New Mexico isn’t alone in tax policy confusion

If you want to get a laugh out of some of the wonkiest policy wonks in the state, try this: The top question asked these days by tax policy people all over the country is what’s happening with taxing marijuana. Everybody wants to jump on that bandwagon.

Hold off, said Scott Pattison, director of the National Association of State Budget Officers (NASBO), speaking recently at a conference of the New Mexico Tax Research Institute. The news is not that exciting.   Legalizing and taxing marijuana will not solve New Mexico’s revenue problems. Darn!

And some New Mexico policy makers thought it was such a clever idea.

The benefit of a speaker with national perspective is that he reminds us we’re not alone, we’re not that different from other states, and the laws of nature and economics apply, even in the Land of Enchantment.

According to Pattison, most states face the same critical needs, and no state has enough revenue to meet them all. The big issues include infrastructure, education, tax cuts, revenue shortfalls, arguments about other funding mechanisms (read: marijuana tax), Medicaid and more Medicaid.

Several states rely on oil and gas for a major part of their funding. They’re all having a hard time. Some states rely on federal spending, as New Mexico does. Virginia and Maryland, next door to Washington, D.C., are losing revenue due to the same cutbacks that affect our national labs.

If marijuana isn’t the brilliant new idea, older brilliant ideas aren’t working, either, because everybody is copying everybody else. Delaware got seven percent of its revenue from casinos, Pattison said, until nearby states legalized casinos and stole some of the business.

Nobody is fixing roads fast enough. Michigan is awash in potholes, but the voters turned down a tax increase that would have gone to infrastructure. Decision-makers can’t agree on which transportation problems to fix. Personally, I wish eastern states would fix their railroads so the next time I visit, I won’t be afraid to ride on one.

As states clamber out from the 2008 economic calamity, some funding increases are going to K-12 education, but higher education is not so fortunate.

I remember fondly when New Mexico’s general fund budget was roughly 50 percent to K-12 education, 17 percent to higher ed, and what was left went to general government. Lawmakers squabbled about two or three percentage points. That was before Medicaid grew into the monster that eats budgets.

Nationally, Medicaid is averaging an astonishing 26 percent of state budgets; in New Mexico it’s only about 17 percent. The comparison may be deceptive because of other differences in the way states fund functions like education.

Also overlooked in these tight times is corrections – to which I can only say, Uh-oh. Pattison didn’t talk enough about corrections. Hardly anybody does, until there’s a crisis. With memories of the horrific 1980 prison riot, New Mexico should be a national model for best practices in corrections.

Pattison said cautious budgeting must be the rule of the day and should include prudent use of debt to get things fixed. One critical lesson is, “Avoid bad practices in good times.” Example: California failed to pay into its pension funds when it was rolling in money during the information technology boom. New Mexico hasn’t had enough good times recently to worry about that.

He mentioned that “rainy day funds” should be used carefully for one-time-only costs. In response to the wildly waving hand of a questioner (me), he said New Mexico’s permanent funds are not, repeat not, rainy day funds. A rainy day fund is something like the cushion left in the budget in case revenues don’t meet expectations, or a one-time windfall like the state’s tobacco settlement money. As a card-carrying tightwad on permanent fund policy, I was relieved.

 

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