Diane Denish offers an extensive position paper for voter evaluation on her website. In detail she discusses her views on the subject of how to create jobs. See her position paper here: Denish offers 2238 words to read on the topic of jobs. NewsNM has read the Denish position paper several times.
In this column we will attempt to summarize the Denish ideas and offer our analysis of both the practicality and the underlying philosophy behind the job creation policy statements she makes. Our summaries will be italicized.
There is definitely a preoccupation with small business in her job creation plan. The first proposal in the Denish plan to “energize New Mexico’s entrepreneurial spirit” involves the use of “small amounts of public resources” to encourage private-bank financing. Denish suggests the state government should provide incentives for banks all over the state to offer businesses loans by creating a pooled reserve account which would minimize risk to each bank and spur new investments in our local businesses. She claims $2.5 million in state funds could support up to 500 small business loans.NewsNM’s reaction to this proposal would be to suggest that usually, when a business is well capitalized with EQUITY investment backing, many banks are quite willing to make loans without any government incentives. Her proposals for greater access to capital are essentially greater access to DEBT financing which is NOT to be confused equity capital. Debt financing is a much more imposing source of capital and more risky for companies than using equity. Any state backed process that “minimizes” risk to a participating bank, is merely a transfer of the inherent risk on the debt to the state, and ultimately to the taxpayers. An alternative approach that would automatically put more equity capital in the hands of entrepreneurs is the simple idea of allowing them to keep more of their income and use their income reserves to augment their equity capital. Better capitalized businesses enable banks to loan on more high quality proposals because adequate equity is involved. Getting the state involved in subsidizing borrowing in any way shape or form is a dubious proposition.
Denish wants to expand the micro-lending program through the Small Business Investment Corporation.
The essence of this idea is that the state should be subsidizing the lending business.
The next item in the Denish plan involves using taxpayer dollars to invest in an online clearinghouse for New Mexico businesses and lenders to connect to. According to this proposal, this website would allow businesses to locate loan programs and apply for capital with participating lenders. It would also serve as a tax-credit information clearinghouse.
Here again, this practice seems to be based on the idea of creating additional government steering functions to help businesses borrow money instead of making it easier for business equity capital to be formed.
Next, Denish proposes that the government help New Mexico's small business owners create new jobs immediately by offering a state tax credit of approximately $2,500 for each job created in New Mexico during the 2011 calendar year. This tax credit would be limited to small business owners who have fewer than 100 employees or gross less than $1 million per year. In order to qualify for the tax credit, the new position must come with a salary that matches the average for the county and include health care benefits for the employee.
While this idea might seem helpful to reducing unemployment on the surface, there is nothing less valuable to the state revenue coffers or the workers when a job is created by a company increasing from 101 to 102 employees. Why should companies with 99, 75, 50, or even 25 employees be subsidized by others? In many areas companies with 250 employees are considered “small.” The devil is in the details of this sort of idea. And once again it is an idea involving the government using taxpayer resources to administer a new program. Enforcing provisions like employee counts, gross sales, average salary calculations for each county, and defining what the term health care benefits actually means will lead to the expansion of government first. Perhaps downstream, businesses meeting all these hard to define and expensive to monitor criteria will derive some benefit, but justifying the additional costs of administering requires a great leap of faith in bureaucrats.
Denish calls for a “review” of all existing state tax credits to determine which are leading directly to job creation and which are not. Her new proposal of a small business tax credit would be linked directly to the creation of new jobs.
The obvious reaction to this proposal is to wonder why previous state credit proposals, that were thought to lead to jobs, didn’t. And perhaps the best way to create jobs (outside of jobs for bureaucrats in Santa Fe) might be to leave more of the earnings in the hands of the entrepreneurs. Not having to go to the banks and borrow more money with the hopes of getting a tax credit from the government……later would be preferred by most entrepreneurs.
Denish gets into a little bit of fuzzy government math when it is suggested that “IF” the tax credit idea helps create 7,300 jobs, it will cost the state an estimated $18 million but will generate approximately $27.5 million in new revenue. This implies a net gain of $9.5 million in additional revenue.
