Crony Capitalism, Corruption and
the Economy in the State of New Mexico

A Summary and Action Plan for Business Leaders

Case Studies

Case 1: Tax Subsidies

The New Mexico government issued 860 tax subsidies between 2011 and 2013, for a total of $262,699,040. Private companies can apply for 34 different tax credits in seven industries – or the state legislature can create “targeted” credits by passing legislation. It’s therefore unsurprising that so many take advantage of the opportunities. But, measured against leading economic indicators, research shows, at best, mixed support for the efficacy of these subsidies. An independent party recently concluded that “tax incentives are of little benefit to the states and localities that offer them and they are actually a drag on national economic growth.” Reasons why include: Companies don’t base major decisions on tax subsidies. A combination of factors, including variables such as regulations, energy cost, employment pool, and available technical expertise are typically weighed in making a decision. Politicians use tax subsidies as political currency. Motivated to find opportunities to do “good” things to make a case for being elected, attracting and retaining tax packages is electorally profitable for politicians, even if those packages don’t work.  Without evaluations, we can’t understand the true impact and actual value of tax subsidies. Many states don’t evaluate tax subsidy programs. Also, job growth estimates are based on anticipated hires, not actual jobs created. 

It’s estimated that in New Mexico, it takes $31,000 in tax subsidies to attract a job with an average salary of $43,000. 

Our report offers detailed analyses of several tax subsidy programs, with a range of results. What all have in common, however, is that the industries and companies that receive the subsidies contribute to the campaigns of the public officials who write the subsidies.

Case 2: Predatory Lending 

(Payday and Installment loans) Predatory lending practices victimize vulnerable consumers who cannot afford the high interest rates and other costs associated with money they borrow to cover the disparity between low wages and their needs. Unable to pay back their loans, many take on more debt. According to the New Mexico Regulation and Licensing Department, payday loan consumers end up taking out, on average, between five and seven such loans annually. 

More than 20% of New Mexico’s residents live below the national poverty level. The state presents a ripe market for these “storefront lenders,” so-called because of their walk-in retail spaces. 

Though no available figures reflect New Mexico’s specific contribution, it is clear that the state offers a lucrative market to predatory lenders, at massive cost to everyone else, because of the following: A poor and often financially illiterate population; little regulation on storefront lending; low-cost lobbying and a political climate where small contributions can make a major difference; and, non-transparent lobbying and campaign financing laws. (New Mexico’s 2007 Small Loan Act was an attempt to address some of this industry’s abusive practices, but the lenders found ways to sidestep the law.)

Case 3: Pay-to-Play

The most obvious and egregious form of crony capitalism, “pay-to-play” arrangements, are transactional and clearly illegal. It’s a simple equation: Officials extract payments (campaign donations and/or direct bribes) in exchange for considering or awarding government contracts. New Mexico has become infamous for its scandals implicating high public officials in pay-to-play transactions. Two recent, high-profile cases are:

  • The 2008 investment scandal during Governor Richardson’s bid for the presidency, when corruption charges were filed for allegedly awarding public contracts on the basis of donations to his political action committee (PAC). Still playing out, estimates vary as to what this will cost the state – the low estimate is $90 million and, at the high end, as much as $200 million. 

  • Senator Phil Griego ushered a bill through the committee process devaluing state land and then acted as the real estate agent accepting an unusually large commission for the sale of the recently devalued land. Under indictment, it has been a contention of several officeholders (including Deputy State Treasurer Ken Johnson, convicted of conspiracy to commit extortion in 1984) that “this is how business is done” in New Mexico.