New Mexico has gotten much better at publicly disclosing how much money it spends on tax breaks and who benefits, but the state still falls short in being able to determine if the incentives create jobs or produce any return on investment, State Auditor Tim Keller said Friday.
He presented a report to state legislators that summarized the hundreds of tax exemptions, credits and deductions given to individuals, businesses and nonprofit organizations. Keller’s analysis is in addition to the annual Tax Expenditure Report compiled every year since 2012 by the state Taxation and Revenue Department, which lists line by line some 150 tax breaks for individuals and corporations and their legislative history. These include everything from the back-to-school tax holiday for families to gross receipts tax breaks on the sale of textbooks and newspapers.
Keller’s analysis showed that 27 percent of all the dollars spent on tax relief falls under three categories:
• $395 million given to extraction industries such as oil, natural gas, uranium and potash.
• $242 million not collected from consumers who don’t pay the state or local gross receipts taxes on most food purchases.
• $106 million from a longstanding policy that exempts not-for-profit organizations, including hospitals, from paying gross receipts taxes on their purchases of supplies, materials and equipment.
But calculating the cost of the tax deductions is not enough, Keller said. Lawmakers need to know if the policies are achieving any public good, whether they are creating jobs or helping certain groups or individuals.
One obstacle is the requirement for confidentiality and the prohibition on disclosing information on specific companies. The state, for instance, can’t reveal the value of a credit given for selling enriched uranium because it is claimed by just one company, Urenco in Jal.
“Data has been redacted due to fewer than three taxpayers taking the deduction,” states the Tax Expenditure Report.
Likewise, there is little information from big oil and gas companies on whether tax breaks help them keep workers or boost investment in the state, nor is there data on how nonprofits use their exemptions.
Keller said there are ways around these privacy issues, but that would require lawmakers to pass specific legislation on disclosure and reporting for each tax break now in place.
“The Legislature should consider whether the beneficiaries of such generous tax incentives should provide appropriate exceptions to some of the their privacy rights so the public can assess their fiscal impact and return on investment,” he said in his presentation.
Specific reporting is already in place for up to $50 million in tax rebates awarded each year to the film and television industry for making movies and TV series in New Mexico. The initial law and its 2013 rewrite required annual reports on job creation and spending, including a specific listing of which companies and productions received the money. As a result, the law is the state’s most transparent with every dollar spent part of the public record. Keller as a state senator sponsored those measures.
He said there is no such public disclosure written into the other laws on tax breaks, and that makes it difficult to argue for or against them.
Rep. Jason Harper, R-Rio Rancho, said getting more information is important and he wonders how past Legislatures could have adopted tax breaks in the first place without more details on their effectiveness.
“We need to have the data on all this,” he said.
And as of today, the tax reporting that is done is a result of an executive order by Gov. Susana Martinez. Efforts to codify the reporting so it can be part of state law have been vetoed both by Martinez, a Republican, and her predecessor as governor, Democrat Bill Richardson. Both said they were concerned about privacy of taxpayers.
Senate Majority Leader Peter Wirth, D-Santa Fe, has supported those bills and said another effort is needed to make them law.
But Republican Rep. Rod Montoya of Farmington said the attempt should not devolve into one where the tax breaks are reported as lost revenue, when in fact some of economic activity would never occur without them.
He said cutting costs for the oil and gas industry in the struggling San Juan Basin has been important to keeping the few operators who remain in business.
“Lost revenue is really every time we see rigs not standing up and not operating,” Montoya said.
