PRESS RELEASE
January 30, 2023
FOR IMMEDIATE RELEASE
Changes to the tax code and continued investment in workforce development, child care, and innovation – particularly in the biosciences – are among the report recommendations
ALBUQUERQUE – Having briefed several legislators on the problems inherent in New Mexico’s tax structure, financial experts from PFM Group Consulting have now released the full report of their findings. The initial briefing, which was made to the Revenue Stabilization and Tax Policy Committee in December, was taken from analysis now included in PFM’s report, The Oil and Gas Industry and New Mexico’s Fiscal Future: Finding A Path Forward and the Need to Act, which was released today.
The briefing, which was covered by several of the state’s media outlets, focused on New Mexico’s over-reliance on oil and gas for its annual revenue. PFM found that revenue estimates produced by the state’s Legislative Finance Committee (LFC) and Consensus Revenue Estimating Group (CREG) were overly optimistic. PFM analysis of future state revenues finds that the joint LFC and CREG numbers may be overestimating revenue over the next 15 years by $26 billion to $36 billion. Such a shortfall will require the state to make unprecedented gains in other economic sectors and other sources of revenue. Such gains may be impossible given the current structure of New Mexico’s tax code and economy.
“New Mexico policymakers have been riding the oil and gas revenue roller-coaster for decades, and this year are experiencing the highest up-slope, and subsequent excess revenue, in state history,” said Ryan McNeely, director of PFM Group Consulting. “Our report is not warning of doom and gloom, but rather urging policymakers to strike while the iron is hot and to prepare for the downturn now while excess state revenue and federal opportunity allows for decisive and impactful action toward revenue diversification.”
In the report, PFM argues that recent windfall oil and gas revenues create an unprecedented opportunity for the state to reduce the likelihood of a future catastrophic revenue slump. The windfall should be invested in economic and revenue resilience through economic diversification, restructuring the state tax system, equalizing access to opportunity for all New Mexicans to pull under-resourced people and disinvested communities into higher paying jobs, and staunching the “brain drain” by making the state more attractive for both residents and new investors.
Revenue and tax reform should include broadening the tax base, reforming the personal income tax rate structure, eliminating the capital gains deduction, reinstituting an estate tax, increasing the motor fuel tax rate, and expanding excise taxes. However, while tax reform is necessary the report argues that it is not a sufficient solution to New Mexico’s long-term structural deficit.
Economic development should focus on state revenue in addition to employment by placing a high priority on streamlining and marketing all tax credits relevant to the state’s nine “target industries” that are laid out in the Economic Development Department’s 2021 Strategic Plan. The state should also continue to bolster New Mexico Tech, UNM Rainforest, and other innovation efforts that seek to spin off technology in order to increase private sector activity, especially in the biosciences.
Investments in people should include skill-building especially in manufacturing, attracting domestic in-migrants in the short- to medium-term, and address economic inequities. The report notes that New Mexico has the 13th lowest college attainment rate at just 30.1 percent, and that poverty is concentrated in certain places and among certain groups of people.
The report also notes that the state’s current revenue surplus gives it a cushion for making changes now to avoid revenue shortage in the future.
“This report could not be more timely, and the message is crystal clear – the moment for diversification and crucial re-evaluation of revenue sources is right now, this session,” said Kelly O’Donnell, PhD, long time New Mexico economic consultant. “Utilizing not only the billions in new state revenue, but also federal funding we can strategically invest in diversifying our economy. The recommendations in the fine print all point toward a need to upskill and expand our workforce, make our tax structure more functional and fair, seize upon the many ground floor diversification opportunities created by the energy transition, equalize access to opportunity for all New Mexicans, and attract investment by making New Mexico a better place to live and do business to strengthen our tax base.”
“The state has an incredible opportunity right now to diversify our economy and our revenues in a way that will not only help workers, businesses, and communities flourish, but that will also improve tax fairness and ensure we have the revenues we need to support programs that matter most to families not just in temporary boom times, but in the many years ahead.” said Amber Wallin, executive director of New Mexico Voices for Children. “For the future of our families and our state, we should take into account other credible scenarios and use the current surplus as an opportunity to diversify our tax system, strengthen our economy and build a solid fiscal foundation that will serve families now and for many generations to come.”
The PFM report, The Oil and Gas Industry and New Mexico’s Fiscal Future: Finding A Path Forward and the Need to Act, is available online here.
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New Mexico Voices for Children is a nonpartisan, nonprofit organization advocating for policies to improve the health and well-being of New Mexico’s children, families and communities. 625 Silver Ave. SW, Suite 195, Albuquerque, NM 87102; 505-244-9505 (p); www.nmvoices.org