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New Mexico did not get much bang for its buck after spending $520 million on economic development tax breaks in fiscal year 2025, according to a Legislative Finance Committee analysis released this week.

鈥淭he overarching headline from this work is that tax incentives do not pay for themselves,鈥� Legislative Finance Committee economist Brendon Gray said during a committee meeting Tuesday in sa国际传媒官网网页入口. Fiscal year 2025 ran from July 1, 2024, through June 30, 2025.

The modest return on investment for more than 20 types of economic-focused tax breaks 鈥� they generated 1.4 cents for every dollar spent 鈥� prompted some lawmakers to call for a more regular review of their effectiveness, even amid an ongoing state revenue bonanza.

鈥淚 happen to think that these tax incentives, in general, are very helpful for economic development,鈥� Rep. Meredith Dixon, D-sa国际传媒官网网页入口, said, 鈥淏ut I do think that this report highlights the areas that we could perhaps strengthen and improve.鈥�

Economic development tax expenditures are targeted tax exemptions, deductions and credits intended to incentivize economic activity. They include the state鈥檚 film tax credit and the Local Economic Development Act incentive.

The state Taxation and Revenue Department has issued an annual report on all state tax expenditures every year since 2012, but those reports typically provide only limited analysis of their effectiveness.

New Mexico economist Kelly O鈥橠onnell said these tax expenditures never generate the level of economic activity that would be necessary to offset public sector costs.

鈥淭hat said, New Mexico has to compete with other states for recruiting businesses and all the other states are employing a variety of incentives, including tax expenditures to recruit businesses,鈥� she said.

According to the LFC, the state spent $176 million on tax breaks in FY25 that had a negative economic return on investment 鈥� the amount spent to grow the economy was more than the economic growth that resulted.

For example, the state鈥檚 investment credit for manufacturers resulted in a 139% return on investment 鈥� the highest of the expenditures 鈥� meaning that for every $1 spent, New Mexico鈥檚 economy grew by $1.39. 

But the Small Business Saturday reduction, which allows small businesses to deduct certain gross receipts from their taxes, had a -86% economic return on investment, meaning that for every $1 spent, the state economy shrank by 86 cents.

鈥淔or every dollar they spent, it cost us 86 cents,鈥� said Sen. George Mu帽oz, D-Gallup, vice chair of the LFC. 鈥淭hose are actual costs, not deduction(s) or revenue generators for the state.鈥�

New Mexico鈥檚 economy, as measured by the gross domestic product, grew 1.4% as a result of the more than half a billion dollars that were committed to the 24 tax exemptions, deductions, credits and other benefits for businesses, according to the report.

鈥淭hat means for every $1 we invested, the economy grew by one penny on top of that,鈥� Gray said. 鈥淪o it鈥檚 positive, but it鈥檚 relatively small.鈥�

Over the past five years, the state spent $1.7 billion on these tax incentives, which is about 3% of the general fund revenue, Gray said.

The report also notes that across the 24 expenditures, on average, the cost per job 鈥� calculated as the average nominal cost of the expenditure divided by the average employment impact 鈥� is $137,000 per year. That is over 10 times the amount of a job created through the state鈥檚 Job Training Incentive Program, which underwrites certain new positions.

The report said that some 鈥渃ost-per-job estimates are very high because the expenditures are estimated to support almost no new job growth.鈥�  But Gray, in his presentation to lawmakers, said not all tax expenditures are designed to create jobs.

鈥淛ob creation is the primary mechanism that we have to increase wages and grow per capita personal income,鈥� he said. 鈥淪o this is an important metric that we鈥檙e focused on.鈥�

None of the 24 tax expenditures brought in more money than what the state put in. Furthermore, none of the tax breaks met all six standards considered to be best practices, with most lacking the expiration dates and spending caps that protect state revenues, the report states. 

The report included several recommendations for the Legislature to consider to bolster greater returns for the state鈥檚 investments. This includes prioritizing expenditures with higher economic returns and limiting or restructuring expenditures with low or negative economic returns.

Sen. Michael Padilla, D-sa国际传媒官网网页入口, said during Tuesday鈥檚 meeting that he is drafting a bill that would create an index ranking the tax expenditures based on several factors or questions, like: How much money was spent for these incentives and do the reductions meet the purpose that lawmakers had intended?

鈥淚t鈥檚 sort of like a hodgepodge, a hit-and-miss and a whack-a-mole, if you will, to determine what incentive credit or deduction is working and which ones aren鈥檛,鈥� Padilla said in a phone interview. 鈥淏ut this would treat all of them fairly. They all would be measured equally, and they would have to perform. 

鈥淚f they don鈥檛 perform, they would be sunsetted and no longer exist, and (the state) would take those dollars and put them in the places where we know they are working for New Mexico.鈥�

Gray told Padilla his idea is 鈥渟omething that we鈥檇 like to build and work toward.鈥�

鈥淲e鈥檙e not always going to have these dollars for all these incentives, credits and deductions,鈥� Padilla said. 鈥淲e need to use our dollars wisely. And again, developing an index that requires you to perform with that incentive, credit or deduction is the best way to approach it, I think.鈥�

Gregory R.C. Hasman covers the economy and healthcare. He can be reached at ghasman@abqjournal.com or 505-823-3820.