New study says $512M in state tax credits has done little for state coffers 

A new study from the New Mexico Legislative Finance Committee found none of the 24 state tax credits or cuts aimed to spur economic development has resulted in increased revenues for the state.

LFC economists on Tuesday presented findings of the study, which looked at more than half a billion dollars worth of tax credits in effect in fiscal year 2025, which spans July 2024 to June 2025. The tax credits aim to attract new businesses, jobs and investment in manufacturing, small businesses and film, among other industries.

Brendon Gray, an LFC economist, said the new, “very sophisticated” study evaluated how a particular tax policy “ripples through a whole bunch of different metrics,” including tax revenues, employment and overall economic impacts, Gray said. A firm, Regional Economic Models Inc., produced the study for the state.

Gray stressed that lawmakers should pay keen attention to the return on investments for credits and deductions in the state tax code, especially given the sheer amount of money that the state forgoes through various tax breaks for economic development. If the $512 million the state loses to tax expenditures went instead to a hypothetical state agency, Gray noted, that agency would be the third-highest fund in the state, behind only  the Public Education Department and Higher Education Department. 

The study found that none of the 24 economic development tax cuts or credits contained in the Legislature’s 2024 tax bill generated a return on investment to state coffers. That means that even the most successful tax credit generates less than $1 in tax revenue for every $1 dollar the state pays in tax credits. 

The most successful tax credit — which gives sales tax relief to businesses for manufacturing — generated only 16 cents in tax revenues for every dollar the state forgoes.

Two of the credits — one that waives sales taxes for small businesses the Saturday after Thanksgiving; another that waives taxes on sales to credit unions — generated only 1 cent for every dollar the state loses to the tax break. 

Still, the study found that 10 of the 24 credits had positive impacts on the overall state’s economy, meaning that for every $1 the state grants in tax credits, the economy grows by at least 1 cent. 

The highest “economic return on investment” is the state’s manufacturing investment credit. According to the study, the credit provides $1.39 in economic benefit for every $1 the state awards in tax credits.  

The lowest positive economic benefit came from the state’s Film Production Tax Credit, which reimburses filmmakers between 25% to 40% for certain production costs. According to the study, for every dollar the state spends on the film tax credit, the state’s economy grows by 8 cents.

New Mexico Rep. Derrick Lente (D-Sandia Pueblo) said many of the tax credits are results of “simply who had the loudest lobbying firm” in a year the credits were enacted. The study’s findings will prompt him, as chair of the House’s Taxation and Revenue Committee, he said, to re-examine the state’s approach to tax credits in the upcoming session. 

“We [will] look at these types of initiatives and the benefits that they’re providing, or maybe not even providing,” he said.

New Mexico Sen. George Muñoz (D-Gallup), who chairs the Senate Finance Committee, said the study’s findings mean that the Legislature will have to rethink its approach to tax breaks, which are “really costing our money.” 

“The math doesn’t add up,” he said.