Audit faults NM for failing to assess tax breaks
SANTA FE, N.M. (AP) — Legislative auditors on Thursday criticized the state for failing to properly evaluate economic development incentives, estimating that it costs New Mexico taxpayers $31,000 to attract a job with a $43,000 average salary.
The head of the Economic Development Department called the figure "wildly inaccurate," but he agreed with a recommendation by Legislative Finance Committee auditors that New Mexico needed to do a better job of assessing the costs and benefits of tax breaks and other incentives for businesses.
The state's economic development incentives cost an estimated $467 million from the 2007 to 2011 budget years, with about 80 percent of that from tax breaks offered to businesses, such as for creating high-wage jobs or jobs in rural areas. The state also subsidizes the training of workers in jobs created by businesses moving to the state or expanding their New Mexico operations.
"There is no comprehensive review or regular analysis of all job creation incentives to inform budget decisions. The state of New Mexico is unable to demonstrate the return taxpayers are receiving on their dollars," auditors said.
The audit report recommends requiring more public disclosure of tax and wage information from companies receiving economic development tax credits. Currently, most taxpayer data is confidential and can't be released to legislative auditors, who say the information is critical for analyzing the effectiveness of tax incentives.
Auditors said the Legislature needs to impose "sunset" dates on tax breaks, which would automatically repeal the incentive unless lawmakers renew it. Those provisions will force a periodic cost-benefit assessment of tax breaks for economic development, the report said.
The state's incentives should also require "clawback" provisions, auditors said, to force businesses to repay part of the state's investment if a company cuts its workforce or closes a plant. Economic Development Secretary Jon Barela said the agency does that.
However, Barela said the Legislature has circumvented the department's vetting of some projects by directly allocating money for infrastructure improvements to help attract several large businesses.
Nearly $16 million in grants were approved by lawmakers in 2008 and 2009 as economic development incentives for Schott Solar's manufacturing plant on the edge of Albuquerque, but there were no clawback provisions. The company announced in June that it's closing the factory because of foreign competition in the solar panel market. More than 200 employees were laid off.
"By appropriating funds directly to the project, the Legislature bypassed the procedural safeguards that EDD had in place," Barela said in a written statement that's part of the audit report.
He said the audit's per-job cost estimate was inaccurate because it failed to take into account jobs that had been created through tax incentives for film production in the state. He didn't provide an alternative figure, but he agreed with auditors that the department needed access to more information for assessing incentives.
"As I have told committee members through my tenure, EDD is more than willing to participate in a meaningful assessment of tax expenditures and incentives," Barela said. "I believe that evaluation would be of great benefit to taxpayers."
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