Sir Richard Branson and New Mexico Governor Bill Richardson shook hands on a deal in 2005 that precipitated a huge public investment—still ongoing—in Spaceport America by the citizens of this state.
“Build us a world-class spaceport and we’ll bring you a world-class space line,” Branson has said he recalled telling Richardson.
The public held up Richardson’s part of the bargain. Since the Spaceport opened in Sierra County 10 years ago on Oct. 18, 2011, more than $300 million in state funding and local gross receipts taxes have been funneled into the construction and operation of the 18,000-acre facility adjacent to the U.S. Army White Sands Missile Range.
Branson is inching closer to delivering on his part of the bargain. In July, VG’s mothership WhiteKnightTwo rolled out of its leased main terminal at the Spaceport, the launch pad for a rocketship that carried Branson and members of his team to and from suborbital space. The rocket ship veered out of its permitted flight path over White Sands, triggering VG’s grounding by the Federal Aviation Administration for almost a month in September while the company made “required changes” to its communications systems.
Less than a month later, in mid-October, the company announced that it would not begin commercial service until the fourth quarter of 2022—the latest in a string of broken deadlines for inaugurating VG’s space tourism business at the Spaceport. Branson originally predicted that the first commercial flights would begin in 2007.
In a previous article, the Sun reported on the findings of the only serious study of the Spaceport’s return on investment—an economic and fiscal impact analysis released by the Spaceport Authority in January 2020—and on a critique of that study by the Rio Grande Foundation. RGF shot holes in the authority’s claim the public had already received its return on investment. RGF toted up the public dollars spent on Spaceport America from its inception to 2019. It arrived at a total investment of $310 million, compared to its calculation that the ROI was about $53 million.
Since 2019, the Spaceport Authority has begun capital improvements projects that will expend $20 million more in New Mexico capital outlay funding and severance-tax bond funding, bringing the total public investment to about $330 million. Other multimillion-dollar capital projects are in the wings. And, just this week, the Spaceport’s executive director testified before a state legislative committee that he was going to ask the New Mexico Legislature for an additional $2 million to supplement the Spaceport’s annual operating budget of about $10 million. Revenues from anchor tenant Virgin Galactic and other users account for only 60 percent of the facility’s current operating budget.
While the public waits for its ship to come in—the highly anticipated economic boost and revenue flows to the state and region that will be generated by Virgin Galactic’s Spaceport America flights—the Sun looked more closely at the prospects for overall economic development and the expected revenue streams. They turn out to be trickles, not torrents, even if and when the flight cadence picks up.
VIRGIN GALACTIC’S SUCCESS IS NOT NECESSARILY NEW MEXICO’S
Virgin Galactic is unique among spaceline companies. It is the only venture using a horizontal-takeoff plane carrying a spacecraft that, upon parting from its carrier, fires rockets to reach “suborbital space.” Other competing space companies, such as Blue Origin and SpaceX, send rockets up from a launch pad, usually from leftover Kennedy-era race-to-space infrastructure the public’s money built long ago.
Virgin Galactic’s phase one business model is to sell tickets for a short flight to the edge of space, where “astronauts” will experience about five minutes of weightlessness and the life-changing reversal of perspective—looking down on Earth. Seeding each flight’s passenger list with movie stars, such as Tom Hanks, Leonardo DiCaprio and Lady Gaga, with whom their fellow astronauts would probably share three days of training to prepare for the flight, may be rationalization enough for the wealthy to pay nearly a half million for the price of a ticket. Tickets were first priced at $200,000, then $250,000 and lately $450,000. According to the Virgin Galactic website and recent Securities and Exchange Commission filings, required since Virgin Galactic went public in 2019. Virgin has more than 600 reservations so far, resulting in the collection of $80 million in ticket deposits.
Virgin Galactic’s online investor relations page states that the company expects to make 400 flights per year per spaceport, which brings us to VG’s future plans.
Virgin Galactic has made no secret of its intentions of eventually flying passengers suborbitally from spaceport to spaceport, greatly reducing the time it takes to get from Paris to Abu Dhabi, for example. VG’s other envisioned spaceports have yet to be built, but a regular airport may be all that’s needed to become a VG hub, because the company’s launch technology does not require a launch pad and its July flight with Branson aboard proved that its rocket ship can be safely guided back from the edge of space to land on an airstrip.
These capabilities open up a wealth of departure and destination points, providing options that might make choosing to fly out of rural Sierra County much less attractive to jetsetters upgrading to rocket-setters.
