Creating jobs and generating development in New Mexico has largely been approached by giving business incentives and tax exemptions. But some economists say those tools don’t offer a guaranteed return on investment. Some lawmakers are proposing an end to wasteful programs with a way to evaluate incentives.
MVEDA; The Mesilla Valley Economic Development Alliance has what is called an economic base approach to generating jobs and economic growth. Davin Lopez is the CEO of the Alliance.
“It is usually looking for a company that has a product or service that they export outside the region. What that basically does is bring the cash flow from those business comes from outside the region and it creates a new dollar flow into the economy really kind of expanding the economic pie per say" he says
"When there is more people working in economic base jobs there is more disposable income that disposable is new income new cash flow coming in from out side the region and therefore those a new dollars that circulate creating new demand amongst the businesses” he says
MVEDA functions as a one stop shop for companies considering a move to the region; providing information on the infrastructure, workforce and of course- the tax exemptions, financial programs and incentives being offered.
One of the most high profile of New Mexico’s tax incentives is for the film industry.
According to the Movie Maker list Albuquerque is the 8th best city to produce a film. But the title didn’t come cheap. New Mexico reimburses 25 percent of production costs for films and 30 percent of costs for television shows. NMSU economics professor Chris Erickson says this particular incentive is economically unjustifiable.
“Film production is notoriously foot loose activity. Film production companies start off, they do one project they shut down, they can locate in any of a number of locations without having to really much of an affect on them. So what these companies do is they look for least cost locations to produce, they look for the place that is giving them the largest tax incentives and they locate there"
Erickson says New Mexico is using incentives as its primary way to create jobs. The film incentives are just two of the more than 360 tax credits and perks. These include bonds, funds for skilled worker training programs, grants for infrastructure and construction as well as property and land subsidies.
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Erickson says incentives can be effective but are often misused.
Erickson cites $100 million dollars in industrial revenue bonds recently used to lure CN wire; a copper wire manufacturer to Southern Dona Ana County. The company is indirect competition and just down the road from International Wire it’s been there for a decade and produces the same product for the same market.
KRWG spoke to CEO Edwin Flynn who says 12 of their employees, they spent $40,000 to train, have already been poached by the new rival company Erickson says it looks like the bond incentive is being spent on a zero growth, zero job creation-initiative.
Even when implemented properly incentives are still no guarantee.
“A company can come in and take advantage of these tax incentives as they expire or even as they have a business down turn before that the company can leave and we really don’t have much benefit ” he says
MVEDA assesses each project against an economic impact review, Lopez says while return on given incentives and exemptions aren’t guaranteed they are often the deal maker or breaker.
Lopez says without the diesel fuel tax exemption offered to Union Pacific- the company probably would not have opened their inter-modal facility in Santa Teresa. The state says Union Pacific will generate $500 million in state economic development- including 600 new jobs.
“There can be mistakes made with public money there is no doubt about that, but it is not just towards business it could be towards money in other areas as. We need to take a balanced approach we cant just say hey you know its all or nothing, then we need to get out of the economic development business all together“
State Representative Bill McCamley is developing legislation that he says would bring accountability and oversight to incentives and tax credits. He says with better analysis and understanding better economic development policy decisions can be made.
“We want to make sure we know how much things are costing, we want to make sure there is a mechanism by which we can sometimes get our money back we are doing direct payments and there is a a provable way of saying you did what you said you were going to do – and I think it is very important to have a timeline that is on these things. So 5- 10 -15 years - whatever we say is going to be a good time limit that the policy go’s away unless it is physically rebooted”
McCamley says it’s also important to recognize that there’s a cost for incentives that’s often not acknowledged.
“Every single time you carve out a little bit of the tax code for something you want to incentivize everyone else’s rate goes u so you are creating a special place for these folks and everyone else is paying for it” he says.
According to the Pew Charitable Trusts, no state is effectively or regularly testing how well development targeted tax exemptions and investments are working.
McCamley says that more difficult than creating the evaluation system will be implementing it, especially repealing the programs that don’t show a measurable economic benefit.
“The folks that currently have their carve outs are going to fight that tooth and nail because they are not paying it right now” he says.
The WP Carey School of Business at Arizona State University says New Mexico has been the 3rd slowest state in bouncing back from the recession and states that are doing better are not using tax exemptions and incentives as much as New Mexico.
More on the story from Davin Lopez, President and CEO, Mesilla Valley Economic Development Alliance:
In my interview I strongly made the point that most of New Mexico’s incentives were designed to show a return on investment to public dollars for the jobs created. I stated that, at MVEDA, we are always very concerned about RIO and run impact analysis to illustrate the value of a job vs. an incentive provided and therefore support efforts in using certain incentives as a recruitment tool. Additionally these same incentives are applicable to existing companies. I further stated that with properly designed incentives, we can begin to recruit marquee companies which if existed in Las Cruces, then begin to provide a goal for students to strive for, to look forward to, which in the long run could lower drop-out rates, and get more students to the finish line and graduation. IBM is one example of a lost opportunity.
