It has become a staple of the New Mexico news cycle; companies creating new jobs using state economic development incentives. But how often do you hear about these same companies going out of business? According to Gallup more than 50% of new companies in the U.S. close within 5 years. New Mexico Governor Susana Martinez vetoed an attempt by the legislature to bring accountability to state incentive programs.
Have you ever seen The Simpsons episode where the town of Springfield decides to spend $3 million dollars on a high speed monorail? Just in case you haven’t, a slick salesman Lyle Lanley rolls in from out of town with improbable, pie in the sky promises about what investing in a high speed monorail will do for Springfeld: A boon to the town!
“I’ve sold monorails to Brockway, Ogdenville and North Haverbrook and by gum it put them on the map” Lanley said.
And new jobs for the unemployed
“What about us brain dead slobs? “You’ll be given cushy jobs.” answers Lanley.
But before the project can deliver on any of its promises, the salesman skips town along with all of Springfield’s $3 million dollars.
No doubt, The Simpsons is a fictional cartoon, but the episode is not a bad analogy for how New Mexico’s chosen approach to economic development often plays out.
Instead of a high speed monorail, think drones and aerospace.
In 2012, the New Mexico Economic Development department gave drone company Titan Aerospace more than one million dollars in state money based on a commitment it would create 200 to 300 jobs in Moriarty, New Mexico.
3 years later, with just 11 employees,Titan moved operations California. And the New Mexico Economic Development Department says Titan had a maximum of 65 employees in New Mexico. This is not an isolated case; the same thing happened with L&M Radiator in Las Cruces...which received state incentives and then closed its New Mexico operation. L&M received job training funds, another state incentive program.
In an August interview with KRWG, New Mexico Economic Development Department Secretary Jon Barela said the LEDA funds include clawbacks to get incentive money back if companies don’t follow through on obligations.
“We basically claw back, essentially the collateral a company pledges. Whether it be a bond or a hard asset to make the state whole if those promises aren't kept. ” Barela said.
Titan, now owned by Google, has pledged to repay the money. But New Mexico State University Economics Professor Jim Peach says getting some companies to actually follow through is notoriously difficult.
“The state can try to come after you, but it’s not necessarily the case that you will ever pay up. It is a difficult thing to enforce” Peach said.
Chris Erickson, who also teaches economics at New Mexico State, says the responsibility is not on the companies but with the states giving out the incentives.
“You can’t blame the companies, the companies are trying to get as good a deal for their shareholders and owners as they can.”
Other states like Utah also give companies incentives, but only after the required jobs have been created.
However, even the most basic accountability is lacking in New Mexico. Senator John Arthur Smith chairs the legislative finance committee. In a 2015 report, the committee found;
“The Economic Development Department reports the number of jobs created based on company reports of anticipated jobs, not actual jobs created.”
“Every agency will come down around and tell you the wonderful things they are doing. But when you look at statistics, things are not going well. Yet they are still telling you what we are seeing through rose colored glasses” Smith said.
This year, New Mexico passed legislation requiring the economic development department to report the number of jobs created by incentives every quarter.
But the measure was vetoed by Governor Susana Martinez.
Economist Chris Erickson says spending taxpayer money without oversight is dangerous.
“It lends to cronyism”
“One of the major problems in a capitalist system- like we have in the United states is crony capitalism, where government supports their friends. There is this kind of back and fourth system; business contributes to politicians, politicians pass and enact laws that benefit the businesses and that leads to some businesses winning. Not because they are more efficient or because they provide a better product,-but simply because they have good connections in the government.” Erickson said.
Despite the lack of accountability in New Mexico…the state is spending more money on incentives. In the 2015 legislative session, funding for most programs was either flat or reduced. But the legislature added $37.5 million dollars to the incentive fund authorized by the Local Economic Development Act or LEDA.
In 2016, state Senator John Arthur Smith says the Economic Development Department will be asking for additional LEDA funds. The department tells KRWG a specific requested amount has not been determined, but the department's goal is to maintain the fund balance at $50 million dollars.
