New Mexico's Economic Crisis
Although the coronavirus will pass, its passing may be prolonged, and the economic damage may be severe. The domestic petroleum industry, on the other hand, isn’t going to bounce back. OPEC and its allies are determined to crush fracking, and they have the means to do it. These two factors bring into sharp focus a perennial question for New Mexico: “How do we diversify our economy?”
One principle is clear: We need economic stimuli that address existing market demand, not some “trend” that might come to fruition a decade from now. To me, that suggests two things. First, wind power. The demand is there, particularly in Arizona, California and southern Nevada. Those states have a lot of solar power already, but they need wind power for the nights and the occasional cloudy days, and the wind power potential on New Mexico’s eastern plains is closest to those markets. The stumbling block is transmission. The existing transmission capacity, including the Sun Zia line (which isn’t even built yet), is fully subscribed. So we need to build a lot more power lines, which will cause a lot more wind farms to be built. Of course, it is fashionable to oppose power lines because they are ugly, and because of NIMBY myths about their health effects. But same attitude existed when cell phone towers were first building out. Now, they are an accepted part of the landscape, and people clamor for better cell service, not worse. Similarly, people just need to recognize that power lines are the price that we need to pay for cleaner, healthier air, and to combat global warming. Considered rationally, it is very small price. The second market that we need to target is retirees. California is too crowded and expensive; Phoenix and Tucson are becoming unbearably hot, and summers in the southern U.S. are miserably humid. New Mexico, with its marvelous climate and spectacular scenery, is a natural retirement destination. One impediment, however, needs to be removed, and that is the state tax on social security benefits. Fiscal prudence might suggest eliminating the tax only for low income seniors, but advertising requires simple ideas, and “No tax on social security” is what our marketers need to bray, far and wide. Repeal of the tax will cost $70 million, and that hole will need to be filled, either by cutting expenditures or raising other taxes. There is no free lunch. My suggestions would be a combination of (1) a reduction in the film subsidies, which are far too generous, (2) eliminating various exemptions and deductions to the gross receipts tax (these need to be pruned on a regular basis in any event), and (3) raising the marginal state income tax rate for high income individuals, at least so that the benefit those individuals get from the tax reduction on social security is recaptured.