House Appropriations and Finance Chairwoman Patricia Lundstrom says she isn’t targeting specific credits or tax breaks for the chopping block as the Legislature prepares for the 2021 session, but she also notes she’s not ruling anything out — including businesses’ ability to stack multiple tax credits and even tax exemptions for necessities such as groceries, medical expenses and prescription drugs.
“Does it make sense at the level that it’s still been set up?” Lundstrom, D-Gallup, said late last week. “It’s just amazing to me that we have absolutely no control over that. If we needed money, say, to help plug holes in education, we’re not going to have it because we’re paying out all these tax expenditures. And I don’t think we’re taking a hard enough look at it when these things are going through.”
Lundstrom hinted at the problem during a daylong Legislative Finance Committee meeting last week, in which economists detailed the list of credits, exemptions and deductions and told lawmakers that despite their hefty price tag, New Mexico has little information on whether some tax incentives benefit the state.
As the state grapples with the economic effects of COVID-19, allowing multiple tax credits for businesses may get a close look as legislators work on what could be an exceptionally tight budget.
New Mexico gives about $500 million in tax breaks intended to reduce the cost of food, medical care and other necessities; $350 million in tax deductions for food purchases and nonprofits; and $270 million for tax breaks related to health care and prescriptions, Richard Anklam, president of the New Mexico Tax Research Institute, told legislators last week.
Others include film credits, which totaled about $83 million for fiscal year 2021, plus a $51.5 million tax break for working families, capital gains tax deductions worth $39.4 million and $36.8 million in tax credits for companies that create high-wage jobs, according to the Legislative Finance Committee.
The film industry’s tax credits, which have been a sore point for Republicans and some Democrats from rural parts of the state for years, may once again become a flashpoint in the tax debate. Lundstrom said nothing will be spared from the conversation.
“I’m very skeptical anymore if we don’t have a sunset on something,” Lundstrom said. “The economy shifts and changes too much for us to not be aware that we may not have to change something.”
Lundstrom said she expects substantial debate on whether film credits are really worth the cost to the state.
Film production has led to about $2.4 billion spent in New Mexico over the past seven years, according to a presentation by Jon Clark, deputy Cabinet secretary for the state Economic Development Department, to the Legislative Finance Committee from
The state is projected to dole out $45 million in film tax credits in fiscal year 2022, $111 million in fiscal 2023, $110 million in fiscal year 2024 and $115 million in fiscal year 2025, according to the Economic Development Department.
Netflix has committed to filming for 10 years in New Mexico, a promise that included the purchase of a studio in Albuquerque and 1,000 jobs in the film and television industry.
Overall, the industry paid close to $20 million in salaries for New Mexico residents, including crews, cast and set development.
“I hope that lawmakers would recognize that [cutting film incentives] would be really problematic for two reasons: This is a significant industry that creates over 9,000 jobs,” Clark said in a telephone interview. “Doing something that could potentially devastate the industry at a time that we desperately need jobs would be really detrimental to regaining our economic growth and providing people with the security and income that people need to pull out of this economic crisis.”
Lundstrom’s comments also sent shockwaves of concern through the business community and others who advocate for progressive policies meant to help the working class and poor families.
“While they’re considering exemptions and deductions, they should also be considering some of the poor tax policy decisions the Legislature has made in the past,” said James Jimenez, executive director of New Mexico Voices for Children, referring to cuts in personal and corporate income taxes more than a decade ago.
The business community also is concerned lawmakers may consider cutting economic incentives they say help make New Mexico a more attractive place to set up shop.
Rob Black, president and CEO of the New Mexico Association of Commerce and Industry, said incentives help drive development crucial to diversifying the state’s economy so its public budget isn’t decimated by the vicissitudes of the oil and gas industry.
He said he’s concerned that in dealing with the pandemic’s effects on the budget, the Legislature may try to “raise significant revenue on the backs of the business community, which has already borne the financial cost of this pandemic.”
That would make economic recovery all the more difficult, Black said.
Bill Lee, president and CEO of the Gallup-McKinley County Chamber of Commerce, agreed that cutting business incentives likely would hurt the economy.
Lee has advocated for an approach that would offer New Mexico small businesses the kinds of credits industries like film receive.
“How can we actually help small businesses find better footing and even give them some tax breaks that’ll help them keep their doors open?” he said.
Although detailed reporting and analysis of tax incentives can be costly, lawmakers and budget executives with the state often have little information about how tax incentives, deductions and exemptions help the state, Anklam said.
Though companies report some data to the state, often missing from annual reports are the number of jobs created by specific incentives and other details that could help lawmakers make a more informed decision on whether to keep them.