Professors Erickson and Peach say if economic development is in fact the goal, the taxpayer money would be better spent on improving K-12 education and infrastructure, including roads.
KRWG News received the script below with comments from the New Mexico Economic Development Department. Additional edits were made to the script above based on the comments below. KRWG News makes an effort to ensure accuracy in every story, but sometimes clarifications and/or corrections are needed.
It has become a staple of the New Mexico news cycle; companies creating new jobs using state economic development incentives. But how often do you hear about these same companies going out of business? According to Gallup more than 50% of new companies (read 50 percent of *all* businesses, not in any way associated with those economic-base businesses we recruit or help to grow – applied a statistic that is not related to the comment) in the U.S. close within 5 years. New Mexico Governor Susana Martinez vetoed an attempt by the legislature to bring accountability to state incentive programs. (Governor Martinez signed into law a clawback provision, before that Sec. Barela administratively implemented clawbacks and job creation targets. Did KRWG do stories on how LEDA was handled previously when there were no clawbacks? Accountability is a key value of Governor Martinez. Her administration works with the LFC on the accountability in government budgeting process and requires all state agencies to provide information on their websites and in public hearings as well as in printed reports. A month after the end of each quarter EDD puts out a quarterly report, and the quarterly reports are rolled up an posted on the EDD website in the 4th Quarter Report. We are preparing our first quarterly report for FY16 (to be complete by end of the month) with all the information required as we do each quarter. Also, all LEDA awards are place on the NMEDD website in real time, press releases go out each month on JTIP recipients).
Have you ever seen The Simpsons episode where the town of Springfield decides to spend $3 million dollars on a high speed monorail? Just in case you haven’t, a slick salesman Lyle Lanley rolls in from out of town with improbable, pie in the sky promises about what investing in a high speed monorail will do for Springfeld: A boon to the town!
“I’ve sold monorails to Brockway, Ogdenville and North Haverbrook and by gum it put them on the map” Lanley said.
And new jobs for the unemployed
“What about us brain dead slobs? “You’ll be given cushy jobs.” answers Lanley.
But before the project can deliver on any of its promises, the salesman skips town along with all of Springfield’s $3 million dollars.
No doubt, The Simpsons is a fictional cartoon, but the episode is not a bad analogy for how New Mexico’s chosen approach to economic development often plays out.
Instead of a high speed monorail, think drones and aerospace.
In 2012, the New Mexico Economic Development department gave drone company Titan Aerospace more than one million dollars in state money based on a commitment it would create 200 to 300 jobs in Moriarty, New Mexico. 3 years later, with just 11 employees (it was 65 employees not 11 not sure where he got those figures),Titan closed and moved to California (NOT FACTUAL). THEY WERE PURCHASED AND SOME OF THEIR EMPLOYEES REMAIN. THIS IS AN UNINFORMED ASSUMPTION BY A PERSON WHO IS NOT PRIVY TO THE DISCUSSIONS TO RECOUP THE FUNDS, We have clawed back the funds and they agreed to re-pay every dime that was allocated. Plus we are left with significant airport infrastructure improvements that were paid for by the company.)
This is not an isolated case; the same thing happened with L&M Radiator in Las Cruces. Another company that received state incentives and then closed its New Mexico operation. (L&M DID NOT RECEIVE LEDA BUT DID RECEIVE JTIP; HOWEVER THOSE FUNDS BENEFIT THE EMPLOYEE WHO IS TRAINED AND GO ON TO THE NEXT JOB BETTER PREPARED. L&M received two allocations of JTIP funds: $36,664 for 21 positions and $25,400 for 24 positions. These are actual jobs filled and the positions remained intact for the one year compliance period. The money was invested in New Mexico workers not the company.)
In an August interview with KRWG, New Mexico Economic Development Department Secretary Jon Barela said the LEDA funds include clawbacks to get incentive money back if companies don’t follow through on obligations.
“We certainly have auditing procedures that we use in all of our programs whether it be the jobs training incentive program or the local economic development act” Barela said.
