It is becoming more apparent that Governor Michelle Lujan Grisham has the Keyes to success when it comes to opening doors for economic development and diversifying New Mexico’s economy, Alicia Keyes that is.
New Mexico Economic Development Secretary Alicia Keyes was the Director of the Albuquerque Film, Television and Media Office under Albuquerque Mayor Tim Keller. During her time with Keller’s administration, Keyes was instrumental in initiating and closing deal with Netflix in which the company purchased ABQ Studios and committed to spend $1 Billion in production. Political insiders give Secretary Keyes a significant amount of credit for also convincing NBC Universal locating a production studio in Albuquerque.
THE DOORS TO OPEN
In January 2019, Governor Michelle Lujan Grisham submitted to the New Mexico Legislature her executive budget recommendation for fiscal year beginning July 1, 2019 and ending June 30, 2020. You can review the entire 115-page summary and Appendix with financial charts at this link:
According to the Governor’s executive budget summary, “in order to tackle high poverty rates, spur robust job creation, and put an end to the brain drain” the proposed budget included significant investments in the areas of employer recruitment and retention with emphasis on the following expanding sectors:
1. The Film and television industry
2. Intelligent manufacturing
3. Sustainable and green energy
4. Cyber-security aerospace
5. Sustainable and value-added agriculture bio-science
6. Tourism in relation to our outdoor economy
Funding in the amount of $75 million was included in the capital budget for “Local Economic Development Act” (LEDA) projects for the recruitment and retention of economic base jobs and an economic development “closing fund” that is intended to help lure out-of-state businesses to New Mexico. An additional $6 million in funding was included for tourism marketing with an emphasis on promoting the outdoor economy to compliment a new outdoor recreation office to be established within the Economic Development Department.
The states advertising and marketing budget went from $11 million to $17 million. Other programs that were eventually funded include:
$1.3 million for “Main Street” project programs
$140,000 for trade offices
$500,000 for the Office of Science and Technology with an additional $300,000 for the Science and Technology Research Collaborative,
$230,000 to support business incubators in rural areas and small towns, and funds to reduce the vacancy rate in the Economic Development Department specifically to improve services in rural areas.
TAX INCENTIVES TO BOLSTER STATE’S ECONOMY
On Thursday, June 20, 2019, New Mexico Economic Development Secretary Alicia Keyes told the New Mexico Legislative Finance Committee that the State intends to use tax incentives to bolster the state’s economy to attract new business, but it will do so with a totally different approach than the previous Republican Administration. Specifically, the new approach comes in the form of how tax incentives will be used and targeted. According to Keyes, the tax incentives offered will no longer be offered nor be used to lure “call centers” nor other types businesses or industries that offer low paying hourly wage jobs or minimum wage jobs.
Secretary Keyes went on to explain to the Legislative Finance Committee (LFC) the “focus is going to be the higher-paying jobs” offered by industries and companies. Secretary Keyes told the LFC that “jobs at call centers don’t generate high enough wages in general to warrant major grants under the state’s Local Economic Development Act (LEDA). At most the state will offer $1,000 per new job to offset infrastructure investments at urban offices that handle telephone calls for business customers. Recent state grants in urban areas provide about $6,000 per job created”.
For further news outlet coverage see the below links:
ECONOMIC BASE JOBS VERSUS SERVICE INDUSTRY JOBS
Keyes told the LFC that the Lujan-Grisham Administration intends to focus business incentives on sectors such as aerospace, film, cybersecurity, biosciences and clean energy that offer jobs requiring greater skill and higher pay. These are the very industries identified in the Governor’s executive budget summary to “spur robust job creation.”
When Secretary Keyes told the LFC that “jobs at call centers don’t generate high enough wages in general to warrant major grants under the state’s Local Economic Development Act” what she arguable was referring to is the State intends to concentrate on “economic base” jobs as opposed to “service base” jobs.
A service-based industry is one that offers its products, goods or services primarily within a particular region and does not supply markets outside the region nor increase the economic base of a region. In general, service base industries offer lower paying or minimum wage jobs not requiring much education or technical skills.
Economic base industries provide jobs requiring higher education and higher trained skills An economic base job is one created or needed by a business or industry that increases economic growth of a region by increasing exports of manufactured products, goods or services from the local economy or region to another region or economy thereby increasing the size of the local economy with profits and cash flow from outside the region.
The corner stone of the “economic base theory” is that an increase in economic growth of a region or economy is dependent on increase in exports, manufactured goods or services from one region or economy to another region or economy and supplying markets outside the local economy.
The new state approach of using tax incentives to attract higher paying jobs or “economic based jobs” is essentially the same strategy Secretary Keyes had been implementing for the City of Albuquerque.
NEW MEXICO’S EXPANDED TAX CREDITS FOR FILM AND TV PRODUCTION
The state’s film industry is on the verge of expanding its presence in New Mexico. The film and television industry have hit the $50 million annual cap on tax credits in recent years, a cap the previous Republican Administration refused to increase, leaving the state with a backlog of $382 million through fiscal year 2023.
On March 29, 2019, Governor Michelle Lujan Grisham signed into a law legislation expanding tax credits for film and television productions in a bid to bring more business to New Mexico’s studios, cities and small towns. The enacted legislation pays off up to $225 million in tax credits already owed to the film and television industry.
The enacted law more than doubles the original cap of $50 million to up to $110 million in in tax credits for film and television productions each year. The cap does not apply to production companies that have purchased or signed a 10-year lease for facilities, like Netflix or NBCUniversal which are setting up shop in Albuquerque. The new law also provides an additional 5% credit for productions more than 60 miles outside of Bernalillo and Santa Fe counties, a measure that proponents argued would promote the industry in cities like Las Cruces as well as in rural areas of the state. The law also requires the state to collect additional data on how the credits are used.
