Tax and Budget

States, not cities and counties, are paramount

COMMENTARY: “States may, if its citizens choose, serve as a laboratory.” Justice Louis Brandeis in New State Ice Co. v. Liebmann

When it comes to economic policy issues, the states are supposed to be the dominant actors. This is the view laid out by Justice Brandeis. It flows seamlessly from the United States Constitution’s design which emphasizes “federalism.”

But this isn’t another article about how Washington is overstepping its bounds. Rather, it is about how New Mexico’s Legislature might want to keep closer tabs on policymaking activities of local governments.

Local governments derive their powers from the states within which they are located. In some states they are given broad latitude. In others, like Virginia, their power is strictly limited. Virginia’s minimum wage and other employment-related policies are set by the Legislature.

For simplicity’s sake, this is a good thing, regardless of your views on the minimum wage.

RGF president Paul Gessing discusses the impact of Medicaid expansion on KNAT TV-23

Watch “Joy in Our Town” with host, Ebony Romero, and guest, Paul Gessing, President of the Rio Grande Foundation, as they talk specifically about the MEDICAID expansion in New Mexico.

Posted by KNAT - TV 23 on Tuesday, January 19, 2016

Slew of Bad Rankings Reflect New Mexico's Difficult Reality

Over the years, New Mexicans have grown used to seeing their state at the bottom of a lot of good lists and at the top of many of the bad ones. This long-term systemic problem has grown worse due to declines in federal spending and employment at the Labs and military installations as well as plunging prices of oil and natural gas.

There are a lot of great people in New Mexico. We have a unique culture, internationally-recognized events and attractions, all topped off by incredible weather and landscapes. Unfortunately, for decades many believed that federal largess and mineral wealth were adequate bases for our economy. Business-friendly economic policies were ignored in favor of finding ways to tax and redistribute resources from these two industries.

This phenomenon is quite common. The list of resource-rich, but economically-backward nations is long including Saudi Arabia, Venezuela, Nigeria, Libya, and Iraq (to name a few).

In just the span of a few weeks New Mexicans found their state ranked poorly on a series of national reports:

Eric Fruits, PhD: ‘Free’ federal money costs New Mexico

With the 2016 election right around the corner, the candidates are searching for wedge issues to appeal to large swaths of the electorate. Medicaid expansion, particularly in New Mexico and other states that have already participated, is proving to be a major sticking point.

The Affordable Care Act (ACA) contains a provision that expands Medicaid coverage to almost all individuals with incomes below 138 percent of the poverty line. But in the Supreme Court’s 2012 decision to uphold the ACA’s constitutionality, the court ruled that the federal government could not compel states to expand their Medicaid programs. At this point, 30 of them have done so (New Mexico chose to in early 2013).

The arguments over whether to expand Medicaid vary by state, but proponents often point to the federal government’s offer to foot almost the entire bill. For example, Ohio Gov. John Kasich supported Medicaid expansion as a way “to bring Ohio money back home” — that is, avoid bearing any of the cost.

My latest research suggests that this argument may be lacking, since it doesn’t account for associated increases in state and local spending.

"Free" Money is Killing New Mexico

Nothing seems to unite New Mexicans like the desire for “free” money.

Over the past few weeks,  no fewer than three opinion pieces have run in various media outlets in support of Medicaid expansion. Two of these articles were from Democrat legislators.

While “compassion” and alleged health care improvements – unsupported by real-world data – were cited, a central argument involved “free” money that is flowing into the State from Washington.

Recently, I had the chance to testify before an interim committee of the New Mexico Legislature on the economic impact of Medicaid. The program for the poor was expanded under the federal health care law commonly known as “ObamaCare.” New Mexico was one of 24 states to expand the program in January 2014.

New RGF Study: How Federal Spending in New Mexico Grows State/Local Government

(Albuquerque) – Elected officials of both parties have conspired over several decades to “bring home the bacon” in the form of federal dollars. For example, Senators Domenici and Bingaman served in the United States Senate for decades and were known as effective “porkbarrel” politicians.

New Mexico’s poverty along with its willingness to aggressively pursue federal spending has made the State the 3rd-greatest recipient of federal dollars relative to what it sends to Washington. A report by Key Policy Data recently found that New Mexico receives $1.69 for every dollar it sends to Washington.

More recently, the Republican Gov. Susana Martinez agreed to expand Medicaid under the federal “ObamaCare” program thanks in part to the generous federal match which is currently 100% of the costs of expansion and will remain at 90% from 2020 on. Prior to Medicaid expansion, Medicaid was often touted as “economic development” due to the fact that the federal government covered 70% of the program’s cost in the state.

Also, the Republican Mayor of Albuquerque has been pushing for a plan to put “bus rapid transit” along Central Avenue. That plan is contingent upon the federal government kicking in $80 million of the plan’s expected $100 million cost.

While federal funds are often seen as “free” and an “economic stimulus” by proponents, a new analysis by Dr. Eric Fruits, an adjunct scholar with the Rio Grande Foundation, each additional dollar of federal intergovernmental transfers to New Mexico is associated with $0.99 in additional taxes, charges, and other state and local own source revenue.

This new research further finds that New Mexico experiences a larger ratchet effect than states as a group. In 2012, New Mexico state and local governments received $5.9 billion in federal intergovernmental transfers and spent $13.1 billion raised from state and local sources. A hypothetical 10 percent increase in federal transfers to New Mexico would amount to about $590 million more federal money to the state.

“ How Federal Spending in New Mexico Grows State Government” is linked here and can be downloaded from the Rio Grande Foundation’s website, www.riograndefoundation.org.

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