, since actual dollars will depend on oil prices after July 1, 2015, when FY16 begins.

Another economic development topic expected to heat up in 2015 is right-to-work legislation, which prohibits unions from requiring employees to be members and pay dues.

Sen. Sander Rue, R-Albuquerque, Sen. William Sharer, R-Farmington and Rep. Dennis Roch, R-Logan, have pre-filed right-to-work bills for consideration during the legislative session. Unlike the closing fund, which has the backing of both Martinez and her nemesis, Senate Majority Leader Michael Sanchez, D-Belen, right-to-work lacks bipartisan support.

Right-to-work laws are on the books in 24 states, including Nevada, to which New Mexico lost the Tesla battery plant in 2014, and Arizona, where Intel chose to build a new factory instead of New Mexico in 2011.

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Brigette Russell, formally served as a staff reporter for Watchdog.org.