The economic outlook in New Mexico for 2017 and beyond is mixed, but the state’s overall growth and productivity are generally threatened by promises by the incoming Trump administration of “dramatic” cuts to government spending.
The anticipated cuts in the Trump proposal would reduce federal spending by $10.5 trillion over ten years. As a point of reference, the total federal budget for FY 2015 was $3.8 trillion, so on average the cuts amount to roughly a 28% cut across-the-board at the 2015 spending level.
Unfortunately for New Mexico, the spending reductions are not going to be applied evenly:
“The departments of Commerce and Energy would see major reductions in funding, with programs under their jurisdiction either being eliminated or transferred to other agencies. The departments of Transportation, Justice and State would see significant cuts and program eliminations.”
Specifically, the proposal recommends funding reductions in “nuclear physics and advanced scientific computing research”, exactly the kind of research both LANL and Sandia specialize in. At his confirmation hearing on Thursday, Energy Secretary nominee Rick Perry couldn’t confirm reports that say Trump is planning large cuts to the DOE.
It is worth noting that federal spending cuts to New Mexico labs would primarily affect people in NM CD-1 and NM CD-3, congressional districts represented by Democrats. The southern district of Congressman Pearce, the sole member of New Mexico’s D.C. delegation in the majority party, would be unharmed.
Meanwhile, in a potential boon to New Mexico, Trump’s pick to head the EPA questions the legitimacy of climate change:
Trump’s pick to head the Environmental Protection Agency is already one of the agency’s leading antagonists and he also questions the validity of the prevailing climate science. He is suing to stop any advancement of the Clean Power Plan while also doing the same regarding the Obama administration’s plans to curb methane releases from oil and gas drilling. If approved by the Senate, Scott Pruitt’s EPA could weaken the regulatory environment by acts of omission, or simply refusing to defend regulations in court.
In an ideal economic scenario, New Mexico’s oil and gas industries could thrive in an environment where oil prices continue to rise and the federal government is friendly to carbon-powered energy.
The aforementioned spending cuts to Los Alamos National Labs (LANL) and Sandia National Labs perfectly illustrate New Mexico’s reliance on the federal government. In FY 2013, New Mexico received $1.69 for every $1 it sent to Washington and is the third biggest net receiver of federal spending relative to federal taxes paid.
Governor Martinez’s decision to expand Medicaid at a cost of over $11 billion to cover an additional 82,000 New Mexicans ultimately added to that dependence. But as a conservative also supporting limited government that decision has her in a slight predicament:
“New Mexico Republican governor Susana Martinez and the independently appointed insurance regulator are at odds. In response to requests by Bloomberg News, the governor sent a one-line statement calling for the law to be repealed. Insurance Superintendent John Franchini, in a letter to [U.S. House Majority Leader Kevin] McCarthy, touted New Mexico’s lowered uninsured rate, and said the ACA added insurance options and improved hospital finances.”
The uninsured rate in New Mexico has fallen by 44% according to the U.S. Department of Health and Human Services. It remains to be seen what an Obamacare repeal will look like, but Trump has promised to replace it with “something terrific” with the goal of “insurance for everybody”.
Last but not least, Trump’s attacks on NAFTA and free trade are bad news for the state’s historic export growth. But in true Trump fashion, his commercial policies haven’t been consistent and they are not fully developed or specific. Santa Teresa will no doubt be anxiously watching.
With the Trump administration officially just hours away, New Mexico’s federally dependent economy is directly in the crosshairs. Will our potential economic hardships foster the innovation needed to make New Mexico competitive in a global economy? I’m optimistic, but as the old saying goes, old habits die hard.