New Mexico

Tax Incentive Evaluation Ratings

Tax Incentive Evaluation Ratings: New Mexico

Rating: Trailing

Key points:

  • New Mexico is trailing other states because it lacks a well-designed plan for regular evaluation of tax incentives.
  • Under an executive order, the Taxation and Revenue Department studies tax credits, exemptions, and deductions, but the reports lack detailed economic analysis.
  • Designing a process in which economic development tax incentives are evaluated on a rotating cycle would help New Mexico begin producing more rigorous information.

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In 2011, Governor Susana Martinez (R) signed an executive order requiring the Taxation and Revenue Department to prepare an annual report on tax credits, exemptions, and deductions, including an evaluation of each program.a These reports include valuable descriptive information on tax incentives, including their purposes, how they function, and how much they cost. They also include policy recommendations for many incentives, some of which offer ways to improve the design of the programs. However, the evaluation of each program typically consists of only a few paragraphs of discussion, with little or no original economic analysis.b

Unlike most states that regularly evaluate incentives, New Mexico’s studies are not required by statute. Consequently, it will be up to future administrations to continue the evaluations.

New Mexico lawmakers have several options to improve the process. The annual report includes analysis of more than 200 tax provisions.c This broad scope makes the report a useful resource for policymakers; many states have found that cataloguing all tax expenditures in a single report helps lawmakers understand tax policy choices. However, most states do not require evaluation of every tax expenditure. New Mexico policymakers could consider providing more scrutiny to major tax incentives, such as the High Wage Jobs Credit, which cost $70 million in fiscal year 2015, than to such expenditures as a tax exemption totaling $10,000 annually for street vendors with disabilities.d

For example, Nebraska’s Department of Revenue publishes an annual report with descriptive information on more than 100 tax expenditures.e Separately, Nebraska’s Legislative Audit Office evaluates the state’s eight economic development tax incentives.f New Mexico could use a similar approach to produce a more in-depth analysis. Developing a rotating multiyear cycle for evaluation—a strategy used in Colorado, Nebraska, Oklahoma, and many other states—would also allow time for more detailed studies.

New Mexico could also consider tasking a different office with conducting the evaluations. For example, the nonpartisan staff of the Legislative Finance Committee previously produced valuable analysis of economic development tax incentives. A 2012 report from the committee found that the state lacked the information needed to determine whether its job creation incentives were achieving their goals.g New Mexico lawmakers could remedy that situation by designing an improved process to produce high-quality evaluations of tax incentives.

Endnotes

  1. State of New Mexico, “Executive Order 2011-071,” Aug. 9, 2011, http://www.governor.state.nm.us/uploads/FileLinks/ 5634a3c59b924b1ba8ca6072b986dc45/EO-2011-071.pdf.
  2. New Mexico Taxation and Revenue Department, “New Mexico Tax Expenditure Report” (2015), http://www.tax.newmexico.gov/uploads/PressRelease/ e19f5d4c8b014c6d870f8073d673341b/2015_Tax_Expenditure_Report_revised.pdf.
  3. Ibid., 14.
  4. Ibid., 69, 90–91.
  5. Nebraska Department of Revenue, “2016 Tax Expenditure Report” (Oct. 14, 2016), http://www.revenue.nebraska.gov/research/tax_expenditure_rep/2016/ 2016_Tax_Expend_Report_1.pdf.
  6. Nebraska Rev. Stat. Ann. § 50-1209, http://nebraskalegislature.gov/laws/statutes.php?statute=50-1209.
  7. New Mexico Legislative Finance Committee, “Job Creation Incentives” (Aug. 23, 2012), 15–21, https://www.nmlegis.gov/LCS/lfc/lfcdocs/perfaudit/Job%20Creation Incentives.pdf.
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Improving Tax Incentives for Jobs and Growth

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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.