Titan, now owned by Google, has pledged to repay the money. But New Mexico State University Economics Professor Jim Peach says getting some companies to actually follow through is notoriously difficult. (AGAIN OPINION AND NOT RELATED FACTUALLY TO THE SITUATION WITH GOOGLE/TITAN).
“The state can try to come after you, but it’s not necessarily the case that you will ever pay up. It is a difficult thing to enforce” Peach said.
Chris Erickson, who also teaches economics at New Mexico State, says the responsibility is not on the companies but with the states giving out the incentives.
“You can’t blame the companies, the companies are trying to get as good a deal for their shareholders and owners as they can.”
Other states like Utah also give companies incentives, but only after the required jobs have been created.
Both JTIP and LEDA are reimbursement programs (meaning no money is given until jobs are created). JTIP includes a rigorous auditing process. LEDA accountability is 200% improved from prior administration.
However, even the most basic accountability is lacking in New Mexico. Senator John Arthur Smith chairs the legislative finance committee. In a 2015 report, the committee found;
“The Economic Development Department reports the number of jobs created based on company reports of anticipated jobs, not actual jobs created.” (HOW IS THIS SUPPORTIVE OF “BASIC ACCOUNTABILITY IS LACKING.” BOTH LEDA AND JTIP HAVE ACCOUNTABILITY PROVISIONS AND AUDITING FUNCTIONS. EACH HAPPENS IN A PUBLIC MEETING.)
“Every agency will come down around and tell you the wonderful things they are doing. But when you look at statistics, things are not going well. Yet they are still telling you what we are seeing through rose colored glasses” Smith said.
This year, New Mexico passed legislation requiring the economic development department to report the number of jobs created by incentives every quarter.
But the measure was vetoed by Governor Susana Martinez. (IMMATERIAL, THE DEPARTMENT AND ALL ITS PROGRAMS HAVE PERFORMANCE MEASURES TIED TO ITS BUDGET AND THE DEPARTMENT REPORTS QUARTERLY AND PUBLISHES THOSE REPORTS).
Economist Chris Erickson says spending taxpayer money without oversight is dangerous. (ON THIS POINT WE WOULD AGREE, THAT’S WHY WE DON’T DO IT.)
“It lends to cronyism”
“One of the major problems in a capitalist system- like we have in the United states is crony capitalism, where government supports their friends. There is this kind of back and fourth system; business contributes to politicians, politicians pass and enact laws that benefit the businesses and that leads to some businesses winning. Not because they are more efficient or because they provide a better product,-but simply because they have good connections in the government.” Erickson said.
Despite the lack of accountability in New Mexico…the state is spending more money on incentives. In the 2015 legislative session, funding for most programs was either flat or reduced. (WE HAVE INCREASED THE INCENTIVE DOLLARS AVAILABLE BUT HAVE NEVER REACHED THE AMOUNT OF MONEY AVAILABLE IN PRIOR ADMINISTRATIONS SIMPLY BECAUSE WE SPEND WHAT WE CAN ADMINISTER EFFECTIVELY AND KNOW WE CAN ACCOUNT FOR.) But the legislature added $37.5 million dollars to the incentive fund authorized by the Local Economic Development Act or LEDA.
In 2016, state Senator John Arthur Smith says the Economic Development department will be asking for another $50 million for LEDA. (AGAIN THIS DOESN’T APPEAR TO BE A QUOTE, AND IS FACTUALLY INCORRECT. WE HAVE YET TO SET A NUMBER THAT MAY BE NEEDED TO KEEP LEDA AT A LEVEL CONSISTENT WITH OUR POTENTIAL COMPANY REQUESTS. Our goal is to maintain a balance of $50M, not request that amount every year.”
Professors Erickson and Peach say if economic development is in fact the goal, the taxpayer money would be better spent on improving K-12 education and infrastructure, including roads. (SO, WE SHOULD IGNORE TRYING TO CREATE NEW JOBS THAT MR. PEACH HAS HIMSELF SAID ARE NEEDED?) IT’S EASY TO COACH FROM THE SIDELINES; HARDER TO COACH FROM THE BENCH! And LEDA goes specifically to infrastructure that is tied to job creation.)