The state recently paid nearly $100 million in backlogged film rebates for films and television shows produced in the state. The payments were authorized by this year’s legislative film package and are intended to largely eliminate a massive backlog that built up under the previous Republican Administration that ended January 1, 2019. Even with the backlog payments authorized this week, Keyes told the Legislative Finance Committee there are still roughly $230 million in film credits claimed but not yet paid by the state.
For more on the film tax credits see:
LOCAL ECONOMIC DEVELOPMENT ACT (LEDA) AND STATE CLOSING FUND
In 1994, New Mexico voters approved an amendment to the state Constitution that enabled local communities to offer limited, discretionary financial participation in qualified economic development projects in the form of closing funds. A “closing fund” is intended to help lure out of state businesses to New Mexico and assist local businesses in expanding existing businesses. The State Legislature passed the Local Economic Development Act (LEDA), which provided the legal framework for the State of New Mexico and local governments to administer their LEDA projects. Eighty-three New Mexico communities have adopted a Local Economic Development Act including the City of Albuquerque.
Those businesses who qualify for LEDA funds is explained this way by the Albuquerque Economic Development Department:
“LEDA closing funds are targeted toward employers that can demonstrate additional funding is needed to close a competitive cost gap relative to other states or cities that are vying for the same economic development project. Many factors are taken into account when determining whether to award LEDA funds, including the number of projected jobs, the amount of money a company is investing, and expenditures for local goods and services. The focus is on a “double bottom line” that takes into account the economic impact of the project as well as its benefit to the community. Ideally, there should be a 10-to-1 ratio of private investment to LEDA funds. New or existing employers may use LEDA funds to assist with land acquisition, building renovations and infrastructure needs. LEDA dollars cannot be used for working capital, operating costs or equipment. The business must create full-time, private-sector jobs”.
During the 2019 NM Legislative Session, the NM Legislature approved $75 million for New Mexico’s closing fund which is the highest ever approved for the fund by the State. New Mexico’s film industry is a major beneficiary of the state’s “closing fund” that is intended to help lure out-of-state businesses to New Mexico and assist local businesses in expanding. In the current fiscal year budget, New Mexico appropriated nearly $26.9 million from the LEDA fund for 15 projects around the state. Combined, the combined projects represent $1.2 billion in private investment in the State.
The $26.9 million figure includes $10 million to facilitate a Netflix studio deal in Albuquerque but does not include the $7.4 million the state has pledged for a NBCUniversal film and TV studio project, also in Albuquerque. Even without the NBCUniversal project factored in, the total amount of money spent is already higher than the amount appropriated in any of the five previous years. In the 2018 budget, New Mexico spent about $10.6 million in LEDA funds.
NEW MEXICO UNEMPLOYMENT RATES CONTINUE TO IMPROVE
In May, the national unemployment rate was 3.6% down from 3.8% in May 2018. On June 21, 2019 the New Mexico Department of Workforce Solutions reported that New Mexico’s adjusted unemployment rate was 5.0 percent in May, unchanged from the previous month and up from 4.8 percent in the same month the previous year.
On June 21, 2019 the Department of Workforce Solutions reported the total non-agricultural payroll employment in New Mexico increased by 15,900 jobs, or 1.9% between May 2018 and May 2019 with most gains from the private sector, which was up 2.3% or 15,300 jobs. Mining and construction, which includes the oil and gas industries, had the largest gains, adding 5,500 jobs, or 7.6%.
Other gains reported by the Department of Workforce Solutions in the private sector include:
Professional and Business Services Industry employment is up 3.5% or 3,700 jobs.
Education and Health Services Industry increased by 2.6% or 3,600 jobs.
The Leisure and Hospitality Industry added 3,500 jobs, or 3.5%.
Financial activities showed a gain of 600 jobs, or 1.8 percent.
Manufacturing Industry employment was up by 1.4% or 400 jobs.
Private sectors industry losing jobs included:
Trade, transportation, and utilities was down by 1.5% or 2,100 jobs
Employment in information sector was down 2.5% or 300 jobs.
In the local public or government sector, local government employment grew by a mere 0.8% or 800 jobs. All gains came from local government excluding education, with education up by 1.6%.
COMMENTARY AND ANALYSIS
Kudos go to Governor Michelle Lujan Grisham along with Economic Development Secretary Alicia Keyes for actually articulating a clear vision for diversifying our economy and seeking “economic based” jobs and industries. It will take time to reverse the course of the state on many levels because of the previous 8 years of a disastrous, vindictive and confrontational Republican Governor “She Who Must Not Be Named”. With the direction New Mexico is going in expanding its economy, the unemployment rates should continue to decline, but it will take time because more is involved.
Improving our schools and vocational systems, reducing dropout rates, are critical to diversifying New Mexico’s economy. To address improving New Mexico’s education system, the 2019 Legislature enacted over a $7 billion state budget, the largest budget ever enacted in state history with the legislature appropriating a total education budget at a whopping $3.2 Billion, 16% over last year’s budget. Included in the budget is a $500 million in additional funding for K-12 education and increases in teacher pay.
Both New Mexico Governor Michelle Lujan Grisham and Secretary Alicia Keyes apparently realize that New Mexico must take bold and aggressive, calculated risks to attract and create high-paying jobs to keep our youth and talent from leaving. State and City of Albuquerque economic development efforts need to be coordinated with our vocational institutions to identify new industries that can be attracted to Albuquerque and ensure that both have the trained workforce to accommodate any new industry.
Although special emphasis and support is now being given to the film industry which is developing, expanding and proving to be very successful in providing well-paying jobs, the state needs to pursue with a vengeance the other real growth industry like heath care, transportation and manufacturing. The State should not concentrate exclusively on the film industry to diversify our economy.