Blue Origin and SpaceX are also offering suborbital flights, but neither company intends to confine its operations to low orbit. Both are promising future flights to the International Space Station, space hotels and even the moon. While all three companies are competing for first adopters who want to quickly get their astronaut wings, after the first phase of commercial spaceflight occurs, Blue Origin and SpaceX will be competitors for customers wishing to spend days in orbital space. VG will be in a class of its own as the only company flying passengers suborbitally to different points on earth.
The question is whether Virgin and its supposed beneficiaries—Spaceport America and the citizens of New Mexico, who continue to subsidize the startup investment in the world’s first purpose-built spaceport—will survive phase one of Virgin Galactic’s plan. Is the market of first adopters deep enough for VG to get a significant share? During phase two, Virgin Galactic and Spaceport America must become one of the points in point-to-point suborbital travel to ensure longevity and return on investment.
LOOKING FOR STATE AND LOCAL RETURN ON INVESTMENT
When Richardson made that handshake deal on New Mexicans’ behalf, he should have insisted that public investment in a spaceport run consonant with Branson’s delivering an ever-increasing number of jobs to the state. Job creation is the quid pro quo of most state economic development subsidies and grants. Virgin Galactic has created 150 new jobs total in the space industry, according to Spaceport America Authority’s 2020 analysis. That report does not, however, specify how many of those jobs came to Sierra County or at least were filled by New Mexicans.
Branson has spun off business expansion that could have produced new jobs and revenue for Virgin Galactic when he formed California-based Virgin Orbit in 2017. A small-satellite launching company, Orbit claims to have $300 million in active contracts and another $2.3 billion in “identified sales opportunities currently being pursued.” The payloads are carried to a launch point 45,000 feet above the earth under the wings of a fleet of renovated planes left over from Virgin Airlines, whose operations have been reduced and assets mostly sold off. Orbit’s Boeing 737s, which can take off from regular airports, do not need the expensive runway the public built Branson at Spaceport America.
Recently, Virgin Galactic CEO Michael Colglazier announced that the company is shopping in at least three states for the best incentives to locate plants to build more spacecraft to meet its projected 400 flights per year at the multiple spaceports it intends to operate. In exchange, VG promises to create 1,000 new manufacturing jobs. It is not known if New Mexico is even being considered as a site.
Job guarantees ensure a return on public investment that is a combination of hard-number salaries and soft-number living expenditures and home buys by well-paid employees. Harder to measure are tourist-dollar returns that may be generated by astronauts and curious visitors coming to Spaceport America once regular VG spaceflights begin there. Nonetheless, “heads in beds” expenditures by visitors at local hospitality businesses and the associated GRT that goes to the state and the county appear to be the only ship that may come in. The Sun looked at other hard-dollar revenue streams Virgin Galactic may generate, and the returns will not keep up with Spaceport America’s ever-increasing expenses.
There will be no hard-number return on investment produced by Virgin Galactic’s sales of tickets to space at the current price of $450,000 per person. After Branson made global headlines with his own ride to the edge of space in July, about 100 people have rushed to reserve their seats. VG hopes to have 1,000 customers in its queue when it starts commercial flights at the Spaceport.
But, no matter how many tickets the company sells, New Mexico will collect no gross receipts taxes on those sales at the time the flights are taken. Charlie Moore, the communications director for the New Mexico Tax and Revenue Department, confirmed that spaceflight tickets are exempt from GRT in an Oct. 12 email and provided a copy of the department’s ruling on that issue.
State law section 7-9-54.2 of the Gross Receipts and Compensation Tax Act, passed by the New Mexico Legislature in 2003 and signed into law by Governor Richardson during his first year in office, “provides a deduction from gross receipts which includes receipts from launching, operating or recovering space vehicles or payloads in New Mexico,” the ruling states. “While none of the terms used in that portion of the statute are defined, it seems reasonable to consider passenger revenues as receipts received for the operation of a space vehicle.” In sum, passenger revenues from spaceflights originating in the state are deductible from GRT owed by the spaceline.
Sierra County’s GRT is 1.81 percent and the state’s is 5.13 percent. If that tax were levied on VG’s latest 100 ticket sales totaling $45 million, it would produce a windfall of $3.123 million dollars for the state and county, to say nothing of additional GRT receipts on previous and continuing sales of tickets for Spaceport America-based flights.
Instead, Virginia Galactic will pocket all the ticket proceeds.
But that is not the only sweetheart exemption or deal Virgin Galactic has negotiated with our elected officials and other representatives of the public interest. The second and final part of this series will lay out additional giveaways that negatively impact Spaceport America’s ability to achieve financial self-sufficiency and drastically limit New Mexico’s return on its public investment in space exploration.