NewsNM’s reaction on this idea is to wonder why this net gain estimate does not include any accounting for the costs of the bureaucracy that would have to be created to administer the tax credit program.
Denish spends a great deal of time discussing the Creation of a One-Stop-Shop or an "Easy Button" for small businesses and start-ups. She says, “Right now, a New Mexican who wants to start a small business has to make five separate stops to get the paperwork, licenses and permits, and insurance they need.”
It is in this proposal that Denish explains why government is inefficient and in doing so, she makes a strong case for why her previous new program suggestions will only add to, instead of subtracting from the need for business to answer to state government.
Denish also calls for a litany of procedural changes. These proposals include:
1. A universal application, which will determine upfront which permits and licenses a business will need rather than leaving the detective work to the business.
Item #1 is an idea that requires inter-agency cooperation and the yielding of responsibilities by a government official. Since power and influence is lost when the head of a government agency yields…..few do, willingly.
2. A directory of state services and information on contracting with the state.
3. Financial literacy information and private loan information.
4. Information about federal grants and other private assistance outside of state government.
5. Networking tools that allow similar small businesses to communicate and share experiences. This effort would include outreach to local and county entities to establish uniform filing requirements and paperwork for businesses around New Mexico.
6. Preferred contracting status for New Mexico small businesses: As the state's largest consumer, the state of New Mexico should be supporting our small businesses with preferred contractor status. This means that within the procurement process for state contracts, a small-business based in New Mexico would get additional procurement points - to give it a small advantage over its out-of-state competitors.
7. A thorough review of Worker's Compensation laws and rates, rooting out the inequities that harm New Mexico's employers. For example, Worker's Comp rates for office work should not be similar to rates for more dangerous jobs such as oilfield work. Too many small businesses are being taken advantage of by unfair Worker's Comp rate structures.
8. Governor's Small Business Ombudsman: Too often, the big corporations have a voice in Santa Fe and the small businesses have nowhere to turn for help. That must change. As Governor, Diane Denish wants to ensure that small business owners have a direct line of communication with her office, and to do that, she would create the position of a Small Business Ombudsman. If a small business has an idea for how to improve state government services, wants information on how to get a license, find out about loan and financing assistance or other resources for small businesses, a representative in the Governor's Office will personally assist them every step of the way. The Ombudsman's primary responsibilities will include:
a. Continually advocate for breaking down government barriers to entrepreneurship and job creation wherever they may exist.
b. Organize local networks of successful entrepreneurs to serve as mentors to New Mexicans looking to start their own businesses.
c. Create a road-map of services for businesses that would go hand-in-hand with the Small-Business One-Stop Shop.
Item # 8 (a,b,c) is a proposal that recognizes the redundancies and inefficiencies of state government and then offers a solution of additional state government employees to help businesses deal with poorly performing existing state government employees and agencies. This proposal is clearly a circular loop that grows the power and influence of government.
This proposal would use state money to subsidize businesses already using federal government subsidy programs. It is an extension of the basic philosophy that threads its way through many of the Denish job creation proposals.
Denish speaks in more general terms of encouraging New Mexicans to return to their hometowns to start businesses or work in high-demand jobs; and creating an office focused on supporting rural economic development. She speaks of assisting local agriculture and ranching - and the businesses they support by encouraging procurement of New Mexico grown food.
There are few details of how these efforts might be implemented efficiently and Denish seems to infer that what is being done by public purchasing managers now is not supportive of New Mexico businesses. This idea involves more government to help…government.
Denish talks of investing in developing local and state markets for New Mexico agricultural products. This would include support for farmers markets and other sources that provide access to local fresh food in every community across the state. This investment would pay for itself: a 15% increase in purchases from local farmers is estimated to generate $670 million per year in new community wealth for New Mexico.
This idea seems to involve the idea of government getting into the practice of subsidizing the food distribution business. Government involvement in food distribution is quite unlikely to produce competitive advantages or efficiencies for companies or taxpayers.
