Moody’s rating will affect spending on a long-term basis in New Mexico

Paul Gessing president of New Mexico’s Rio Grande Foundation.

The announcement that New Mexico’s budget for the upcoming fiscal year is $1.2 billion in surplus is welcome news.

The wealth from booming oil production in the Permian Basin presents a unique opportunity to make serious policy changes to put New Mexico on track to prosperity and economic growth.

A few months ago, Moody’s Investors Service downgraded New Mexico’s general-obligation bond rating, noting underfunded pensions and volatile revenues as reasons. Pension and tax reform are the two most urgent uses of the surplus, and promise to yield long-term benefits for short-term costs.

Pension reform should not mean dumping the surplus into state bureaucrats’ retirement-income fund. Rather, serious reforms are needed — the funding situation grows worse by the year despite reform and a booming stock market — and long overdue.

Several states have shifted to 401(k)-style plans. Pensions in public employment should be like they are in the private sector: flexible, affordable and employee-controlled.

Tax reform is another critical effort.

New Mexico is one of a few states that still have fewer jobs than before the Great Recession. We need new jobs and real economic growth, which is too often hindered by the state’s destructive gross receipts tax.

Unlike a sales tax, much of the GRT is borne by businesses. The complexity and record-keeping aspects of the levy are bad enough, but it is imposed on numerous contractors and business inputs in ways that push them out of state.

GRT reform is bipartisan issue, enjoying support from both the Revenue Stabilization and Tax Policy Committee’s Rep. Jason Harper (R-Rio Rancho) and the Legislative Finance Committee’s Rep. Patricia Lundstrom (D-Gallup).

Some would say the same could be said for plans to spend much of the surplus on New Mexico’s K-12 system and expanding pre-K. But new educational programs are recurring expenses.

Moody’s has correctly noted — and anyone who follows New Mexico’s budget knows — that oil revenues are volatile. Making permanent commitments with money that may not always be available is unwise.

Also, the benefits of increased expenditures are doubtful. New Mexico already spends more per pupil on K-12 than any of our neighbors, according to the U.S. Census Bureau. But our state’s fourth-grade reading scores on the National Assessment of Educational Progress remain stagnant — and declined over the past decade.

As for pre-K funding, the rush into more “early childhood education” needs a dose of reality. A new study from Tennessee described as the “first large randomly controlled trial of a state-funded pre-K program” found positive short-term effects on achievement, but these effects dissipated as children entered elementary school and turned modestly negative by third grade.

Additional K-12 funding must be tied to systemic reforms like school choice.

With pre-K spending having quintupled between FY 2011 and FY 2018, real study of New Mexico’s results is in order before more resources are made available, or a push to “universal” pre-K is undertaken.

How this surplus is used will impact New Mexico for the next generation. It is time for New Mexico policymakers to make the right choice.

(Paul Gessing is the president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.)

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