Gov. Susana Martinez’ administration got started on the wrong foot.
She’s tried to create the image of a state in near-total collapse—one facing a “financial crisis” of historic proportions that requires a stern and steady leader. That diagnosis is wrong, and therefore the prescription (cut, slash, burn) is also sadly off the mark.
I have to chalk up her first state of the state address as a missed opportunity, a rehash of campaign stump speeches and standard-issue GOP sound bites. It was as short on substance as it was chilling—and not inspirational—in tone.
She is wrong factually. We do not face the darkest economic hour in our history in 2011. That nadir was two full years ago when the Legislature convened facing a $700 million deficit, having wiped out all cash reserves. Legislators were also forced to find about $200 million just to get through the year.
Now that was a crisis of historic proportions. Compare that to our situation today: a deficit of $260 million for the fiscal year that starts on July 1; cash reserves pushing the 5 percent (or about $260 million) mark; and no need for an emergency appropriation for the current year.
You can try to inflate that into a “historic” problem, but I’m sorry, it just gets dwarfed next to our previous budget dilemmas.
Of course it wouldn’t suit the new governor’s purposes to minimize our situation. She is intentionally trying to blow it up into something colossal. By solving a giant problem she earns maximum credit—that’s perfectly understandable. But more ominously, I suspect she is exaggerating our plight to justify the wholesale slashing of community services financed by state government.
Her second diagnostic error occurred when she declared (to applause from the gallery) that “New Mexicans are not undertaxed. The government has simply overspent.” Again, she conveniently ignores the historical record: Under her predecessor Richardson, more than $1 billion a year in taxes were eliminated from the state revenue stream. Gross receipts tax on food were eliminated. Income taxes for every New Mexican (especially the wealthiest) were slashed. Hundreds of millions in tax credits, incentives and exemptions for businesses were created. And on and on and on.
Only in the last year of Richardson’s administration, when he was faced with that truly historic budget crisis, did he relent. He reluctantly signed a pair of tax increases: an eighth-of-a-cent gross receipts tax and a 75-cent-a-pack cigarette tax. He vetoed another measure, a food tax, that would have greatly reduced the budget problem, and he said he would brook no discussion of rescinding his tax cuts for the super rich.
The sad fact is that during his eight years in office, Democrat Richardson pursued precisely the same policy of cutting taxes that Republican Martinez espouses. This year’s budget is some $900 million smaller than the $6.1 billion budget of two years ago. That’s a whole lot of cutting and streamlining that’s already gone on. We have not overspent. We’ve simply seen tax revenues dry up as unemployment (largely a result of the housing collapse) has soared.
This brings up Martinez’ third misstep in evaluating our problem: her suggestion that by chopping away at public sector spending, we are somehow helping the private sector. Businesses, she says, have had to tighten their belts, and now its time for government to tighten its belt.
Ignoring for a moment the 17 percent cut in state spending that has marked the last two years, there is still no merit whatsoever to her suggestion. Think about it. What happens when state government lays off employees, cancels purchases, eliminates contract services and puts off maintenance? Each of those steps reduces business activity in the private sector, cuts spending power, adds to the downward pressure on the economy—in other words, hurts New Mexico businesses.
I’d like to underscore this point: It does not help the private sector to shrink the public sector.
The real challenge is to maintain economic activity in both sectors, or, even better, to stimulate growth in economic activity. And if we can do this without raising taxes, it will only help the private sector.
So Martinez, having fouled up her diagnosis, puts us in a precarious situation. She could actually further depress our economy with blind reductions in public spending. That’s what’s happening in Arizona, Texas and Nevada—all under Republican guidance and all spiraling down as successive large-scale dips in public spending mean only greater economic decline.
New Mexico is in far better shape than those states. In fact, it was listed among the 10 states in the union with the smallest fiscal shortage. Our neighbors’ deficits are in the billions. Why would we ever want to follow in their footsteps?