April 26, 2016

Latest tax break for Intel didn’t stop job cuts

Intel in Rio Rancho. Photo Credit: Wikicommons

Just three years ago, the New Mexico Legislature significantly changed what manufacturers owe in taxes in the state.

Intel in Rio Rancho. Photo Credit: Wikicommons

Intel in Rio Rancho. Photo Credit: Wikicommons

Legislators squarely aimed the changes at one big company: Intel. Next year, the tax changes will fully eliminate payroll and property taxes for manufacturers and instead only tax them on their in-state sales.

Related Story: After report of layoffs, Intel future in NM still unclear

Over the years, the computer microprocessing giant has enjoyed at least $2.6 billion worth of state and local subsidies for its facility in Rio Rancho. But the company also fell on hard times this decade as personal computers, which Intel’s microchip is used for, ceded ground to cell phones and mobile devices. The giant was slow to react and now faces another round of massive layoffs company-wide.

The company hasn’t awarded the processing of a new microchip to the Rio Rancho facility since 2008 and cut employment there from upwards of 5,000 people 11 years ago to just 1,900 today.

The “single sales factor” tax structure that the state Legislature included in a controversial 2013 tax overhaul was supposed to help alleviate these trends.

“We were really positioning ourselves for future companies that would take advantage of it,” Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce, which lobbied for the effort, said in an interview. “Our primary focus was Intel.”

Instead, Intel’s announcement last week that it would cut 11 percent of its overall workforce and ultimately layoff people from its Rio Rancho facility marks the latest development of the company’s questionable future in New Mexico. It also raises the question as to whether these types of incentives make a difference to a corporation’s staying-power in the state.

“Subsidies can’t overcome management mistakes,” Greg LeRoy, executive director of Washington D.C.-based Good Jobs First, told NM Political Report.

In particular, LeRoy argues that subsidizing high tech companies is risky because of their often short boom cycles.

“If they lost market share because they didn’t retool enough to get away from microchips, well, subsidies can’t overcome that,” he said.

It’s a point echoed by Javier Benavidez, executive director of Southwest Organizing Project, an organization which has long criticized subsidies to Intel. Benavidez argues that the state needs to look at consumer demand for the products a business offers before giving subsidies out.

“They were the biggest benefactor of the corporate tax cut in 2013,” Benavidez said of Intel. “It’s tragic.”

Intel’s layoffs also raise questions of what costs the subsidies and tax breaks have on the surrounding community and state. Crashing oil and gas revenue and cuts in the state’s corporate income tax have reduced corporate revenue from a post-recession high of $281 million in 2012 down to $220 million this year. Forecasts from the state Legislative Finance Committee show corporate tax income dropping further to $205 million next year and $163 million the following year.

Some of the larger corporate income tax cuts begin to start in earnest this year.

The single factor sales tax structure, which have been phased in gradually since 2013, will be fully complete next year. By then, it’s unclear what corporate taxes, if any, Intel must pay the state.

“There’s no computer manufacturer in New Mexico,” Gerry Bradley, a staff economist at New Mexico Voices for Children and onetime chief of the Economic Research and Statistics Bureau at the state’s former Labor Department, said in an interview. “So there’s not chips being sold in New Mexico. There would be no reason to.”

NM Political Report reached out to Intel for comment on this story, which didn’t respond by press time.

Less tax payments from companies like Intel mean less money for the state to spend on programs. Bradley estimates that per-pupil public school funding dropped 7 percent in the last eight years.

“That’s anti-business,” he said, referring to education as one of the quality-of-life measures corporations can weigh when deciding to relocate to a community.

But Cole argues that passing the single sales factor may have prevented higher job losses at Intel between 2013 and now. She attributes the coming layoffs to the company “preparing for the changing marketplace.”

“When we worked on the public policy issue for them, we didn’t do so with the idea that it would somehow inoculate them from market forces,” Cole said.

She added: “It’s very hard to look at this one issue and make any one conclusion.“

Good Jobs First, for its part, advocates for aiming subsidies more broadly at industries as a whole “without grossly picking one or two companies to get behind,” LeRoy said. He cites Pittsburgh’s efforts at subsidizing green building as an example.

“That way you don’t lose everything just because one company’s business strategy isn’t up to snuff,” he said.