Denish talks about providing leadership by bringing together both producers and consumers of food to understand the demand for food and existing supply. Such a group could also plan for more efficient transportation of foods within the state.
This idea suggests that government can make an efficient effort in facilitating better decision-making processes by producers and consumers.
Denish suggests the state should be seeking out high-value niche markets for small farmers. The state could gather information about emerging markets and specific demand for organic and medicinal foods and share the information with existing farmers. She suggests this effort should also extend to educating young people about new markets and opportunities in farming.
This idea suggests the government can function well as business advisers and consultants.
She speaks of the New Mexico Broadband Initiative wanting to provide priority to capital projects that seek to develop New Mexico's rural broadband infrastructure.
Existing broadband infrastructure exists in all areas through home satellite technology. State incentives to increase towers and cell coverage in rural areas, is essentially a suggestion that all New Mexico taxpayers should subsidize rural areas for state-supplied broadband and cell phone service infrastructure.
Denish talks about the Center for Rural Development, which would combine all the functions of rural support that exist in state government under one roof to share resources, leads, and be more responsive to the needs of rural businesses and economic development initiatives.
This idea will require another government organization and inter-agency cooperation. Often these ideas do not lead to the yielding of responsibilities by a senior government official. Since power and influence is lost when a government agency yields…..few do, willingly. Often these ideas create redundancies. The proposal itself is an admission that redundancies already exist.
Denish wants to partner with the New Mexico SBDC network to offer rural-focused workshops on starting and maintaining a rural small business. Work with the SBA to locate and maximize resources for rural businesses. Catalog the core needs of every New Mexico community with a population below 30,000.
These ideas suggest the state government can function well as a business advisor and consultant.
Denish talks of two additional government programs near the end of her paper. The “Come Home to Main Street” program seeks to maximize incentives for people looking to work in or start a business in communities with populations of 10,000 and below. She talks of increasing tax incentives for starting a business in a small community and a stepped-up ladder of tax incentives bench marked to the number of employees hired. Denish also talks of educational incentives such as student-loan repayment assistance for New Mexico college graduates who return to work in their hometowns for a minimum of four years in a high-demand profession such as teaching, nursing or law enforcement.
Finally, Denish supports state agencies adoption of some provisions of the Model State Administrative Procedures Act (APA). Adhering to APA standards will give New Mexico employers clear and consistent guidelines from the state as they seek to grow and create jobs. She points out that New Mexico is one of a few states in the nation that does not adhere to the MSAPA guidelines. She says this can make it difficult for business owners, particularly small business owners, to understand the state's laws and regulations and how they will be enforced. Denish's position on the APA has been supported by leading business organizations in the state, such as the Association for Commerce and Industry.
Denish seems to contradict herself throughout the paper. First, she asserts that government doesn't create jobs - the private sector does. In the body of the piece Denish offers a litany of new government programs to be administered, mostly through the use of subsidies, credits, and outright grants. Most of her ideas will require more government bureaucracies not less. And her proposals that actually call for less bureaucracy will depend on the unlikely prospect of inter-government cooperation to accomplish the goal. Many of the programs rely on government intervention into aspects of day-to-day business management in such ways that government has already proven it cannot do effectively.
Overall in the Denish paper on job creation there is a tremendous and overriding faith in government. The paper tends to ignore the great reality that subsidies create imbalances. In the Denish paper rural job creation ideas morph into nothing more than calls for small town subsidies to be paid for by all non-rural taxpayers. Nowhere in her case for subsidizing small communities does she supply proper justification as to why the remaining New Mexico citizens, in larger communities, should be compelled to take on the increased burden of her programs.
There seems to be a curious reluctance to concede that high demand professions already tend to provide higher wages without the need for government intervention. Low skilled citizens are the states burden rather than the high-skilled workers. Finally, curiously absent in this lengthy paper is the idea of using the simple solution of lower tax rates to increase the incentives for all forms of work and job-creating capital formation.
No doubt the funding of all previous programs and subsidies is swallowing up huge percentages of the state budget and is rendering the idea of tax rate cuts particularly inconsistent with such an overriding faith in government.
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