A Look at Those Troubling Incentives

February 2nd, 2011 · 3 Comments · Uncategorized

By Denise Tessier

Journal business reporter Winthrop Quigley not only delivered an in-depth look at the state’s film industry incentives Sunday (as mentioned at the end of a previous ABQJournalWatch.com post), he followed it Tuesday (Feb. 1) with an intelligent column taking critical look at the various other tax breaks New Mexico offers, and whether we have our priorities straight on that score.

In an UpFront column entitled “We Pay Film Industry to like New Mexico,” Quigley writes:

The movie industry is only emblematic. New Mexico pays a lot of people to like us.

More than 100 different tax breaks are offered, Quigley writes in an even-handed (as usual) column that merits a full read and not just what I can lift for purposes of this post. In it, he says:

Analysts at the state Taxation and Revenue Department found that the state left $1.3 billion on the table in the 2010 fiscal year in the form of tax credits, exemptions and deductions.

In what might surprise most readers, the biggest tax break is the $205 million the state chose not to collect in gross receipts taxes on the sale of food. (Equally interesting: Quigley’s report that advocates for impoverished New Mexicans argued against repealing the food tax, saying many of the state’s poorest residents are served by food stamps – and didn’t need the tax break – and its elimination could force the state to cut things they really need, like education and health care.)

Probably less surprising is that the second largest tax break goes to the oil and gas industry, and it’s given out in several forms. Quigley writes:

According to the Taxation and Revenue Department, the oil and gas industry gets something like $135 million in tax breaks. The royalty deductions from oil and gas severance taxes cost $41 million in uncollected taxes in 2010. Processing costs deductions from the severance tax cost $12.2 million. The industry got $23 million in trucking expense deductions from the emergency school tax.

By comparison, according to Quigley’s Sunday article, the film industry received $65.9 million in tax breaks last year. For further comparison, from Tuesday’s column:

Companies claiming a tax credit for creating high-wage jobs received $4.6 million. Investment tax credits paid to companies were worth more than $7 million. Companies that created high-tech jobs got $6.2 million.

What’s troubling about these incentives, as Quigley points out, is that:

. . .the state has no idea whether its investment in the film industry is worth it, but that’s nothing new. Testimony last year at the Legislature’s interim tax policy committee showed we have no idea whether the incentives we offer to any industry have paid off.

Then Quigley offers this insight and conclusion:

I know of two investments states make that consistently pay off. One is education; the other is infrastructure. States like Minnesota and Massachusetts that have made those investments are always among the most prosperous in the country.
If we create a really smart, well-educated work force, if we give transplanted companies great schools for their employees’ kids, if we offer infrastructure, like reliable electricity and broadband, that they need to do business efficiently, we won’t have to pay them to like us.

The Journal has done the public (and legislators) a service in going in-depth on the film industry incentives with Quigley’s reportage. It was a natural response to Gov. Susana Martinez’s questioning of the film breaks and her assertion that, “We can continue to fund Hollywood at 25 percent on the backs of our kids, or we can start cutting back.”

What Quigley’s column also brings into focus, however, is the fact that the governor has asked no such scrutiny of the industry benefitting most from tax breaks: oil and gas.

Instead, she has made clear her alliance with that favored industry by accepting industry-related campaign funds, rolling back environmental rules and decisions and replacing key officials charged with protecting New Mexicans’ heath with those favorable to the industry. Emboldened by this atmosphere, all Republican members of the state House committee on energy recently protested a discussion of the impact of environmental rules on the oil and gas industry by walking out of  the meeting – refusing even to expose themselves to information regarding the lining of industry wastewater pits.

The industry claims the “pit rule,” which is already on the books, should be repealed. Rep. James Strickler, R-Farmington, an oil and gas producer, said after the committee meeting the pit rule is costly and has contributed to the loss of thousands of jobs in the San Juan Basin.

Yet a story in the Journal last month, “San Juan Revenue Increases,” reported that San Juan County’s revenue from oil and gas production jumped 19 percent during the last six months.

And interestingly, the ad alongside Quigley’s column as I read the Journal online claimed the natural gas and oil industry pays $1.5 billion in taxes and provides nearly 30,000 jobs. (The ad didn’t say over what time period we’re talking about.) The ad’s sponsor, energyadvancesnewmexico.us,also has taken out full-page ads in the Journal’s print edition recently.

I laud the Journal’s coverage of the film industry incentives, especially in Quigley’s hands.

I hope the Journal can spare the resources necessary to take a similar look at oil and gas industry incentives. The industry claims it’s suffering and that New Mexico should forgo protecting the environment and instead protect the industry – while giving the impression it has plenty of money to take out advertising to extol industry virtues.

It would be a service to readers if this seeming paradox could be apolitically explained.

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3 Comments so far ↓

  • Arthur Alpert

    Hey, wait just a cotton-pickin’ minute. Minnesota and Massachusetts are prosperous ’cause they invest in education and infrastructure? Well, they also tax their citizens a lot. Yeah, they’re both high tax states. And they’re prosperous?
    So how come the Journal (not Quigley) is always pushin’ for lower taxes to help the economy? Huh? Are you tellin’ me the Journal (not Quigley) knows nuttin’ about economics?
    Is that what you’re tellin’ me?
    Arthur Alpert

  • David King

    Great! But by far the most troubling incentive, that deprives the US populace of tax revenue is the free ride that religious (non-profit- HA!) organizations get from claiming to have an imaginary deity friend. Yes… what I am saying is TAX ALL on a level field. That includes oil and gas, and the pinche film industry.

  • Roland

    Martinez and her tea-party cronies are selectively playing the “I hate outsiders” trump card. Both Hollywood and the Texas oil industry are based outside the state. Hollywood has a disadvantage in that it is perceived as a bastion of meddling liberalism, and it was encouraged by Richardson (who must be marginalized and demonized). On the other hand, Martinez and her cronies (and the Republican party in general) are in deep-pockets collusion with the oil industry, so it is no surprise that she will give them tax advantages, undermine environmental regulations, and do whatever it takes to keep them happy. I anticipate that Martinez will ride those financial winds to a political position at the national level.

    As usual, this is incredibly short-sighted. New Mexico is a natural for tourism, the space port, the film industry, and other low impact industries.

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